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2015/07/02_MSCI

Stanislas Dupre on the newly adopted disclosure requirements under article 48 of the French Law on the Energy Transition
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Stanislas Dupré

on 20 November 2015

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Transcript of 2015/07/02_MSCI

Requirements (Art. 48 ET law)
Technical challenges
Issues related to data providers models
Lack of incentives to improve/perform
Types of possible incentives:
Tax breaks on financial products
Tweaking capital requirements
Massive promotion of products
...
On the road to mandatory
climate disclosure for investors

CDP
How did we get here?
2005 2007 2010 2011 2012 2014 2015
First road test
on labeling

First practices
Advocacy
Campaigns

Carbon bubble buzz
Investors
pledges

Working group
on mandatory
labeling (ADEME)

Mandatory disclosure introduce in governmental roundtable
MPs introduced an amendment
Adopted
1. Companies will have to disclose in their annual report:
the impact of their activities on climate change, including sold product and services
their exposure to financial risks related to climate change,
their actions to mitigate them through a low carbon strategy.

2. The government will report to the Parliament on the implementation of a climate-related risk stress-test of the financial sector (to be submitted by December 2016).
3. Institutional investors should disclose in their annual report and communication to beneficiaries,
how ESG criteria are taken into account in their investment policy, and the measure to finance the
transition to a low carbon and green economy. A decree will set the format.
The investors will disclosure how they take into account the risks related to climate change, including:

1. Reporting the GHG emissions associated with the assets owned;
2. The contribution to the international climate target;
3. The contribution to the transition to goals related to a low-carbon and green economy (France).

The decree will define indicative targets by sector and type of investment, in line with the national low carbon strategy. If the target is not met, the investor will have to justify their under-performance.
Next steps
May 27th
Vote by
Low-chamber
July 9th
Vote by
Senate
Mid-July
Final vote by
Low Chamber
Draft decree
September 2015
Decree
November 2015
Implementation
2016
Scope:
finance sector
Scope: large companies
(including banks and investors)
Scope: institutional investors
(minimum size to be set by decree)
Carbon policy risk?
Or physical risks exposure
Process of results?
Nation-wide or by bank?
Scope ?
Materiality test?
Equities? Corp. bonds? Sovereign bonds?
Financial bonds?
Which framework?
French government
Complementary initiatives
Accounting & reporting guidelines/ standard
2° portfolio framework
Guide to existing impact metrics
Guide to stress-testing approaches
Gaps in current climate impact assessment methodologies:
Bonds
beyond listed corp.
Scope 3
Sold products
CO2
Contribution
vs. financing targets
Framework to assess financial risk exposure
Lack of policy
risk scenarios
Loose definition of carbon risk
No data provided at security level
?
ESG Research
Equity
Research
Credit rating agencies
Financial risk analysis capacity
Coverage
Commercial
develop. to date
Methodologies
Balancing comparability & competition
Methodology specific to each data provider
The methodology of one data provider becomes the standard
The data providers apply a standard externally developed
No comparability
Creation of competitive advantage by the regulator
Data providers compete
on price & coverage
Short term horizons
= long term risks not material
No reason
to go green
Forthcoming report on greening tax incentives
(2°ii / France Strategy)
Coordinated push on methodologies
Potential for coverage + scale economies
Full transcript