On the 7th of November, the ISR label committee announced the Minister of Finance’s support of its proposal for a more ambitious and demanding label. The new version of the label is now being finalised and will come into force from March 1st, 2024 for candidate funds. In this blog post, we highlight some of the requirements pertaining to investors’ active ownership and how Esgaia's platform can help empower investors in meeting requirements.
Created in 2016, the ISR label has become a major tool for sustainable finance in France, with nearly 1,200 certified funds. With the strong evolution in responsible investing, the new framework is better adapted to the challenges facing investors as they navigate social and environmental transitions.
Aligning with parts of the EU’s SFDR, the updated criteria apply across strategies such as screening, ESG integration and investment stewardship. For the latter, the provisions around shareholder engagement and proxy voting are more precise and binding:
1. Improving the engagement process:
The updated criteria outline how funds should demonstrate the implementation of processes to ensure that each ESG engagement action is the subject of:
i. a request explicitly made to the issuer;
ii. a clear objective, to qualify the degree of success against the goal;
iii. a predefined time frame, at the end of which an assessment is formalized;
iv. where applicable, follow-ups and escalation actions.
Using Esgaia, you can establish engagement objectives which enable you to create profiles with objectives and milestones, link interactions over time, set deadlines, and formalise assessments when concluding dialogues. For more information on engagement process best practices, check out our blog ‘Step-by-Step Guide to Investment Stewardship and Engagement Tracking’.
2. Demonstrating accountability through escalation:
The label requires a formalised escalation process, which should outline the steps involved and the actions taken when progress isn’t satisfactory. As investors go about this, they need to track and be able to evidence this process and the different interactions over appropriate timeframes, including the resulting outcomes and investment implications (e.g. divestment).
Esgaia’s solution empowers investors to manage the related work- and data flow, for example by setting deadlines on specific objectives, labeling certain interactions as escalation activities, and linking related votes. Activities are logged and visualised on a timeline to ensure a complete “audit” trail of interactions.
3. Influencing through stakeholder engagement:
To protect and enhance overall long-term value for clients and beneficiaries, investors should not only engage with issuers and portfolio companies but take a broader stance and engage with stakeholders across their sphere of influence. Herein, the label requires investors to report on the number of stakeholders and performed activities, including, where appropriate, examples of successes and failures.
Via Esgaia, investors can create dedicated entity profiles to track these interactions. Depending on needs, clients would either add the different organisations, or label groups of stakeholders together such as Clients/beneficiaries, Industry stakeholders, Civil society, and the Public sector.
4. Enhancing stewardship reporting:
The updated label is also seeking to enhance the transparency provided by investors. Therefore, fund ESG commitment reports will need to provide clarity on, and specify:
i. the number of ESG engagement actions carried out over the past period, and the portion of the fund covered by at least one ESG engagement action;
ii. the classification of ESG engagement actions across the pillars of E, S and G;
iii. for collective ESG engagement actions, the degree of involvement, and
iv. any other significant action taken with portfolio holdings.
With our platform, investors are able to extract all recorded data for specific time periods and funds to better tell their stewardship story. For more information on stewardship reporting best practices, check out our blog 'Six Steps to Improve Your Stewardship Reporting’.
What we are seeing now across regions are steps to improve transparency, collaboration and accountability across the investment chain. With that comes higher expectations, also for investment stewardship, where investors are expected to demonstrate best practices by articulating and exemplifying how objectives and strategy translate into actions and then outcomes.