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Environmental, social and governance impacts: a major challenge for financial players

The French Grenelle II law of July 2010 paved the way for this by requiring portfolio management companies to produce ESG (or CSR) reports. The LTECV goes one step further by expanding the scope to include institutional investors and focusing on the fight against climate change.

Published on 31st December 2015 following the COP21 conference in Paris, it was a legislative innovation that made France the first country to require institutional investors to produce reports on ESG criteria

Many countries have subsequently followed suit by making ESG reporting mandatory for their own economic players (businesses and investors alike).

The LTECV applies to banks, insurance companies, management companies approved by the AMF, mutual insurance companies and contingency funds with a consolidated balance sheet total in excess of €500 million. Such players will be required to provide annual information on how ESG criteria are taken into account in their investment policy and on the measures implemented to contribute to energy and ecological transition. 

These new obligations entered into force as of the financial year ended on 31st December 2016, with a reporting deadline of 30th June 2017. Professional investors must provide the information not only in their annual report but also on their website. For information, on 27th October 2016, the French Asset Management Association (Association française de la gestion financière, AFG) published a practical guide for management companies on the application of article 173.

At CACEIS, sustainable development and CSR policy have been at the heart of our strategy for many years. Pursuant to the NRE* law of 2001 and the “Grenelle laws” of 2009 and 2010, the banking group and its subsidiaries have devoted their efforts to ensuring transparency and compliance with economic, social and governance criteria. 

As a natural next step, CACEIS will shortly offer its clients reporting solutions to enable them to effectively integrate ESG factors into their decision-making processes. The launch of this range of solutions will be staggered because of the sheer number of factors and ratios to be included for each of the three major pillars (environmental, social and governance), and the fact that the relevant practices of financial players, including security issuing companies are still at an embryonic stage.

The first stage will involve meeting the environmental criterion by supplying carbon footprint data (expressed in tonnes of CO ² ) in respect of the investments made by clients. 

To this end, we will offer a new report for each portfolio showing the result of the carbon footprint calculation for each transferable security position (held directly or on the underlying of a derivative), as well as the security’s overall rating in respect of scopes 1 and 2**.

Furthermore, a service will enable fund managers to receive notifications when the securities or security issuers in which they are investing have an environmental rating that falls short of the expected level

The CACEIS offering will be available to all clients, management companies and institutional investors in France and internationally. It will be based on a partnership with a company that specialises in collecting and providing ESG data.

Our range of solutions will be adapted. The next stages will focus on the social and governance criteria.

* Nouvelles Régulations Economiques – New Economic Regulations 

** Scope 1: Direct greenhouse gas emissions: emissions from sources owned or controlled by the company 

Scope 2: Indirect greenhouse gas emissions: emissions resulting from the importation or exportation of electricity, heat or steam.