The redesign of the SRI label was the subject of a market consultation until May 31. Here is our response to this consultation.
Founded in 2018, WeeFin aims to democratize sustainable finance by helping professional investors create more ambitious ESG strategies and combating greenwashing. With this in mind, WeeFin offers a platform 100% dedicated to ESG to enable investors to maximize their impact on the planet by easily integrating sustainability indicators into their investment strategy. In very concrete terms, this platform enables them to centralize all sustainability data, test its quality, define customized indicators according to their investment strategy, and produce all the reporting, particularly regulatory, that is required on ESG.
At WeeFin, we encourage financial institutions on a daily basis to implement more ambitious investment strategies of their own. Our mission is to help financial players invest in a more sustainable way, and thus contribute to the just transition, by considering that the methods for integrating sustainability into investment strategies can be multiple. Indeed, sustainability cannot be considered a homogeneous, standardized concept, even if it is essential to ensure that minimum requirements are met in order to avoid certain contradictions.
So, in our view, the aim of a benchmark such as the SRI label is to commit as many investors as possible to integrating ESG into their strategy.
To achieve this, it is important to :
WeeFin supports the proposal of new requirements or the reinforcement of existing ones, which will increase the ambition and credibility of the label. On the other hand, we are aware of the realities faced by financial institutions, and if we do not wish to see a back-pedaling of investment fund commitment levels, we feel it is essential to adjust the proposed revisions to the SRI label reference framework, so as not to create a distortion of competition.
WeeFin was also in favor of developing the label's structure to include different variations, or "colorations", and regrets that this principle was not retained. Indeed, such a structure would make it possible to offer optional/complementary criteria for funds wishing to display a higher level of SRI requirements (impact) and/or to serve certain specific strategies (thematic funds, private equity, etc.). These variations must be supported by a common base to ensure a sufficient minimum level of requirement for all SRI approaches and avoid inconsistencies or gaps in ambition between funds on certain common criteria (exclusions, commitment, controversy monitoring).
So, while bringing together the requirements of the SRI label and the SFDR regulations is interesting, let's be careful that it doesn't create inconsistencies and discouragement on the part of financial players: one is a label and the other provides a reporting framework. Their objectives are distinct, and a fund must be able to benefit from the SRI label regardless of its SFDR classification.
As part of our response to the public consultation, WeeFin would like to share its views on the 4 pillars and propose a few additional elements for clarification or even improvement, to make the scheme as ambitious and operational as possible.
WeeFin's opinion: We are in favor of requiring that the principle of double materiality be taken into account in investments made. However, we do not believe that these measures should necessarily be carried out through PAI SFDRs, whose methodology remains highly fluid and not necessarily yet validated by the financial community. We believe that financial players should be free to demonstrate this principle using the methodology and indicators they see fit. These will then have to be approved and validated by the auditors, who will then judge their relevance, quality and transparency.
WeeFin's view: As mentioned above, we believe that measuring the principle of double materiality is important, but the methodology used should not be imposed. Quality, consistency and transparency will be elements to be analyzed and verified by the label's auditors. What's more, this criterion is already required by European regulations, so in our view there's no need to impose it a second time and include it in the label.
WeeFin's opinion: We believe it is necessary to standardize the criteria for monitoring controversies. In a study carried out by WeeFin on 50 funds, we identified 20% of funds whose controversy monitoring process was insufficient to meet their sustainability objectives. To date, there are no constraints on this process, even though it is essential.
WeeFin's view: We are not in favor of introducing this criterion, which would not attest to the quality of the rating methodology, nor to the relevance of the proposed measurability indicators. In our opinion, no thresholds should be imposed. In fact, generalist funds will have to analyze the three ESG pillars, for which the auditors will be able to challenge the methodologies used. For thematic funds, to ensure that each pillar is taken into account, due diligence should be carried out through a DNSH test and minimum safeguards.
WeeFin's opinion: We are in favor of establishing a common base of minimum sector exclusions. To date, in view of the results of our study (32% of Article 8 funds with an environmental dimension have an exclusion threshold of over 20%), we consider that current exclusion practices are not proportionate to the ESG ambitions displayed by funds. However, imposing a very low threshold (5%) could potentially discourage funds from seeking certification. An alternative would be to build a progressive threshold, imposing for example a 5% threshold for climate funds and an intermediate threshold for generalist funds, while requiring detailed transition plans and emphasizing the exclusion of new production project developments.
WeeFin's opinion : Today, the monitoring of shareholder engagement is too weak, lacking a detailed and binding process. In fact, in the study carried out by WeeFin, 20% of funds had a shareholder engagement process considered insufficient in relation to their sustainability objectives. It is therefore necessary to reinforce these shareholder requirements through the formulation of a clear escalation process, and in particular with the predefinition of a timeframe making the monitoring of the act of commitment clearer, as indicated in the criteria of this overhaul of the SRI label.
We believe it is necessary to create a degree of homogeneity between funds, notably through a common base of exclusions based on quantitative thresholds and the implementation of complete and transparent processes concerning commitment and controversy policies.
However, let's not forget that funds should be able to obtain the SRI label regardless of their SFDR classification, as long as they comply with the label's specific conditions. We must therefore avoid creating confusion between a label categorizing funds with the best ESG strategies and a European regulation whose sole aim is to integrate a common reporting framework. In our view, it is essential to allow freedom in ESG rating methodology. Indeed, the risk of over-standardizing extra-financial criteria could lead to the use of financial criteria as a means of differentiating funds, taking us a step backwards in the promotion of sustainable finance.