ESG bridges business and societal cultural gap in France

In recent years, ESG has become an increasingly important element in French private equity. For instance, in 2015, a mandatory climate-change-related reporting process for institutional investors was introduced via article 173 of the French Energy Transition law. This made France the first country to introduce specific legislation encouraging asset owners to integrate climate risk and environmental and social dimensions in their public disclosures. According to the implementing decree of the article in question, the government must review its application after the first two years and before 31 December 2018.

The country's private equity trade body, France Invest, published its fourth ESG report in 2016, which found that GPs in the region were broadly adapting to the new legal requirements: out of 61 firms surveyed, 80% had a formalised ESG policy, 88% considered ESG requirements when selecting companies to invest in, and 42% employed a person with specific ESG responsibilities.

Since then, ESG awareness has become one of the most important developments in the French market. PAI Partners' Ivan Massonnat says: "French GPs, alongside Scandinavian and Benelux firms, are pioneers in Europe for ESG standards. Rather than a box-checking exercise, as we used to see around five years ago, GPs now really bear ESG practices in mind when investing." This assertion translates to the wider asset management market, too: campaign organisation ShareAction ranked three French groups, Amundi, Natixis, and Axa, among Europe's top 10 asset managers for responsible investing in a report published last year.

Demanding more
Massonnat also emphasises that all types of LP have become more demanding in this regard, and are particularly comfortable backing French GPs, in part because of their high ESG standards. "LPs sometimes present their own in-house ESG experts, which then challenge GPs on the matter," he says.

Eurazeo, which has had an ESG-focused team since 2008, recently published its first socioeconomic impact study measuring the impacts of its investment business in terms of global employment and economic wealth creation. The study highlighted that, in 2016, while Eurazeo PME and its co-investors injected around €1.45bn into the global economy, its eight investments generated an economic knock-on impact of nearly €3bn and sustained around 89,000 jobs.

According to several GPs, ESG as a principal existed for many investors before it became a formal practice. Michel Chabanel, CEO of Céréa Partenaire, says: "Today, GPs have their own ethics and responsibility charts. Céréa has worked closely with France Invest to promote ESG practices in the market since 2010. However, a sustainability sensibility has existed for much longer. As a manager of funds dedicated to agribusiness we are closely tied to the sector, to its image and reputation. This important link with the industry has shaped the way Céréa thinks of its investments and its purpose."

Rather than a box-checking exercise, as we used to see around five years ago, GPs now really bear ESG practices in mind when investing" – Ivan Massonnat, PAI Partners

One industry source says ESG corresponds to a set of cultural values deeply rooted in French mentality, including those of partners and investment directors. "Speaking openly about one's own wealth is a social faux pas," the source says. "Money-matters are very much private, while human values are at the heart of the French mindset." Formalised ESG practices are therefore becoming an opportunity for French GPs to bridge the cultural gap that exists between French business and society at large.

When asked about any potential practical issues deriving from an ESG-focused investment strategy, Céréa's Chabanel says: "We invest in small-cap and mid-cap companies and therefore we need to implement ESG standards that are feasible for portfolio companies of this size. Not all companies can establish a committee in charge of the compliance of ESG practices, nor completely transform the way they function quickly."

Nevertheless, Chabanel stresses that all portfolio companies are able to make positive changes, such as improving their carbon impact, recycling practices, traceability and supply chain security.

Another risk highlighted by industry insiders is the superficiality with which these regulations can be integrated in a GP's investment strategy. Rather than having a genuine commitment to ESG, there is a risk that awareness can sometimes be promoted simply to keep pace with competitors.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• France
• Regulation
• Top story
• France
• ESG
• PAI Partners
• Céréa Capital