Article 173: five years on, the climate reporting pioneer struggles to transform investor practices

This article of French law made its way around the world as soon as it was adopted. Investors from all countries were excited about Article 173 of the 2015 Energy Transition Law, which introduced a climate risk reporting obligation. Four years later, Novethic conducted a review of the reports published by French actors in its annual "173 Shades of Reporting". This study led to a bittersweet result: among the 100 largest institutional investors concerned by Article 173, some made progress while others remained stagnant. However, reporting standardization through the convergence of methodological processes does not seem to have taken place.

Nevertheless, over the past four years, financial actors have improved their ranking on Novethic’s assessment scale. The number of "absentees" (non-reporters) decreased from 31 in 2016 to 19 last year. The number of "dropouts” (four of whom feel they are not concerned by ESG criteria) was limited to twelve actors. The star category composed of "committed actors" showed consistent improvement, growing to 23 actors from 15 in 2016.

"Improvement needed"

A significant number of institutional investors - 43 in total - remain in the "Improvement needed" category. Financial actors did not seem to mirror each other in order to find common reporting indicators. As a prime example, carbon footprint calculations still seem far from standardized. The study lists 55 different methods, with varying degrees of detail, that include (or not) the three scopes, a reporting benchmark, etc.

Nevertheless, French institutional investors have made progress in greening their portfolios over the past four years. Coal is increasingly becoming the substance to be banned, with 42 coal exclusion policies in 2019 (compared to 19 in 2016). In four years, nearly €1.5 billion of coal assets have been sold by French investors.

On the other hand, French investors have increased their green investments. Green bonds lead the way, benefiting from steady growth in recent years (from €11.7 billion in 2017 to €34.2 billion in 2019). These green bonds now represent 2% of the total bonds held by the investor panel. Overall, green investment by these institutional investors reached €49 billion in 2019, compared to €21.2 billion in 2017.

Still, Article 173 is coming to an end. A pioneer when it was launched, the law has since served as inspiration for a new European regulation. The Disclosure Regulation comes into force in March 2021 and will establish a common standard for reporting on financial products in European countries. In France, Article 29 of the Energy-Climate Law of November 2019 replaces Article 173. Its implementing decree - which will follow European regulations - has not yet been published.

Arnaud Dumas