History of sustainable finance in France

Article 173 of the LTECV on climate transparency

In 2015, France adopted the Law on Energy Transition for Green Growth (LTECV),Article 173 of which marks a significant step forward in climate transparency in the financial sector. This law also establishes the first National Low-Carbon Strategy (SNBC).

Main features :

• Date of adoption: August 17, 2015
• Objective: Require greater transparency from companies and financial players on their climate strategy and the inclusion of ESG criteria in their investments.

Article 173 applies to:

• Large listed companies
• Institutional investors (insurers, mutual insurers, management companies, etc.)

Reporting obligations :

• Publish information on how ESG criteria are taken into account in investment policy
• Communicate on contribution to energy and ecological transition
• Detailexposure to climate risks and thecarbon footprint of portfolios

Special features :

• World’s first system requiring investors to publish their exposure to climate risks
• Comply or explain’ approach: players must comply or explain why they are not doing so

Implementation has been gradual, with an implementing decree published on December 31, 2015 and effective for reports published from 2017 onwards (for the 2016 financial year).The impact of Article 173 has been considerable, stimulating the development ofresponsible investment in France and serving as a model for other European and international regulations.

Launch of SRI and Greenfin labels

In 2016, France took an important step in promoting sustainable finance with the launch of two public labels: the SRI (Socially Responsible Investment) label and the Greenfin label (initially called TEEC – Transition Énergétique et Écologique pour le Climat). These initiatives are part of the French government’s drive to position the country as a leader in green and responsible finance, in line with the commitments made during the Paris Climate Agreement.

SRI label

The SRI label, created by the French Ministry of the Economy and Finance, aims to promote investment funds that integrate ESG (Environmental, Social and Governance) criteria into their management. The label applies to a wide range of financial products, and guarantees investors that label-approved funds take extra-financial criteria into account in their investment strategy. Valid for three years, with annual control audits, the SRI label offers a guarantee of quality and transparency to investors concerned about the impact of their investments.

Greenfin label

Creation of Finance for Tomorrow

In June 2017, Paris EUROPLACE launched Finance for Tomorrow, an ambitious initiative aimed at making green and sustainable finance a growth driver for the Paris marketplace and positioning it as a benchmark financial center on these issues.

Background and objectives

• Created in line with the Paris Climate Agreement (2015) and the UN Sustainable Development Goals
• Aims to accelerate the transformation of the financial sector towards a low-carbon, inclusive economy
• Ambition to position Paris as a leading financial center for sustainable finance

Key features

• Structure: Paris EUROPLACE branch dedicated to sustainable finance
• Members: Close to 80 members and observers representing the entire financial ecosystem (banks, investors, management companies, as well as public players, companies, NGOs and universities).
• Commitment: Members sign a joint charter to redirect financial flows towards a sustainable economy.

Work areas

1. Promotion: Promote French expertise in green and sustainable finance internationally
2. Innovation: Stimulate innovation in sustainable financial products and services
3. Research: Support academic research and training in these areas
4. Dialogue: Facilitate exchanges between public and private players to drive regulatory change

Notable achievements

• Organization of major events such as Climate Finance Day
• Active participation in discussions on European regulations (Taxonomy, SFDR, etc.)
• Launched thematic working groups (biodiversity, impact finance, etc.).
• Publication of reports and studies on sustainable finance

Evolution

In 2022, on the recommendation of Yves Perrier’s report, Finance for Tomorrow evolves to become theInstitut de la Finance Durable (IFD), marking a new stage in the Paris financial center’s ambition in sustainable finance.The creation of Finance for Tomorrow in 2017 played a crucial role in structuring and accelerating sustainable finance in France, significantly contributing to Paris’ positioning as a leading financial center in this field.

Law on the duty of care of parent companies and contractors

On March 27, 2017, France adopted a pioneering law on corporate duty of care, marking a significant step forward in making large companies accountable for their value chain.

Background and objectives

• Adopted in response to disasters such as thecollapse of the Rana Plaza in Bangladesh in 2013.
• Aims to prevent human rights violations and environmental damage linked to corporate activities, including abroad.
• Seeks to close the legal loophole allowing multinationals to escape responsibility for the actions of their subsidiaries and subcontractors.

Main provisions

Scope of application:

• French companies with at least 5,000 employees in France or 10,000 employees worldwide (including subsidiaries).

Central obligation: Establish and effectively implement an annual vigilance plan.Content of the vigilance plan:

• Risk mapping
• Regular assessment procedures for subsidiaries, subcontractors and suppliers
• Actions tomitigate risks and prevent serious harm
• Alert and reporting mechanism
• System for monitoring and evaluating measures implemented

Scope covered:

• Company activities
• Activities of directly or indirectly controlled companies
• Activities of subcontractors and suppliers with whom we have an established business relationship

Publicity: The plan and the report on its implementation must be made public and included in the management report.Control mechanisms and sanctions:

• Possibility of formal notice in the event of non-compliance
• The judge may order the company to comply with its obligations, subject to a fine.
• Civil liability for damage prevented by the plan

Importance and impact

• First law in the world to impose such an extensive duty of care on companies.
• Inspires similar initiatives at European and international level.
• Encourages companies to better understand and control their supply chain.
• Paves the way for better protection of human rights and the environment in globalized economic activities.

This 2017 law marks a turning point in the regulation of multinational companies, making them legally responsible for the impacts of their activities and those of their business partners, both in France and abroad.

Adoption of the National Strategy to Combat Imported Deforestation (SNDI)

In 2018, France adopted the Stratégie Nationale de Lutte contre la Déforestation Importée (SNDI), an initiative aimed at reducing the impact of French consumption on global deforestation. This strategy is part of an international context in which deforestation is recognized as a major challenge for climate and biodiversity. France is thus committed to putting an end to this imported deforestation by 2030, in line with global sustainability objectives.

SNDI objectives

One of the central axes of this strategy isOrientation 4, which aims to :

• Promote and coordinate stakeholder involvement
• Target companies and financial players

This orientation underlines the importance of a collaborative approach to tackling deforestation, where companies play a crucial role in supply chains, while financial players are essential in steering investments towards sustainable practices.

Role of the Institut de la Finance Durable (IFD)

TheInstitut de la Finance Durable has been identified by the French Ministry for the Environment as the relay for this strategy among financial players in the Paris marketplace. Its missions include

• Raising awareness and mobilizing financial players on issues related to imported deforestation
• Facilitating dialogue between the financial sector and the objectives of the SNDI

Implications for the financial sector

The adoption of this strategy has several significant implications:

• Encouraging financial players to integrate deforestation-related risks into their investment decisions
• Encouraging the development of financial products that promote sustainable initiatives
• Promoting greater transparency on portfolio exposure to environmental risks.

All in all, this initiative marks an important step in the French financial sector’s commitment to the fight against deforestation. It underscores the growing interconnection between finance and global environmental issues, reinforcing France’s position as a leader in sustainable finance.

PACTE Act – Introduction of mission-driven companies

The PACTE (Plan d’Action pour la Croissance et la Transformation des Entreprises) law, adopted on May 22, 2019, marks a significant change in the legal definition of a company in France. In particular, it introduces two innovative concepts:

1. The possibility for companies to adopt a raison d’être
2. The creation of the status ofmission-driven company

Mission statement

• Definition: Expression of the role that the company intends to play in society, over and above its economic activity.
• Registration: Can be included in the company’s bylaws (optional)

Mission-driven company

This new status enables companies to publicly affirm their commitment to society. To obtain this status, a company must meet several conditions:

1. define a raison d’être in its bylaws
2. Specify one or more social and environmental objectives
3. Set up a mission monitoring committee
4. Have the implementation of its objectives verified by an independent third-party organization
5. Declare its status as a company with a mission to the clerk of the commercial court.

Implications for companies

• Governance: creation of a mission committee distinct from traditional corporate bodies
• Transparency: Publication of an annual report on the performance of the engagement
• Control: Verification by an independent third-party organization every two years.

The aim of the PACTE Act is to encourage companies to factor social and environmental issues into their strategy, while at the same time providing a legal framework for those who wish to go further in their commitment to society.

Finance for Tomorrow launches Sustainable Finance Observatory

In response to the Déclaration de Place of July 2, 2019, the French financial sector is launching theObservatoire de la Finance Durable on October 29, 2020, during Climate Finance Day. This initiative aims to strengthen the commitment of financial players to sustainability.

Observatory objectives

The Observatory has several key objectives:

• Transparency: Improve the visibility of actions undertaken by the financial sector to support the ecological transition.
• Monitoring and evaluation: Assess the sector’s gradual transformation towards sustainable finance.
• Mapping: Identify the achievements and commitments of financial players on sustainability issues.

Key features

Web platform:

• Presents the individual public commitments of financial institutions (on a voluntary basis).
• Displays aggregated data and sector indicators on green and sustainable finance.

Scientific and expert committee:

• Composed of independent members.
• Chaired by Fields Medal winner Pierre Louis Lions.

Voluntary participation:

• 355 financial players involved from the outset.
• Call for other players to join the initiative.

Long-term ambitions

The Observatory also aims to :

• Assess the impact of financial sector initiatives on the real economy.
• Calculate the alignment of investment portfolios with the objectives of theParis Agreement.
• Serve as a model for similar initiatives in other financial centers.

Article 29 of the Energy-Climate Law

Adopted in 2021,Article 29 of the Energy-Climate Law strengthens ESG (Environmental, Social and Governance) reporting requirements for French financial players. This development aims to improve transparency and align French practices with European regulations, notably the Sustainable Finance Disclosure Regulation (SFDR) and the European Taxonomy.

Main objectives

Article 29 aims toincrease transparency on how financial players integrate ESG criteria into their investment strategies.

It also requires more rigorous reporting on climate change and biodiversity risks.

Key requirements

Key ESG reporting requirements include

• The publication of information on the integration of ESG criteria into the investment strategy.
• Providing details on the contribution of investments to the energy and ecological transition.
• Analysis of climate change and biodiversity risks.

These requirements apply to portfolio management companies, institutional investors and other financial players exceeding certain thresholds.

Reporting procedures

The reporting procedures stipulate that the players concerned must publish an annual report, which must be sent to ADEME(Agence de l’environnement et de la maîtrise de l’énergie) and the AMF(Autorité des marchés financiers). This report must use a standardized format to facilitate data comparison and analysis.

Article 29 represents a significant step forward in the French regulatory landscape for sustainable finance. By strengthening transparency requirements, it encourages greater consideration of climate and environmental issues in investment decisions, consolidating France’s position as a leader in sustainable finance.

Creation of the Institute for Sustainable Finance

Created in October 2022, the Institut de la Finance Durable, a branch of Paris EUROPLACE, aims to coordinate, federate and accelerate the Paris financial center’ s action to achieve the ecological transition and transform the economy towards a low-carbon and inclusive model, aligned with the objectives of the Paris Agreement and the Sustainable Development Goals.

It brings together all the Paris financial center ‘s private, public and institutional players, and represents the financial center’s positions at European and international level.

Structure and governance

• Chairman: Yves Perrier
• Vice-Chairman: Jacques Aschenbroich
• Brings together all Paris financial market players committed to sustainable finance

IFD is continuing the work initiated by Finance For Tomorrow, while broadening its scope of action. It focuses in particular on :

• Preserving and financing biodiversity
• The development of impact finance
• Support for sustainable fintechs
• Defining and implementing a financing plan for the ecological transition.

In addition, the Institute carries out important missions in the marketplace, such as acting as secretariat for the SRI label committee. The creation of the IFD in 2023 will strengthen France’s position as a leader in sustainable finance, by providing a structure dedicated to coordinating and accelerating efforts in this crucial area.

Green Industry Act

The Green Industry Act, adopted in 2023, aims to meet a dual environmental and economic objective. It is part of the French government’s broader ecological planning framework and seeks to accelerate the mobilization of private financing for the ecological transition.

Main objectives

This law aims to :

• Accelerate the sustainablereindustrialization of France
• Promote the ecological transition of industry
• mobilize more private financing for ecological and energy transition projects

Key measures to mobilize private financing

The law introduces several measures to facilitate access to private financing for the ecological transition:

1. Creation of the‘plan d’épargne avenir climat‘, a long-term savings product aimed at young people, designed to raise €5 billion to finance the climate transition and green industry.
2. Development of private equity in life insurance and retirement savings to strengthen the financing of unlisted companies needed for their decarbonization efforts.
3. Revision of financial labels (SRI, Greenfin) and creation of a Triple E standard of European environmental excellence to improve the orientation of savings towards financing the transition.

In addition, the government is planning other measures to mobilize private savings, including the creation of a new system of participatory loans and green bonds backed by a government guarantee, and the modernization of the Plan d’épargne logement (PEL) to contribute more directly to the financing of thermal renovation.