“sustainable investing”, “build another world”, “funding clean transport”… Ecology has become one of the main marketing arguments of banks. A discourse still often far from reality: half of the “super green” investment funds in Europe still finance at least one company in the fossil fuel and aviation sectors, according to the survey published by the World Tuesday, November 29, in collaboration with a dozen European media, including Investico and Follow the Money.
More broadly, several large banks are at the center of multiple environmental controversies. Thus, BNP Paribas was given formal notice at the end of October to stop supporting the development of fossil fuels by several environmental associations in Europe. HSBC was banned in the United Kingdom from using posters praising its environmental action, deemed too far removed from its concrete action.
In this context, what can the saver who cares about the environment do? How to ensure that the promises of his bank are credible before investing? Although these subjects are complex and the weapons available to individuals are few in number, certain reflexes make it possible to rule out the most obvious cases of “greenwashing”.
1. Set priorities
There is, from the outset, a problem of nomenclature: the environment is only one of the criteria for socially responsible investment (SRI) or ESG (for environment, social and governance). Some banks maintain this vagueness, promising “sustainable” investments, in which the fight against climate change is secondary.
Beyond financial considerations, each investor must define their values and the criteria that seem important to them. For example, does he want an intransigent placement, which excludes companies that do not give themselves the means to respect the Paris climate agreements? Or does he see it as just one criterion among others?
2. Find out about your bank or management company
The quest for “sustainable” investment ideally requires a good knowledge of the regulations and an in-depth study of the investments in which one plans to invest. But a first sorting can be done by scrutinizing the bank or the asset manager.
In addition to the controversies relayed by the media, several NGOs are looking into the environmental credibility of banks: the specialized NGO Reclaim Finance, which lists the commitments of financial institutions on the climate, but also Greenpeace reports (on so-called “ethical” banks “), Our business to all (on the climate commitments of multinationals, including large banks) or Oxfam (on large French companies).
Not all approaches are equal. On the funds categorized “article 9” of the European regulations, which strictly exclude the most polluting companies, all the major French asset managers are open to criticism.
But others seem more selective. Among the most important, which manage at least one billion euros of assets in Europe, we can mention the French Montpensier finance (three investments), the Dutch Pareto Asset Management (only one) or the Irish Stewart Investors (four) , which do not include any “grey” investments as defined by our survey.
3. Be careful with labels and slogans
It is tempting to rely on the labels, but it is clear that they are far from providing sufficient guarantees. The SRI label, created by the Ministry of Economy and Finance, is a textbook case. It incorporates four “sustainability” criteria: environment, social, governance and respect for human rights. But according to the label’s specifications, a fund only needs to be better than the average on two of these four aspects to be eligible.
As a result, many SRI-labeled investments are undemanding in terms of environmental criteria. During our survey, we found the same proportion of “grey” funds (investing in at least one fossil fuel or aviation player) in the 196 SRI-labeled funds analyzed as in the 642 others.
The General Inspectorate of Finance had already criticized the lack of certification requirements in December 2020, which led to an ongoing overhaul of the SRI label. “The SRI label is clearly not for us on the side of the requirement. We do ESG without saying what the objectives are”comments to the World Hervé Guez, of asset manager Mirova, which only offers “article 9” funds.
The other label created by the Ministry of the Economy, Greenfin, is clearer in its approach. Its specifications provide for more precise environmental criteria, such as the exclusion of “the entire fossil fuel value chain”. However, this criterion does not seem to be fully met: five of the seventeen Greenfin-labelled funds that we analyzed contain at least one fossil fuel asset, but for a limited investment volume (0.5% of the fund or less) .
4. Study, if possible, the content of the funds
Checking the content of investment funds is the most tangible way to judge their approach. But this poses several difficulties. First, you have to be able to consult the list in its entirety. This is normally the case when one is an investor in the fund, but not systematic for others – one of the main efforts that this survey required of us was precisely to compile this data.
Most of the time, an individual only has access to the first lines of the portfolio, which correspond to the largest investments. But we have found that some investment managers include questionable investments just below the commonly disclosed investment limit, making them inconspicuous…
“Having a specific approach by sector of activity”
It is useful to query the contents of a collection line by line. We can certainly make sure that we don’t find companies whose practices do not correspond to our values, but this work is long and requires a certain expertise.
Also, within the fossil fuel sector, there are still many nuances. Some electricity generators have moved away from coal and seem to be getting the means to do so for oil and gas, with verifiable progress every year. The Spanish Iberdrola thus claims to produce 80% of its electricity from renewable and nuclear energies. Others are far from it, like the German RWE AG, mainly dependent on fossil fuels, with a large share of coal, or TotalEnergies, which remains involved in new controversial projects, from Qatar to Uganda.
Sorting is required. This is precisely the job of specialized analysts who work on behalf of banks and non-financial rating agencies. “The only valid way to define a sustainable asset is to have a specific approach by sector of activity”believes Lara Cuvelier, of Reclaim Finance.
This work is all the more arduous as many companies reveal very little information on their objectives for reducing greenhouse gas (GHG) emissions. Progress is expected with the entry into force in early 2024 of the Sustainability Reporting Directive (CSRD), which will require large companies to disclose information on how they manage social risks and environmental.
5. Read fund documentation
To complete your research, it is also possible to consult the contractual documents of the funds. And in particular the prospectus (which details the approach) and the KIID, key information document for the investor. If we are interested in the climate, for example, we can distinguish several types of discourse:
- A logic of reducing greenhouse gas emissions “compared to the initial investment universe”which means that we do better than a basket of starting companies, but without having any constraints in the end;
- A commitment to reduce “carbon intensity” of the portfolio, i.e. the GHG emissions compared to the turnover of the companies. According to this rule, the carbon footprint of a fund can increase if the value of its assets increases. Unfortunate, if the objective is to respect the Paris commitments, which cannot be done without massively and rapidly reducing GHG emissions;
- A clear commitment to a net reduction in GHG emissionsideally on an asset-by-asset basis and on the basis of carbon assessments validated by third-party organizations such as the Science Based Targets initiative.
Here again, sorting through the more or less clear promises requires a certain expertise. Thus, financial institutions systematically promise to exclude the most polluting investments… while continuing to invest in fossil fuels for nearly half of them. “Managers avoid tying their hands by making precise and biting commitments”observes Julien Lefournier, former employee of Crédit Agricole and co-author of The Illusion of Green Finance (Atelier editions, 2021, 240 p.)
6. Evaluate the manager’s approach
Another approach to gauge the sustainable approach of an investment fund is to examine its relationship with the companies in its portfolio. Through his investments, the saver gains in principle a form of power vis-à-vis them. The asset manager may have voting rights in the companies in which his fund is a stakeholder.
The bank can therefore support or oppose the decisions of a company during its board meetings. “It’s a bit like the investor’s voter card”, deciphers an analyst in charge of these questions at a French asset manager. To be effective, this logic must be integrated from the constitution of the portfolio:
“From the start, you have to choose structures in which you can change things, set precise and time-bound objectives. And if they are not achieved, you have to divest. But that is very rare. »
The shortcomings of certain large asset managers in this monitoring of companies appeared at the time of the revelations on the excesses of the Orpea group in January. The third shareholder of the group of retirement homes accused of abuse was none other than the management company Mirova (3.9% of the capital at the time). A serious dent in the image of a supposedly demanding group in terms of “sustainability” – Mirova finally left the capital of Orpea at the beginning of November.
“You have to call the referee and give a few red cards”
A specific category of so-called “impact” funds precisely promises to contribute to measurable projects and objectives – but it is still necessary to be able to judge transparently on a case-by-case basis.
The content of the investments must also differ from that of traditional funds. However, in the majority of SRI or ESG funds, it is impossible to escape Gafam (Google, Apple, Facebook, Amazon, Microsoft), McDonald’s, Coca-Cola, Unilever and, in general, CAC 40 companies and major financial centers.
Practiced in this way, green finance cannot make a difference, believes Tariq Fancy, former head of investments at BlackRock. On the other hand, long-term oriented funds that invest in companies when they are created are interesting because “they really finance the company”, he explains to our partners in Follow the Money. This approach remains more risky financially than investments in a basket of large listed companies, which may explain the reluctance of management companies.
Still according to Tariq Fancy, individuals should not be responsible for sorting out the good actors from the bad actors alone: to change things, “It has to be mandatory. And for that to be, you have to call the referee to give a few red cards. That’s what the experts tell us. Governments are going to have to stand up and act. »