The essential

  • SRI consists of investing in companies taking into account extra-financial criteria, mainly social and environmental;
  • Specialized labels and rating agencies exist to certify the extra-financial performance of socially responsible investments;
  • The performance of socially responsible investments is comparable to, or slightly better than, that of traditional investments.

Principle and definition: what is socially responsible investment (SRI)?

 Principle and definition: what is socially responsible investment (SRI)?

Socially responsible investing, where SRI, is a way of investing that consists of taking sustainable development issues into account when making investment choices.

Responsible investment remains a very broad and subjective topic, it is the French Association of the Financial Management (AFG) which brings in 2013, a precise definition of the SRI:

“SRI (Socially Responsible Investment) is an investment that aims to reconcile economic performance and social and environmental impact by financing companies and public entities that contribute to sustainable development regardless of their sector of activity. By influencing the governance and behavior of actors, SRI promotes a responsible economy. “

Historically, it is the Catholic Church that puts in place the first forms of ethical investment. First in the United States and then in France in 1983 with the Crédit Coopératif launched by the Catholic Committee against Hunger and for Development (CCFD) which donates part of the income to the creation of businesses in the third world.

Beyond the ethical aspect, socially responsible investment also aims to be more efficient by raising investors’ awareness of social and environmental factors. This would help to better understand the risks and benefit from better management.

The goal of SRI is simple. By encouraging retail investors and portfolio management companies to take environmental and social criteria into account in the selection of their financial assets, SRI promotes a sustainable and environmentally conscious economy.

The different forms of eco-responsible investments

It is generally considered that there are 4 forms of socially responsible investment:

  • The ESG selection : which consists in integrating in the selection of listed companies criteria called ESG (Ecological, Social and Governance) . We also speak of a Best in class approach because, in each sector of activity, only companies that best meet these ESG criteria will be selected;
  • Exclusion , also known as the “ethical approach”. It consists of excluding certain sectors that are considered immoral, such as the arms industry, gambling and sports betting or tobacco. Exclusion funds also do not hesitate to ignore sectors that are considered to be too harmful for the environment, such as the sectors linked to GMOs or the fossil fuel sectors;
  • The thematic approach : this involves investing only in sectors of activity having a direct impact on the environment, for example the renewable energy sector or the water treatment sector;
  • Shareholder engagement or shareholder activism : which aims to integrate a culture and social responsibility in companies. To do this, investors must either directly raise awareness on the subject or address the issue by exercising their right to vote at general meetings. This helps push the company to make more social and eco-responsible decisions. This form of engagement is much more developed and easier to implement in the United States than in Europe.

The development of SRI in France and around the world

 The development of SRI in France and around the world

Globally, the Global Sustainable Investment Alliance (GSIA) publishes a report every two years on responsible investing worldwide. The 2017 report indicates that responsible investments reached $ 22,890 billion in early 2016, a figure that has increased by 25% since 2014!

This increase is directly linked to a general awareness of the issues related to global warming but also to better global governance. Indeed, several international agreements, such as the April 2006 United Nations, codify SRI. The “Principles for Responsible Investment” (PRI) for example, are six in number and constitute the basic principles to which investors can refer if they wish to integrate more ethics into their investment policy.

Today, the success is such that we consider that SRI represents a market of more than 746 billion euros in France. SRI methods vary from country to country. In France, for example, it is largely the ESG selection approach that dominates whereas in Northern Europe, exclusion funds are much more widespread.

SRI labels and extra-financial rating agencies

To verify and certify investors’ social and environmental commitments, there are specialized labels and rating agencies.

The labels

In France, there are two labels:

  • The SRI Label : This label was created in 2016 and aims to make socially responsible investment products (SRI) more visible to savers in France and Europe. The label is supported by the Ministry of Finance.
  • The Inter-union Committee for Employee Savings (CIES) : is a committee that brings together four trade union organizations that fight for easier access to employee savings plans and that also incorporate social and environmental criteria into their management.

The extra-financial rating agencies

Non-financial rating agencies , on the other hand, rate companies according to the impact of their actions on the environment and their social policy. These notes are then used by SRI fund managers. They allow to have a systematic analysis of the companies, a traceability of the methods used, as well as a history of the evolution of the rating of a given company.

These agencies were created in the late 90s and now have around thirty players located in Europe, North America and Asia. To bring this rating to light, each agency proceeds in its own way. They can either analyze public documents, make questionnaires or go directly to the heads of companies.

Internationally, agencies have formed partnerships with companies that produce stock indexes (such as FTSE Group or Dow Jones). This allows them to create new stock indexes that take into account social and environmental criteria. The Dow Jones Sustainability Indices (DJSI) for example is based on notes provided by a Swiss appraiser and takes into account these selection criteria.

In France, the main rating agency is Vigeo and its stock market index is ASPI Eurozone.

Performance and Taxation of Socially Responsible Investment (SRI)

Even if the comparison of all eco-responsible funds is difficult, the question of whether SRI is as good as another type of investment is recurrent.

First of all, whether they are invested in equities or bonds, we must always bear in mind the specificity of SRI: its dual financial and extra-financial selection.

In 2007, a study entitled Demystifying Responsible Investment Performance was published by UNEP-FI. This study confirms that taking into account extra-financial criteria reduces certain risks (related to reputation or regulation for example) while tending to slightly improve the financial performance of investments.

As far as taxation is concerned, there is no special tax advantage in France linked to the subscription of SRI funds. Eco-responsible or ethical investment is therefore above all a choice linked to one’s personal convictions.

Learn more about the performance of socially responsible investing (SRI)

How to make an eco-responsible investment?

SRI funds are marketed by portfolio management companies. The regularity of the decisions of Undertakings for Collective Investment in Transferable Securities (UCITS) is controlled by these companies which set up specific control systems, by creating, most of the time, an extra-financial analysis unit, or even a company. fully dedicated to SRI.

It is possible to subscribe to eco-responsible funds in a life insurance , a title account or even a PEA. However, depending on your bank or your broker or advisor , the offer may be reduced to a few funds.

What Nalo does for you

At Nalo, we have from the beginning wanted to make a socially responsible and environmentally conscious investment possible. By investing with us, you can choose an eco-responsible investment portfolio composed of SRI index funds, with ESG-compliant funds on the one hand and thematic funds on the other. renewable energy and water treatment.

These investments are made in a life insurance policy to take advantage of reduced taxation .