SRI at a Glance: The French Particularities

Contrary to other countries, such as the United States, the United Kingdom or Sweden, SRI in France has never followed an ethical approach, but a financial one. Various reasons can be given to explain such a difference. Firstly, French religious organizations and individuals have shown little interest in ethical funds. Indeed, it frequently emerges that the French mistrust stock market investments and doubt the possibility of combining ethics with finance.

Part of this reluctance finds its origins in the catholic tradition of the country, which associates money with immorality. In contrast, the Protestant churches of the Nordic and Anglo-Saxon countries have catalyzed the development of finance (De Blic and Lazarus, 2007). Therefore, whereas SRI has developed in the rest of Europe since the 1970s, it has expanded into France only over the past decade. Secondly and consequently, SRI in France has not been framed by „ethical actors‟, such as religious organizations, but by financial actors. Thus, the first SRI funds resulted from a joint action between asset managers and

2 These articles are still projects under research, which explains why they do not have the same status as the three articles of the dissertation.

former financial analysts who had transformed themselves into „SRI analysts‟.³ They aimed at broadening investment horizons by restoring a long-term view in asset management and claimed that SRI would achieve better financial performance by anticipating those costs linked to a below-average performance in social, environmental and governmental domains.

Lastly, in France, SRI has benefited over the past few years from major economic and social change: the move from a retirement system almost entirely based on pay-as-you-go pension plans to a system increasingly based on funded pension plans. Aiming to shield itself from scandals such as corruption and pollution, the French government has favored the creation of a sustainable demand for SRI from public pension funds including the FRR (Fonds de Réserve des Retraites)⁴ and the ERAFP (Établissement de la Retraite Additionnelle de la Fonction Publique)⁵ and from employee savings funds. For instance, FRR is expected to manage €152.4 billion in 2020 (Rémond, 2009), which equals 6.3% of the 2008 French total assets under management. In addition, SRI has revealed itself to be a good argument for convincing trade unions to adopt funded pension plans: SRI both guarantees the soundness of investments and maintains the role of trade unions in the management of the retirement system.

History dictates that the first objective of SRI in France has been financial. SRI has been a means to achieve better financial performance by selecting the companies that anticipate the future and by protecting investors against non-financial risks. However, until now, there has been no evidence of a systematic positive (or negative) correlation between SRI and financial performance (Margolis and Walsh, 2003; Orlitsky et al., 2003; Cavaco and Crifo, 2009;

Forget, 2010). In fact, SRI does not only follow financial concerns, it also participates in social change, known as „Sustainable Development‟. This term was coined in 1987 by the World Commission on Environment and Development and refers to „development that meets the needs of the present without compromising the ability of future generations to meet their own needs‟ (Bruntland, 1987). Hence, SRI is also a means to restore social legitimacy in a

3 Before the 1990s, France counted a few ethical funds, although these were very marginal, both in terms of assets and numbers. Moreover, they differed to a large extent from SRI funds, which were developed later.

Further details are given in the rest of the chapter.

4 The FRR (Pension Reserve Fund) is a publicly-owned, state-funded administrative agency operating under the dual auspices of the French Minister in charge of Social Security and the French Minister in charge of the Economy and Budget. In a pay-as-you-go system that faces demographic aging challenges, it is the

„fourth temporary tool‟, designed to ensure that the system‟s viability alongside such measures as extending the pay-in period, raising the rate of contribution, and decreasing the replacement rate. In fact, the FRR will be able to take on a portion of the expenses of basic private sector plans as of 2020, when the full impact of the demographic shock will begin to be felt.

5 French Public Service Additional Pension Scheme

sector, notably discredited by the recent financial crisis. Therefore, the purpose of SRI is twofold: to select the most socially responsible companies and to achieve better financial performance. Further details about the history and the motivations of SRI in France are given in the first article of the dissertation: „A Social Movement Perspective on Finance: How Socially Responsible Investment Mattered‟.

Rejecting the exclusion of sin stocks, France has favored an SRI approach known as „best-in-class‟. This method of investment involves selecting the most socially responsible companies in each activity sector, whatever the sector. Since the most socially responsible companies are deemed to be the most profitable in the long term by the tenants of SRI (UNEP-FI, 2007; FRR, 2008; Altedia IC, 2009; Mercer, 2009), this method of selection should generate better financial performance in due time. However, the absence of a systematic relationship between SRI and financial performance in practice often forces asset management companies to find a compromise between both performances. Indeed, while a growing number of pension funds and benefit institutions request SRI, almost none of these investors would accept jeopardizing financial performance for SRI concerns. Moreover, clients are not clear about what an SRI fund should include. Their demands remain vague:

asset management companies themselves must give evidence of the financial and SRI performances of their SRI funds. Lastly, SRI funds are not controlled by any public organization, such as the AMF (Autorité des Marchés Financiers)⁶; which means that any asset management company may claim that its funds are SRI. Thus, despite the existence of two voluntary SRI labels – one launched in 2002, by a committee of trade unions known as the CIES (Comité Intersyndical de l’Épargne Salariale)⁷ and another created in 2009, by a semi-private organization Novethic⁸ – the French SRI market is still unregulated. This absence of definition and the ambiguous link between finance and SRI explain why SRI in France may be difficult to understand for foreign observers, who usually associate SRI with the exclusion of sin stocks. To offer a better understanding of what SRI involves, the following section attempts to explain the workings of an SRI fund in practice.

6 French Securities Regulator

7 Trade Unions Committee for Employee Saving Funds

8 Novethic is the subsidiary of the Caisse des Dépôts group which is a „public group serving general interest and economic development‟. Created in 1816 to restore confidence following the financial crisis after the Napoleonic wars, its first task is to „receive, conserve and return the values entrusted to it‟. From there on, its role has grown to meet the pressing issues of the country.