Asset Managers – ESG

Committed to transition

Shareholder engagement policy

With shareholder engagement, financial institutions can directly influence the ESG practices of the companies in which they hold shares. This can be achieved by setting up a general engagement policy that defines the positions taken by the company in its various dialogues with the business, or more precisely, by implementing a voting policy that can have a direct effect on the strategic choices made by the companies in which the shares are held.

Sectoral policies

A sector policy is a document through which a player undertakes to stop or reduce its activities with companies in controversial sectors for economic, social or governance reasons. Each player defines the criteria and thresholds of its policy for the sectors concerned.

Management policy

The integration of environmental, social and governance criteria can be added to financial analysis. Even if common methodologies are being developed for ESG analysis, the sheer number and heterogeneity of criteria makes it difficult to compare companies.

ESG financing

Responsible products under AMF guidelines

The AMF doctrine (‘ Position-Recommendation AMF – DOC2020-03: Informations à fournir par les placements collectifs intégrant des approches extra financières’), suggests structuring and reinforcing ESG approaches through a French classification that divides ESG products into 3 categories. In order to present the integration of ESG criteria in the products of asset management companies, it has been decided to present only the first category. This covers products with a significant management commitment. This view shows the breakdown of ESG assets under management by dominant strategy.

Responsible products according to SFDR

The SFDR (Sustainable Finance Disclosure Regulation) is a European regulation that comes into force in March 2021. It defines two categories of products. Article 8 products correspond to products promoting environmental or social characteristics. Article 9 products target sustainable investment objectives.

Labels

Labeling a fund enables a player to certify the management process and the selection of issuers in its portfolio according to the various criteria required by each label. Labeling a fund is a guarantee of compliance with the specifications specific to each label, and helps reassure customers in their selection of responsible products. A number of French labels exist, covering responsible investment (SRI), solidarity(Finansol) and environmental(Greenfin) products.

Bonds

Bonds are loans issued by companies on the financial markets. Extra-financial conditions can be attached to bonds at the time of issue. This enables investors to choose to support companies and projects according to defined criteria, such as environmental or social criteria.

Focus on impact financing

Impact funds

Impact finance is an investment or financing strategy that aims to accelerate the fair and sustainable transformation of the real economy, by providing proof of its beneficial effects. The introduction of common definitions and measurement methodologies should help structure these emerging investment methods.

Definition of an impact fund

The Place impact group proposes the following definition of impact investing in its report published in 2021: impact finance is an investment or financing strategy that aims to accelerate the fair and sustainable transformation of the real economy, by providing proof of its beneficial effects. It is based on three key principles: intentionality, additionality and impact measurement:

• The joint pursuit, over the long term, of ecological and social performance and financial profitability, while controlling the occurrence of negative externalities;
• The adoption of a clear and transparent methodology describing the causal mechanisms through which the strategy contributes to environmental and social objectives defined upstream, the relevant investment or financing period, and the measurement methods, according to the so-called theory of change framework;
• The achievement of these environmental and social objectives within reference frameworks, in particular the Sustainable Development Goals, at international, national and local levels.

Terms of reference

Private-sector players need to be part of a global effort, adopting a ‘systems’ perspective, to help meet the challenges identified by citizens and public authorities, from local to international levels. The Sustainable Development Goals are mentioned as an accepted and recognized frame of reference, covering a wide range of topics. However, some players prefer to use the Paris Agreement, which provides a more specific framework for climate action. Using the SDGs as a frame of reference, fund managers need to select one or more of the 17 goals to frame and communicate the focus of their impact funds. A fund can be oriented towards several Sustainable Development Goals at once.