Novethic SRI Label

Socially Responsible Investment

Eligible funds

The Novethic SRI Label is awarded to open-end funds (pooled funds) whose management systematically takes into account Environmental, Social and Governance criteria. In order to obtain the Label, the fund manager must detail the fund’s SRI management approach, provide reporting on the extra-financial characteristics of the fund and disclose a complete list of portfolio holdings.
This label does not cover the financial characteristics of the funds; it is neither a guarantee of financial performance nor an incentive to invest in the funds.

Access the list of labelled funds

Read the Press release

Access the Media Kit

Applicants

The filing of applications for the 2011 edition of the Label was closed on June 24, 2011. The next labeling session will begin in the Spring of 2012.
Read Label regulations

Lack of clear offer

The offer exists: in 2010, Novethic identified around 300 SRI funds in France, up from about thirty in 2001. They now represent almost 4% of all publicly available assets. But SRI can still be defined by each provider at will. The lack of a standard framework means the floodgates are open to a wide array of products meeting varying requirements or standards, whether on the SRI characteristics of the fund or the communication on these aspects. In fact, the steady growth of SRI assets has covered up the fact that the communication on these funds, especially those targeting individual investors, remains extremely limited. Investors need guidelines for greater clarity and visibility on this emerging management approach.

Market share of individual investors down

Although the financial crisis is a force driving institutional investors towards SRI, the same does not apply to individuals. The SRI market is struggling to attract individual investors. According to surveys, demand exists; but the lack of a structured marketing offer undermines individuals' prospects of investing in SRI products, even if they are aware of their existence.

Consequently, to facilitate the understanding of SRI and gear it further towards the retail market, a framework is needed both by distribution networks (banks and insurance companies) and their individual clients. Greater transparency on SRI requires clear, exhaustive information, which is difficult to line up with over-simplified marketing.

Promoting transparency

The purpose of Novethic's SRI Label is to encourage the development of the most transparent information possible on SRI funds. By introducing an SRI Label, Novethic seeks to improve the availability of these funds to individual investors by providing them with a simple benchmark.

1st criterion: Environmental, Social and Governance (ESG) screening

To be awarded the SRI Label, the fund manager must take into account ESG issues, a process to which he may add company or sector-based ethical exclusions. The SRI management approach must encourage the best extra-financial practices amongst issuers. These practices must apply to at least 90% of the portfolio in terms of both assets (excluding cash and community investing) AND holdings, covering all asset classes. Whatever specific combination is applied, Environmental AND Social AND Governance issues must all be screened, even if the management approach emphasises one or more of these areas.

2nd criterion: Transparency

Investors must be able to understand the fund's extra-financial characteristics and their impact on its management approach. To meet this criterion, fund managers have to comply with the Eurosif or AFG-FIR Transparency Code, which must be easily accessible in the SRI section of the fund manager's website and preferably on the fund's dedicated pages. This document must also provide information regarding the SRI process, including available resources AND the steps taken during the ESG screening process.

3rd criterion: Extra-financial reporting

An SRI fund's monthly and/or quarterly reporting must feature an additional section that is not included in non-SRI fund reporting. It must comprise qualitative information on ESG practices that have resulted in recent investments and divestments, and/or quantitative information on the fund's ESG characteristics. This information must encompass all assets and can be separate from financial reporting, provided it does cover the securities in the portfolio, is disclosed on a regular basis and is as readily available to the public as financial information.

4th criterion: Disclosure of all portfolio holdings

The full list of portfolio holdings must be disclosed at least on a half-yearly basis and be sufficiently clear and comprehensible.

ESG Indicators award

The fund's extra-financial added value must be measured by the fund manager or an independent expert and cover specific, tangible environmental or social indicators. The information is emphasised in the fund communication and is in line with the fund's marketing position.

Engagement award

This refers to active engagement practices on Environmental AND Social AND Governance issues, implemented with pre-defined policies and targets. Every year a significant number of companies are contacted and engagement is reported on a regular basis. If no improvement is observed, the fund manager must take a pro-active approach (publicly disclosed divestment or the filing or support of a resolution at a general meeting).