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SRI Label: Half of the Funds Soon to be Excluded from Responsible Investment?

The criteria for obtaining the French label are going to be toughened in 2024. This is a way to restore credibility to "responsible" investment.

Reading Time : 1 minut(s) - | Updated on 18-01-2024 23:59 | Published on 15-11-2023 14:12 

The criteria for obtaining the French "SRI" label (Socially Responsible Investment) are likely to become more demanding starting from March 2024. For 8 years now, the blue and green stamp has identified investment funds supposed to be virtuous. The outstanding amount of these mutual funds and other financial vehicles currently stands close to 775 billion euros.

This label helps savers select their investments. The problem is that the real assets held by the labeled funds are sometimes far from what investors imagine: until now, taking stakes in certain activities that are little compatible with the fight against climate change and pollution is not excluded from the obtaining criteria.

The requirements of the SRI label remain, at this stage, fairly flexible. Some management companies, for example, decide to prohibit certain controversial sectors (polluting activities or those reputed to be unethical). Others, on the contrary, advocate for taking stakes in these sectors, with the declared aim of influencing their strategies to put them on the path to transition but without any obligation of outcome. The "ESG" (environmental, social, and governance) selection criteria also remain specific to each manager.

It didn't take more for the label to lose credibility among some actors, who consider it not very readable and too vulnerable to the risk of "greenwashing". In spring, the UFC – Que Choisir had called to «stop greenwashing». In parallel, a survey conducted by about ten European media revealed that nearly half of the «supergreen» funds had invested in fossil fuels.

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New version of SRI label: significant implications for investment funds

After the implementation of this stricter analytical framework, the investment funds concerned by the SRI label will be prohibited from investing in companies linked to fossil energies (oil, gas, coal). The financed companies with a heavy carbon footprint will have to commit to a transition in order to align with the goals of the Paris Agreement, otherwise they will no longer be eligible.

This will not be without consequences on the landscape of responsible investment, and the number of labeled funds could significantly decrease. According to the analysis by Hortense Bioy, head of sustainable development research at MorningStar, the changes could, in theory, force nearly half of the SRI funds to divest their shares in oil and gas companies. However, 45% of them have assets linked to these energies, for a total amount of 7 billion euros. A number of them will likely be tempted to forego the label due to stricter criteria.

According to the study, the most exposed funds are Tocqueville Value Europe SRI, CM-AM Europe Value, and DNCA Invest Archer Mid-Cap Europe, of which 13 to 14% of their ownership would be in the oil and gas sectors. One of the companies that could be most penalized is TotalEnergies, whose stocks are found in the portfolio of 176 SRI-labeled funds for a total value of 2.4 billion euros, which is 1.6% of its market capitalization.