Public Policy and SRI-The French experience

TBLI 2006 PARIS

Public Policy and SRI

The French experience

CRYSTALCONSULTINGVINCENT

JACOB

TBLI / Crystal Consulting 10/11/06 2

Table of content

Introduction French basic background A rapid overview of French SRI market A triple interaction between public policy and

SRI development– The initial and decisive move– The dynamic created– Where do we stand and the room for more public

stimulation Conclusion


Introduction

As an actor of the French SRI market both on the public side (1997-2001) and on the business side (along with different groups and asset managers), this presentation is designated to give a view on the way the French experienced the interaction between Public Policy and SRI

Public Policy gathers deliberately changes in law and regulation but also changes in the the way public actors (as part of the public sector) modified their behaviour regarding SRI in the recent period

French basic background


French basic background (I)

The French public policy ignored more or less the SRI issue until 1999/2000

Some public institution like La Caisse des Dépôts et Consignation participated already at that time to some debates at CSR Europe level but the signal remained weak until the end 90’s

Sustainable development is becoming however increasingly important in political debates and also in the way public policy are put in place (with in particular sustainable development requirement from Europe in the structural funds are allocated - and also in the way the French is contracted long term development program with French Regions)


French basic background (II) Things changed as the regulation in France changed in three

different areas :– The 2001 law on employee savings, introduced ethical, social and

environmental considerations in the way savings are invested– The 2002 law on new economic regulation introduced the mandatory

report on social and environmental issues for French listed companies

– The 2001 law which created the French Pensions Reserve Fund introduced also ethical, social and environmental considerations in the way pensions are invested

The 2003 Law on pensions kept the same incentive in favour of SRI

The inclusion of an Environmental Charter in the Constitution in 2005, reinforced the principle of sustainable development in public policy actions


French basic background (III)Sustainable

DevelopmentPressure

CorporateSocial Responsibility& transparency Issues

ISRImplementations

Law requirementsand principles commitments

TangibleFacts and public

exemplarity

!??

A rapid overview of the French SRI market


A few synthetic figures (*) Total SRI Assets : 8,2 G Euros France represent 8% of the European ISR

Market 4th position in Europe behind Belgium,

Netherlands and UK Since 2003 the French market grow by 92%

which compare with a European growth of 36% Employee savings plans and and pension

funds are pushing-up the market(*) Eurosif 2006 Study


A dynamic SRI market ?

YES…

BUT…


A dynamic French SRI market

The figures are encouraging, total amount of SRI assets and growth rate, its ranking in Europe is also encouraging

But some signs are still worrying, such as real commitments of key financial players towards SRI, or the way individual consumer is incited to invest in SRI products, or remaining non ended debate about a possible trade-off between return and SRI

Public Policy still have a role to play

A triple interaction between public policy and SRI


The initial and decisive move

By changing the legal framework, the French public policy has done more than creating a favourable context for SRI

Public Policy has created a clear, instead of a decisive, incentive in favour of SRI

There is a synergy between these three laws, by encouraging the transparency of listed companies you make more likely to include social responsible criteria in investment decision for pension and saving plans


The dynamic created (I) Social and environmental reporting is becoming more and

more a mainstream practice, this trend has been reinforced by the increasing attention given to governance issue which are part of the same package

A voluntary move in favour of transparency criteria for SRI funds (cf. AFG Fir Eurosif ‘s code) has been followed by key asset managers

The law on employees’ savings led to a mobilisation of trade unions around the CIES, to structure the SRI saving offer with a branding process (today the total assets branded reach around 1G Euros)

With 3 different tender offers (including a 100% dedicated one) the FRR create a real appeal to the SRI market abilities


The dynamic created (II)

The way the FRR has structured its SRI tender offer (600 M Euros in 2006) has created the condition to be imitated by other institutional investors such as AGIRC ARRCO (employee pensions’ regime)

It has even though been over passed by some public institution like ERAFP (the public organism in charge of managing additional pension funds for the public sector). They decided to be SRI for 100% of their assets (3 G Euros at the end of 2006)

Some big corporates enlarge their savings’ and pensions’ investment alternatives with one SRI fund (cf. Total), some decided to go for 100% SRI (cf. Renault)


Where do we stand ? The UN Principles for Responsible Investment

have been signed by several public institutions such as CDC, FRR

The SRI assets still remain low in proportion for those institutions

The signal given by ERAFP is critical, it will extend the SRI approach to bonds in 2007

The public SRI research is encouraged The gap to close before SRI becomes mainstream

remains big, even it is becoming more a strategic issue for several key asset managers


The room for more public stimulation (I)

The exemplarity of the public sector in the way they invest their assets still have some progress to make (this is true for public organism such as CDC and FRR, but also in nationalized companies or where the State is a major shareholder)

To generalise the SRI option in companies saving and pension plans, can be enforced by law

A fiscal incentive in favour of SRI funds is still something very much expected by the market


The room for more public stimulation (II)

The SRI public research still need to be stimulated

From a financial safety point of view (cf. Freshfields analysis) public policy could be more directive in the way pensions and saving plans are invested with clear prudential goals

The code of the public market tenders could be revised in favour of SRI criteria

France at European level could be more active to promote social responsible criteria in pension scheme, corporate reporting, etc.


Conclusion

Public policy in France played a key role to launch the SRI market

Public actors still hold a critical role today, in terms of exemplarity, aside other actors

The SRI market still need some public policy support to continue to develop and confirm the SRI choice as one of the wiser and prudential financial choice with a medium and long term prospect


Conclusion

FrenchISR

dynamic

Product innovationBrokers’ analysis

StakeholdersUnions

Pressure

Legal incentivefiduciary responsibility

Exemplaritypublic / private

actors


Conclusion

Is SRI on the French presidential election agenda ?– Sustainable development and

globalisation effects certainly are– SRI should take its place as finance have a

key role to play

Economy & Finance

Public Policy and SRI-The French experience