French and European standards for sustainable finance – Finance for all

In order to achieve the goal of carbon neutrality in 2050, which in itself conditions the acceptable target of rising temperatures, we must drastically reduce our greenhouse gas emissions. To do this, we need to identify the places and causes of excess emissions and be able to point out the uses that need to be banned and the activities that need to be encouraged. At the European level, enormous work on classification (taxonomy) is underway.

Inventory of greenhouse gases and their influence

Different IPCC reports developed different scenarios for an increase in average temperatures at the global level (ranging from +1.5 to +5 degrees by 2100) and emphasized that most (75%) of the greenhouse gas emissions responsible for global warming are caused by production and consumption of fossil fuels.

THE the main energy-related CO2-producing sectors power consumption remains buildingsTHE industries (mainly concrete, cement and steel production) a transportation (especially cars). Agriculture it is also responsible for a large proportion of emissions (worldwide deforestation and breeding, especially of ruminants).

View summaries of IPCC reports

Based on these various reports and the quantification of greenhouse gas emissions by country and sector in the European Union, the European authorities created a strategy.

Within this strategy there is provision for a sustainable finance section.

As the Commission writes in the above document, “ Given that private businesses and households will provide the majority of sustainable investment over the next decade, it is essential establish clear long-term signals that direct investors to sustainable investments. : The core of this approach is taxonomy.

European Green Taxonomy

PUSH Taxonomy is a classification system which will make it possible to measure the green part of the company’s or financial product’s activities.

The taxonomy is one tool for identifying sustainable economic activities and directing capital flows to them, leaving investors free to choose what to invest in.

European Green Taxonomy

Published by the European Commission in June 2020 EU Taxonomy Regulationentered into force on 12 July 2020. This regulation provides six climate and environmental goals and defines four general conditions that an economic activity must meet in order to be considered sustainable at the environmental level. These four conditions are:

  • make a significant contribution to at least one environmental objective;
  • Not cause significant harm to any of the other five environmental objectives;
  • Respect the minimum social guarantees; AND,
  • Follow the technical selection criteria set out in the taxonomy delegated acts.

The European taxonomy, which was finalized by a delegated act published on 6 July 2021, comes into force gradually between 2022 and 2024.

The taxonomy is combined with other European texts that establish reporting obligations, and in particular with the directive that applies to non-financial companies (CSRD) and the regulation that applies to financial market participants that must create specific indicators (SFDR).

Corporate Sustainability Reporting Directive (CSRD)

The “Corporate Sustainability Reporting Directive” (CSRD) replaces and fundamentally modifies the NFRD reporting by companies on their CSR (corporate social responsibility). It entered into force on 5 January 2023. 1time Reports will be published in 2025 on data from the 2024 financial year.

In this financial year 2024, the companies concerned will be the ones they respect at least two of the following three criteria:

  • 500 employees,
  • turnover €100 million,
  • Total balance sheet amount of EUR 100 million.

From the following year, the limits should be reduced to 250 employees, a turnover of 40 million euros and a balance sheet of 20 million euros.

Learn more about CSRD

Sustainable Finance Disclosure Regulation (SFDR)

In parallel with the green taxonomy, the European Commission published the Sustainable Finance Disclosure Regulation (SFDR) in 2021, which requires financial institution share your sustainable investment practices.

The aim is to ensure transparency for non-professional individual investors and other stakeholders, as well as to prevent greenwashing practices, which are broadly associated with claims that present financial products as having a positive impact on sustainable development, when in fact this is not the case.

The SFDR regulation distinguishes two types of products with non-financial characteristics:

  • Products forming promoting environmental or social characteristics (so-called “Article 8” products);
  • products tracking a sustainable investment goal (so-called “Article 9” products).

Other financial products that cannot be classified under Article 9 or even Article 8 are called “Article 6”.

This regulation entered into force on March 10, 2021.

French and European brands

In anticipation of a European brand… two French brands have been proposed by the public authorities: the ISR brand and the Greenfin brand.

ISR designation

The ISR brand was created in 2016 by the Ministry of Economy and Finance. His goal is guarantee that stamped funds meet ESG criteria defined by the brand committee that set the benchmark. Three auditing organizations are responsible for verifying that each candidate fund meets the requirements of the designation and is able to justify it.

In 2021, the management of the label committee was reviewed to define new SRI (or ESG) classification criteria. In November 2023, Bruno Lemaire decided on stricter criteria prioritizing climate impact. So, to get this label, funds will now have to exclude companies that mine coal or unconventional hydrocarbons, as well as those that start new projects to explore, extract or refine hydrocarbons (oil or gas).

Greenfin brand

A public brand under the authority of the Ministry of Ecological Transformation, the Greenfin brand points to funds invested in energy transformation and sustainable activities. Excluded are activities related to the entire value chain of fossil fuels as well as the nuclear sector.

Learn more about the Greenfin label

A practical guide to sustainability for asset management consultants

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