A French rule targeting ESG funds has the potential to force oil and gas divestments of €7 billion ($7.6 billion), according to an analysis by Morningstar Inc (NYSE: MORN).
- France said that it will only let funds use a national ESG label if they blacklist fossil-fuel companies that are still expanding production.
- The label, known as SRI, is currently being used by funds managing a total of €770 billion in client assets.
- Fund managers and even national regulators have warned that the EU framework, known as the Sustainable Finance Disclosure Regulation, is falling short of its goal of preventing greenwashing and steering capital into ESG goals.
“This revamp is a significant indicator of the mood of one of the strongest ESG markets in the world,” said Hortense Bioy, global director of ESG research at Morningstar.
France said earlier this month it will only let funds use a national ESG label if they blacklist fossil-fuel companies that are still expanding production. The label, known as SRI, is currently being used by funds managing a total of €770 billion in client assets. Morningstar estimates the new rule will affect 45% of these.
Asset managers operating in France are still digesting the implications of the new requirements, with little to indicate that they’ll try to challenge the decision.
“BNPP AM’s objective is to align all our range of labeled funds with the new guidelines,” a spokesperson for BNP Paribas Asset Management said by email.
“Preparatory work has already been done even if those have not been published yet.”
BNP and Amundi among affected firms
BNP has around €84 billion in assets under management in funds with the SRI label, or around 30% of its open-ended funds, according to the spokesperson. Voluntary labels are a key part of the firm’s strategy and increased uniformity across the various European labels would be welcomed, they said.
A spokesperson for Amundi SA, Europe’s biggest asset manager, said management is still waiting for more information before trying to “assess in detail the impact on our funds and to see how we will implement the new rules.”
Amundi uses an SRI label for about 110 funds managing €240 billion, or roughly 12% of its total assets under management.
Companies that may be affected by potential divestments include TotalEnergies SE, Neste Oyj, Eni SpA, Repsol SA, Galp Energia SGPS SA, BP Plc, Shell Plc, OMV AG and Technip Energies NV, according to Morningstar.
French restrictions on what can go into ESG funds come as the European Union embarks on a review of its landmark ESG investing rulebook.
Fund managers and even national regulators have warned that the EU framework, known as the Sustainable Finance Disclosure Regulation, is falling short of its goal of preventing greenwashing and steering capital into ESG goals.
French authorities are expected to publish the final wording of their ESG fund rule by the end of November. These may include further restrictions on what such funds can hold.
“We will have to wait for the publication of the final criteria at the end of the month to better understand the impact of the new rules on existing portfolios,” Bioy said.
