In order to test the resilience of the French banking and insurance sector to climate risk, the ACPR launched its climate pilot exercise on July 16, 2020 . This exercise aims to measure the risks, both physical and transitional, to which the institutions are exposed by 2050 and also has a methodological dimension as it seeks to identify the difficulties encountered in conducting this type of exercise (absence or incompleteness of data, limitations or inadequacies of models, etc.).
This exercise is based on the work of the Network for Greening the Financial System (NGFS) and on an analytical framework developed with the teams of the Banque de France, the main features of which are presented in Allen et al (2020).
The ACPR has introduced three scenarios of transition to a low-carbon economy: a reference scenario ( orderly transition) and two adverse transition scenarios (variants 1 & 2) for the period from 2020 to 2050.
The two opposing variants reflect different assumptions about the timing and magnitude of the necessary public measures, as well as about the maturity and cost of technological developments forenergy production and use. Each scenario thus combines different assumptions related to: i) the trajectory of the carbon tax and ii) productivity levels.
The results show the materiality of the negative economic impact of disordered transitions to a low-carbon economy, which materializes as a decrease in GDP, an increase in inflation and unemployment, a rapid increase in the price of carbon, etc.
Banks and insurers will have the second half of 2020 to assess the impact of these assumptions and scenarios on their balance sheets and will provide these measures by filling in the reporting tables (templates) published in the annex.
The results are expected to be available by the end of 2020.
Link to document: https://acpr.banque-france.fr/sites/default/files/medias/documents/principales_hypotheses_pour_lexercice_pilote_climatique.pdf
On May 25, 2020, the Autorité de Contrôle Prudentiel et de Résolution (ACPR) published a guide for French banks containing recommendations on governance and climate risk management.
This document is part of the ACPR's work on climate risks under provision V of the TECV law and follows surveys conducted among banking institutions.
In summary, 4 crucial points from the recommendations:
As part of its activity to support financial players and in order to clarify its doctrine on the extra-financial strategy of investment funds, the AMF published on March 11, 2020 a position-recommendation detailing the extra-financial information that can be disclosed by French funds and foreign funds authorized for marketing in France. A first update of this doctrine was made on July 27, 2020. Here are, in summary, the three main new features:
The methods of communication on the taking into account of the extra-financial criteria are described in the table below:
Finally, the timing of the doctrine has changed:
It should be noted that the AMF has decided to simplify its product transfer procedure by considering changes in managers' product ranges to take into account extra-financial characteristics (without impacting the risk/return profile) as not being subject to approval and that, as such, specific information (letter to shareholders) will have to be provided to investors.
Link to document:https://doctrine.amf-france.org/Reglementation/Doctrine/Doctrine-list/Doctrine?docId=workspace%3A%2F%2FSpacesStore%2F138e8494-3731-476e-a7da-7bf79200c1a2
The decree of July 8, published in the Journal Officiel of Thursday, July 23, 2020 crowns three years of work by the French Association of Real Estate Investment Companies (ASPIM), in partnership with the AMF and the Ministry of the Economy, Finance and Recovery.
The SRI label for real estate funds is finally ready and will apply to SCPIs, OPCIs and other non-listed real estate funds
According to ASPIM, real estate FIAs currently represent €230 billion in assets under management, 17,000 buildings in France and Europe, and 59 millionsquare meters of real estate.
The SRI label standard updated on July 23, 2020 and effective October 23 has six pillars for real estate funds:
The label highlights the key ESG issues for the real estate sector by requiring the reporting of 4 mandatory indicators covering the three areas E, S and G which are broken down as follows
In addition to these 4 mandatory indicators, the fund must also report 4 additional indicators of its choice covering the 3 areas E, S and G.
The real estate approach will be mostly "best in progress" unlike the financial label which prefers "best in class".
In addition, the SRI label has also introduced new requirements for general purpose funds. It now requires funds to provide evidence of the sustainable quality of their investments by showing that they are at all times better than their investment universe on at least two ESG indicators. Another new feature is that it now requires certified funds to translate their SRI strategy into their engagement with issuers, particularly in their voting policy at general meetings.
Link to document:https://www.tresor.economie.gouv.fr/Articles/aafc6489-7b7b-46fe-b97c-790afb2ffba0/files/44648b13-9cdf-4001-a7da-54a6591861fd
