France has announced that funds operating under its “socially responsible” ISR label will be prohibited from investing in companies involved in new hydrocarbon exploration, exploitation or refining projects from the start of 2025.
The ruling extends to companies exploiting coal or “unconventional” hydrocarbons.
This decision is expected to lead to substantial divestments from fossil fuel holdings by pan-European funds, potentially amounting to billions of euros throughout 2024. The regulations, introduced by French Finance Minister Bruno Le Maire, aim to reshape the portfolios of ESG funds significantly.
The impact of these stricter rules will be felt beyond France, as many asset managers market the same ESG funds across Europe. This is particularly true for exchange-traded funds (ETFs), often listed on multiple exchanges and made available in other European countries.
According to Morningstar data, French oil major TotalEnergies appears in 161 ISR-labelled funds, with combined holdings amounting to €2.4 billion. Other energy groups like Neste, Eni, Repsol and BP also feature in many funds, though some may not be subject to the new regulations.
The new rules will also apply to fixed-income funds, potentially leading to a sell-off in the bonds of energy companies.
The move is part of France’s effort to eliminate greenwashing and enhance transparency for retail investors, marking the first major tightening of regulations since the ISR label’s inception in 2016.
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