SRI funds: understanding the’Socially Responsible Investment
Beyond risks and returns, investors are particularly concerned about the environmental and social impact of their investments. They are also concerned with issues of good governance within the management companies. The SRI label was created to control these criteria and reassure investors about the use of their money.
Who created the SRI label ?
The SRI funds are now The Finansol label is highly appreciated by savers and institutional investors concerned with the overall impact of their investments over the long term. This label was created by the Ministry of the Environment’Economy, Finance and Recovery in 2016. This is an initiative launched at the request of individuals and financial sector players.
Since then, the French and Europeans can make sustainable and responsible investments from France. The label essentially aims to to enhance the value of funds that respect the SRI methodology with concrete and measurable results. During the first years, it was mainly granted to UCITS (Undertakings for Collective Investment in Transferable Securities) in life insurance.
After 2020, this label has been extended to FIAs (alternative funds) including SCPIs (real estate investment trusts) and OPCIs (real estate investment trusts). Thus, you can now access SRI portfolios outside of mutual funds, SICAVs and life insurers’ units of account. Similarly, institutional mandates are now eligible for the label.
How to know if a fund is SRI ?
In general, the SRI funds are presented as such by the portfolio management companies. In fact, asset managers often rely on this label commercial argument. There is no risk of missing this information.
In case of doubt, you can always consult the list of labelled portfolios on the official SRI label website.
In practice, an investment fund obtains the label over three years. This period is renewable depending on compliance with the requirements in this area, particularly the ESG criteria (environmental, social and governance). In addition, the public authorities are planning random checks over this period to ensure that the financial products concerned comply with the law.
However, you must avoid confusing SRI with Impact Investing. The latter excludes any activity potentially harmful to society or the environment. The SRI label, on the other hand, remains accessible to companies linked to fossil fuels, if they limit their impact on nature.
For its part, the Finansol label is dedicated to solidarity finance savings products.
Who gives the SRI label ?
In France, three organizations are currently accredited to deliver the SRI label, namely Deloitte, EY France and AFNOR Certification. They can Performing the required audit to label an equity or bond fund. For its part, the COFRAC (French Accreditation Committee) is responsible for monitoring the performance of these various players.
Attention ! You must distinguish these organizations from agencies that rate companies on social and environmental issues. The latter rate the professionals based on extra-financial criteria and allow the ESG funds to be valued. Nevertheless, practices in this field are tending to harmonize and evolve towards a single certification.
The SRI reference framework gathers the necessary information to be eligible for the label. In concrete terms, the selection is made according to 6 criteria:
- The general objectives of the investment (financial and extra-financial) ;
- The analysis and rating of the responsible criteria of the portfolio;
- The development of the stocks or bonds chosen;
- The ESG commitment of the funded companies;
- Transparency of funds management;
- The positive impacts of investing on the sustainable economy.
Why invest in SRI ?
A ISR fund is above all a responsible choice as part of a corporate citizenship approach. You decide to finance projects that make sense from a social and environmental point of view. Moreover, the “non-responsible” sectors are increasingly constrained by regulations and the scarcity of non-renewable resources.
Thus, the ISR represents the future of investing.
On a purely financial level, SRI-labeled portfolios also seem to be very similar more durable compared to other types of backgrounds. Novethic’s analysts have notably noted a net decline of 6.5% in socially responsible stocks in the first quarter of 2020. However, the CAC 40 fell by 17.5% over the same period.
According to experts, this resilience demonstrates the importance of SRI-certified funds’ risk/return. In addition, extra-financial factors should eventually be taken seriously by investors in light of the severity of climate change. The general public is starting to realize that natural resources are being depleted and is looking for solutions to slow down this phenomenon.