Published on 08 July 2018


The rise and fall of the CAC 40

The CAC 40 brings together companies that are the supposed flagships of the French economy. But the constitution of this flagship index is decided by a scientific committee whose criteria are unknown. Financial performance is undoubtedly at the top of the list...but isn’t it time to also integrate environmental and social performance criteria into decision making?

The criteria for comprising CAC 40 companies lack transparency.

It wasn’t long ago that newspapers read: A CAC 40 company has been indicted for crimes against humanity. The listing of the cement company, Lafarge Holcim, had already taken place but the scientific committee that selects the entries and exits for the flagship index of the Paris Stock Exchange, in utmost secrecy, excluded the group on 18 June.

Based on what criteria? Surely financial, and probably economic and political criteria as well. Nothing is known about this decision since the committee’s selection methodology and its composition are not public. "In the days of The World Cup, we can still say that it is a good selector of strong and successful companies," says Bruno Fine, president of Roche-Brune Asset Management, who recently published an analysis on the subject.

"The scientific committee probably uses a method to retain the best companies with the objective of displaying top performance. When analysed over a ten-year period, we see that the CAC 40 has managed to progress 3.6% on average, but only by changing players. The committee is quite good in its role as coach," says Fine.

The CAC 40 on a 5° C trajectory

"From an ESG (Environmental, Social and Governance) or financial point of view, the ones that remained show good performance, but is it not surprising that today, they manage to escape all the transparency obligations that investors who buy shares from companies in the so-called CAC 40 are subject to," adds Fine.

Institutional investors and management companies subject to article 173 of the TEE (Ecological and Energy Transition) Law have reporting obligations that must consider climate risks and other ESG dimensions. But climate risk side, it would probably be useful for the committee to look at the poor performance of its leading team. According to a study by Mirova, the CAC 40 is on a global warming trajectory of more than 5°C.

If we use the “coach metaphor”, with the coach being the scientific committee for the CAC 40, they are able to bet on the future and select large companies that are also top performers economically, environmentally and socially, in order to make its index, the sustainable economy flagship, resilient and competitive. In its first steps towards sustainable finance, the European Commission has started by creating specific low carbon or positive impact indices. They must serve as a measurement standard of financial performance for committed investors.

GE exits Dow Jones

But should other investors continue to invest in the economy as is... and wait until yesterday’s major players are sufficiently weakened to no longer be selected amongst the elite index flagships? This just happened to General Electric. This flagship was excluded on 17 June from the Dow Jones after 111 years of continuous selection!

Though there are currently 70 times more indexes than companies that make them up, all attracting massive share and investment growth, it is important to involve them in the major global competition taking place: sustainable finance.

Anne-Catherine Husson-Traore, @AC_HT, CEO of Novethic

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