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Key takeaways
- The ISR label in France serves as a trusted indicator of socially responsible investments, emphasizing sustainability, ethics, and societal impact alongside financial returns
- The March 2024 update to the ISR label in France brought significant changes, including double materiality, stricter exclusions, climate transition plans requirements, strengthened stewardship and voting obligations, and increased thresholds for labeled funds
- The ISR label's update isn't just regulatory; it prompts a deeper reconsideration of ESG principles in finance, urging genuine sustainability alignment rather than token gestures
In the ever-evolving landscape of sustainable investing, regulatory developments in France have sent ripples across the financial industry, prompting a fundamental reconsideration of Environmental, Social, and Governance (ESG) practices. The French market's embrace of the ISR (‘L’investissement socialement responsable’) or the SRI label has emerged underscoring the increasing significance of socially responsible investing.
What is the ISR label in short?
The ISR label, which stands for Socially Responsible Investment, serves as a hallmark of credibility and trust in the French market. It signifies a commitment to investing in companies that prioritize sustainability, ethical practices, and societal impact alongside financial returns. The ISR label now holds even greater significance, guiding investors towards truly responsible investment options and helping them navigate the growing landscape of ESG offerings. This move reflects France's commitment to fostering transparency and accountability in sustainable investing, emphasizing the need for clarity and integrity in ESG-labeled products.
In this endeavor to strengthen market efforts towards sustainable finance, the label has been updated during March 2024.
What has changed with the update in March 2024?
Adopted in March 2024, the new framework for the ISR label is more restrictive, necessitating asset managers to potentially adjust their portfolios and employ efficient tools and methodologies to meet the label's updated requirements.
1. Double materiality
This new framework introduces the concept of double materiality, which is central to European sustainable finance regulations like SFDR or Taxonomy. Hence, funds' focus should now be shifted to incorporating two significant indicators: ESG risks affecting investment value and PAIs representing negative impacts on ESG factors.
2. Exclusions
Significant changes are also seen in exclusions. While social exclusions remain relatively conventional, including tobacco, controversial weapons, and human rights violations, the major shift lies in environmental exclusions. Companies generating more than 5% of their revenue from coal, unconventional hydrocarbon extraction, and the development of new activities related to the exploration, production, and refining of oil or gas will now be excluded.
3. Climate transition plans
Moreover, managers will now be required to analyze companies' climate transition plans, ensuring alignment with Paris Agreement goals. Assessments will be guided by methods like ISSB, ACT, or SBTi frameworks.
4. Stewardship & voting obligations
Voting obligations are strengthened, mandating participation in at least 90% of French and 70% of foreign companies' general meetings.
5. Increased thresholds
Finally, selectivity requirements for labeled funds have evolved, with thresholds increasing to 30%. This necessitates either exclusions based on ESG ratings or achieving higher ratings than the bottom 30% of the investment universe.
To sum up, this ruling is more than just regulatory oversight; it's a catalyst for a broader rethink of ESG principles within the financial sector. It challenges asset managers to align their investment strategies with genuine sustainability goals, rather than merely paying lip service to ESG criteria. As a result, the ISR label is driving a shift towards more rigorous ESG integration, encouraging investors to look beyond superficial claims of sustainability and demand concrete evidence of impact.
How Datia can assist you?
Adapting to these new changes may seem complex, but with the right tools, it can be straightforward.
Whether you're an asset manager seeking to maintain your ISR label and adhere to the updated framework or aiming to develop new sustainable offerings ISR from scratch, Datia can assist you in both scenarios.
Our modules, including ESG scoring, PAIs statement, Temperature Score, and Stewardship, will provide you all the information and data necessary to manage your ISR fund and ensure compliance with the current framework.
To learn more about how Datia can help you navigate with the French label book an introduction meeting with our team here.
