The esg finance market - France

1.2 Global market

According to the Global Sustainable Investment Alliance, the sustainable finance market was worth US$** tr illion in ****. According to Deutsche Bank, this market is expected to grow at a CAGR of +**% per year until ****, allowing us to estimate its size at US$*** trillion. These figures correspond to the capital invested in the ESG finance market. According to PwC's estimate, the annual growth rate could be increased by +*.*%, for a market of US$*** trillion in ****, if an international strategy guided by the Financial Market Infrastructures (***) were to come into being. evolution of capital mobilized on the sustainable finance market World, ****-****, US$ trillion Source: ****

Valuation firm Sustainalytics predicts total assets under management of US$** trillion in ****, or a third of total assets under management. By ****, ESG bonds already accounted for **% of total debt issued worldwide, with the trillion mark surpassed for the first time following **% growth in one year.

On the other hand, climate inaction would cost *% of global GDP every year from **** onwards [***].

1.3 Domestic market

The French ESG finance market is very dynamic, particularly in recent years. It is the leading market in Europe, with **% of European ESG funds managed in France, whereas France's share of total assets under management is only **%. In addition, over **% of French investment funds have set sustainability objectives. [***]

assessment of the role of sustainable finance in France France, ****, %, %, %, %, %, %, %, %, %, %, %, % Source: ****

ESG assets continue to grow as a proportion of total assets under management in France, estimated at €*,*** billion at the end of ****. Funds complying with Article * of the SFDR text account for almost a third of this amount, while green bond assets under management jumped by +**% between **** and ****, from €** billion under management to €** billion. [***] Finally, according to figures from the Banque de France, in ****, outstandings in solidarity savings amounted to €**.* billion, compared with €** billion for Greenfin-labeled funds and €*.* billion for microcredit outstandings.

Funds under management by ESG label France, ****, billions of euros Source: ****

1.4 Weight of France and Europe in ESG bond issues

Over the years, Europe has established itself as the world leader in ESG finance. By ****, almost half of all green bond issues were in euros.

Share of global green bond issuance in euros World, ****, % (***) Source: ****

With regard to ESG bonds in general, we can draw up a table summarizing the cumulative amounts issued on the continent by the end of ****:

Source: ****

by way of comparison, the cumulative size of the global green bond market was US$*.* billion at the end of ****. While nearly US$*** billion of GSS (***) bonds were issued worldwide in ****, US$**.* billion were issued in France, i.e. nearly a third, making it one of the world's leading countries. What's more, of the *** billion euros of outstanding bonds in circulation in Europe in ****, *** billion were French, i.e. **%. Of this *** billion, ***.* are green bonds, i.e. **%.

ESG bonds in circulation by theme France, ****, % of total Source: ****

According to a PwC study, Europe accounts for **% of the world's sustainable funds. But emerging markets are catching up fast, especially China, which will have issued **% of the world's social bonds by ****.

1.5 The European Union's green recovery plan in response to the Covid crisis

In response to Covid-** and the climate crisis, the European Union has drawn up a climate investment plan, directing capital from a wide range of institutions, both public and private. This massive channelling of capital into sustainable investments reassures investors about this asset class, and should drive a broad-based change in the financial sphere.

Source: ****

2.1 A majority of French people are interested in sustainable development when it comes to their financial choices

**% of French people are aware of sustainable development issues and pay attention to them.

How important are sustainable development issues to you? France, ****, %, %, %, %, %, %, %, %, %, %, %, % Source: ****

To a lesser extent, the French are convinced that savings and finance have a role to play in these issues, with **% of them orienting their savings and investments according to ESG criteria, at least from time to time. Moreover, **% consider that the way in which investments affect the environment is significant and should be taken into account.

Do you take these issues into account in your savings and investment choices? France, ****, % Source: ****

These issues are changing the way the French view the role of their financial institutions, towards which they are now more demanding when it comes to climate issues. In fact, **% of French people feel that it is important for financial institutions to ensure that the activities they finance or insure are in line with ESG and sustainability criteria.

Do you think that financial institutions should take ESG issues into account... ? France, ****, % Source: ****

On the other hand, **% felt that financial institutions were not taking ESG issues sufficiently into account.

2.2 Security and profitability remain French investment priorities

Only *% of French people place SRI criteria at the top of their list of investment priorities. However, **% include them in their top * criteria. The top * criteria remain the security of the financial product (***).

In fact, a CSA survey commissioned by Amf shows that the choice of SRI investment is directly linked to the level of expertise and risk appetite. The most experienced investors with high assets are familiar with SRI and see it as an opportunity, while novices, who prefer traditional, low-risk investments, are more wary, usually due to a lack of knowledge.

What is your main criterion for choosing a financial investment? France, ****, % Source: ****

2.3 Profile of ESG investment holders

The **-** age group is over-represented among ESG investors: **% of them own ESG investments, compared with **% of the rest of the population. According to a **** KPMG study, this generation is in search of meaning, which explains why **% of this age group would like to develop their knowledge of ESG investing. What's more, **% of them increased the proportion of ESG-compliant assets in their portfolios between **** and ****. There is also a strong appetite among older, more experienced investors with high assets, which they are used to growing. Thanks to their good knowledge of financial markets, they have assimilated the idea that sustainable finance makes it possible to combine environmental requirements with profitability.[***]

Profile of ESG investment holders France, ****, % Source: ****

3.1 Increased credit risk for vulnerable sectors

The consequence of taking ESG data into account in economic forecasts is to redirect capital away from sectors that are less compatible with sustainability requirements, towards more virtuous sectors. The sectors listed below will therefore be the first to bear the brunt of exclusion strategies adopted by investors seeking to develop their portfolios according to ESG criteria.

The ACPR's pilot exercise, implemented by the Banque de France, enables us to identify the sectors most vulnerable to transition risks, which will necessarily face a rarification of credit solutions in the years to come.

Sensitive sectors

The first group is made up of sensitive sectors, where a decline in added value seems inevitable.

Sectors of interest

The Banque de France also includes other sectors of interest, which are affected by transition risks to a lesser extent, but which account for a sufficiently large proportion of banks' portfolios to warrant monitoring.

Cost of risk

The table below shows the cost of risk as a function of the sector's sensitivity to transition risk. This highlights the sharp increase in the cost of risk in sensitive sectors, whether in the standard or rapid transition scenario. For example, the cost of risk will be multiplied by *.* between ...

3.2 ESG bond issuance by type of player

In Q* ****, the quantity of sovereign green bonds issued was double that of the previous year, reaching **% of total green bond issuance. The biggest issuers in Q* **** were corporates, responsible for **% of issues. Indeed, large companies, such as those in the energy sector like Iberdrola or Enel, regularly issue bonds worth several billion euros, notably to electrify their grids.

issuers of green bonds by type of entity World, Q* ****, % (***) Source: ****

More broadly, sustainable bonds encompass green, social and sustainability bonds. If we consider these three categories, it is the development banks that are driving the market, with **% of global issuance in ****.

sustainable bond issuance by type of player World, ****, % (***) Source: ****

3.3 Extra-financial indicators essential for evaluating a company

The following extra-financial indicators are essential for evaluating companies of all sizes: Pillars Themes Essential ESG indicators Environment Climate / Green share Green share of sales in taxonomy Resources / Water Volume of water used or recycled Resources / Energy Total energy consumption Human capital Skills development Total training budget by legal entity Workforce management Employment rate of disabled people Social Tax policy Overall tax rate Cybersecurity Investment in cybersecurity Governance Board and committees Number and percentage of women on the Board Compensation policy Sharing value creation between employees and shareholders More indicators are available here:"Professional guide to the extra-financial indicators essential for evaluating a company (***)"

4.1 Types of ESG financial products

Since ****, life insurance contracts have been required to include at least one SRI fund. Sustainable investments are also developing rapidly in employee savings funds, pension funds and real estate funds such as SCPIs. The governance dimension of ESG can also be found in shareholder engagement, which refers to dialogue policies within the company, facilitating voting at general meetings in particular. This dialogue helps to bring about the necessary changes. [***]

In France, around *** savings products have been awarded one of the three main French labels: SRI, Greenfin and Finansol. This is well above the European average.

ESG financial products by label France, ****, unit Source: ****

So, ESG criteria have taken the financial world by storm, and should soon be democratized. However, the category refers to a wide variety of products, which will need to be specified.

Source: ****

The European Commission has set itself the goal of standardizing supply across the continent, through the creation of an eco-label aimed first and foremost at excluding polluting activities. Implementation is scheduled for ****.

4.2 ESG data providers: a multitude of offers available

ESG data and service providers have developed from players in different industries.

Source: ****

The sector is also undergoing consolidation. The latest acquisitions are Sustainalytics by Morningstar and RobecSAM by S&P.

We will distinguish six main categories of ESG offerings and services, identified in the Deloitte report on ESG data providers:

5.1 European and French regulations defining the transparency framework for ESG information

European and French legislation has gone to great lengths to establish a transparency framework, notably to identify activities relating to fossil fuels. The European Regulation (***).

the European SFDR has been extended by Article ** of the French Energy-Climate Law.

5.2 A European framework under development: the Taxonomy and the tools to implement it

In addition to the publication of non-financial information, the European regulatory framework is based on two pillars:

The European Taxonomy

Adopted on June **, ****, the regulation is soon to be revised to include gas and nuclear, as transition technologies. This is a common classification of economic activities aimed at achieving environmental objectives, based on scientifically-developed criteria.

Sustainable activities are classified according to the following six objectives:

Mitigation of climate change ; Adaptation to climate change; Sustainable use and protection of aquatic and marine resources; Transition to a circular economy; Pollution control; Protection and restoration of biodiversity and ecosystems.

The aim is to enable progress to be made on a number of these points, without prejudicing progress on the remaining points(***).

Tools for implementation

The mechanism enabling companies and other players in the common market to develop sustainable investment solutions is based on two decisions:

Regulation on EU climate bench marks, applicable since ****; Standards on European Green Bonds(***).

6.1 Segmentation

• Engie
• Blackrock
• S&P
• Moody's
• Fitch Ratings
• Bloomberg
• Amundi