SRI Label: How the New Reform Will Affect Investors

In the savings sector, the SRI label is being updated to be more rigorous and focused on environmental sustainability. The new framework was recently unveiled.

The acronym ISR, which stands for “Socially Responsible Investment,” was introduced in France in 2016, allowing individuals and professional investors to choose savings vehicles based on their social and environmental impact. 

Originally awarded to Undertakings for Collective Investment in Transferable Securities (UCITS), the label was expanded in 2020 to include alternative investment funds (AIFs), such as SCPIs (Real Estate Investment Trusts) and OPCIs (Real Estate Collective Investment Undertakings).

The SRI label has undergone few changes since its creation, prompting the Ministry of the Economy to update it in order to better meet investors' expectations. 

This shift has made it more demanding, with a particular emphasis on combating global warming. In October 2021, Economy Minister Bruno Le Maire tasked a committee chaired by Michèle Pappalardo, former president of ADEME (the French Environment and Energy Management Agency), with strengthening the ambitions and requirements of the SRI label. 

Two public consultations were held, and in the summer of 2023, the committee shared its recommendations. Going forward, companies with more than 5% of their business tied to coal or unconventional fossil fuels, as well as those launching new projects in the hydrocarbons sector, are no longer eligible for the SRI label. Companies such as Total Énergies are thus excluded. In addition, companies facing significant climate challenges will be required to develop transition plans aligned with the Paris Agreement. Labeled funds will also be subject to performance requirements. The new framework, published on December 12, will take effect on March 1, primarily for newly labeled funds, while existing funds must comply with the new rules starting January 1, 2025.

As for the impact on investors, changes to the SRI label are expected to affect approximately 45% of the funds that currently hold the label, according to Morningstar. However, this will not result in any significant changes for investors, other than the fact that the SRI label continues to guarantee a more sustainable investment approach. The changes primarily affect funds that already hold the label, which may have to exclude certain companies that do not meet the new criteria or forfeit the label. Michèle Pappalardo is keen to emphasize that the SRI label remains, above all, a broad-based approach to responsible investing, despite this shift toward stricter criteria.