Published on 09 June 2021


The new decree under Article 29 of the French Law on Energy and Climate keeps its promise to strengthen requirements

Investors were kept in suspense concerning the environmental reporting framework set by the French Treasury Department. With the implementing decree under Article 29 of the French Law on Energy and Climate, it is now known that the government's objective is to continue its leadership on this issue via the climate and biodiversity demands contained in the Official Journal of May 27th.

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At first glance, the implementing decree under Article 29 of the Climate Energy Law may seem daunting. But it is necessary to work on the progress that this text requires, which means complying with the new European framework on sustainable finance and allowing France to stay ahead of investor reporting obligations as outlined under Article 173 of the 2015 Law.

First step: the effective creation of a reporting obligation on biodiversity from 2022. Just as Article 173 outlined by creating a reporting obligation on climate risks, investors will have to comply with new requirements. As of this year, investors must begin to measure their alignment with the objectives of the Convention on Biological Diversity and analyze the contribution of their portfolios to reducing the main pressures and impacts on biodiversity. This should translate into a new indicator: the "biodiversity footprint" of portfolios.

Integration of biodiversity impacts

The exercise is all the more difficult as companies currently provide very little data to calculate biodiversity impacts. To build on this data, investors will have to clearly distinguish between two types of risks: those arising from the impacts on biodiversity created by their investments and those that weigh heavily on the companies highly dependent on biodiversity in which they invest. Ultimately, if you are a shareholder in a company responsible for massive deforestation, this is the first type of risk. If you are a shareholder in a cosmetics company that makes a perfume from an endangered plant, you fall under the second risk category. If you are a shareholder in both risk categories, your biodiversity footprint is twice as worrying!

The second step: important details on climate reporting. After having noted the extreme heterogeneity of methodologies and emissions data generated by the application of Article 173, the implementing decree goes into detail about what is expected on "alignment with the temperature goal of the Paris Agreement". Investors must indicate quantitative targets by 2030 that include direct and indirect greenhouse gas emissions (absolute value or intensity relative to a scenario/base year) and this must be relatively measured.

These objectives must be reviewed every five years until 2050. These are the same requirements for the explanation of methodologies used: they must include a general introduction on choices made, specify the level of coverage and aggregation methods as well as the time horizon. Additionally, assumptions made about estimated data, energy-climate scenarios, and details on the data provided over time - by sector and geographic area - must be included.

Broadened thresholds

Third step: thresholds and perimeters that broaden the scope. The French Treasury Department only kept the threshold of €500 million in assets under management to be eligible for this new regulation. The European Union also requires a threshold of 500 employees. However, in France a handful of players (four in 2019) had both more than €500 million in assets under management and more than 500 employees. Almost all French management companies are therefore subject to these new obligations! From 2023, they will have to report the percentage of their assets under management aligned with the EU Taxonomy and the percentage of activities they financed that are linked to fossil fuels.

Finally, the decree strengthens the so-called "comply or explain" dimension by requiring investors who claim they are unable to provide all this information to publish a continuous improvement plan. It should mention “concrete actions to improve the current situation; information on strategic and operational changes linked to the launch of corrective actions with specific objectives and a timetable for implementation".

The future of the new Article 29 requirements is now in the hands of investors who immediately signal the need for "significant reinforcements of staff trained in regulatory reporting exercises" to meet their obligations within the allotted time.

Anne-Catherine Husson-Traore,  @AC_HT, Directrice générale de Novethic

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