Sustainable Investing Educational Guide (And Much More…)

Enerfip offers you an exploration of sustainable investing. Key principles, economic and climate issues, solutions for responsible investing... We want to demonstrate the power and impact that sustainable investing can have! Seen as a lever to meet current and future challenges, it is more necessary than ever to understand this financial tool in order to subsequently transform our savings choices into virtuous actions.

Fundamentally optimistic, the Enerfip team believes in a future focused on the deployment of the energy transition. For us, everyone, at their own level, can actively contribute to change. And that starts with informed investment choices that support innovative and responsible projects.

The Climate Emergency

The Paris Agreement, signed by 194 Parties (193 States and the European Union) at the end of COP21 in 2015, implies a profound transformation of the economic model. Indeed, each of the signatories has committed to reducing their greenhouse gas emissions in order to keep global warming between 2 and 1.5 degrees by 2100.

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→ COP28, when urgency meets hope

From now on, policies and the economy must be aligned with the Paris Agreement to limit climate risks. However, economic growth must be preserved and sustainable! That is the challenge! We must learn to reconcile the need to preserve our planet while ensuring sustainable and inclusive economic development, capable of meeting the needs of present and future generations. For the ecological transition to take place without major risks—such as rising sea levels, the disappearance of living and plant species, health risks, and food security—it is essential to implement green initiatives in our daily lives. It is with this in mind that governments and businesses are mobilizing to decarbonize the economy. On the one hand, fossil fuels must be gradually replaced by renewable energy sources. This is the phenomenon of adaptation. On the other hand, technological development plays a crucial role in enabling gains in energy efficiency. This phase is called mitigation.

The financial industry is no exception! Rethinking investment solutions is more necessary than ever to encourage investors to green their portfolios.

Sustainable Development

According to INSEE (the French Institute of Statistics and Economic Studies), sustainable development is “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Based on three pillars, it promotes economically efficient, socially equitable, and ecologically sustainable development. From the institutionalization of this concept in 1987 by Gro Harlem Brundtland, Norwegian Prime Minister, to the present day, sustainable development has served as a framework for thinking about the Earth, as well as all initiatives related to the fight against climate change and social inequality.

In this sense, the United Nations Global Compact has established 10 principles relating to human rights, international labor standards, the environment, and the fight against corruption that must be respected. Principles 7 to 9 promote: a precautionary approach to environmental issues; initiatives to promote greater environmental responsibility; and the development and dissemination of environmentally friendly technologies. The United Nations Global Compact, bringing together more than 10,000 businesses and other stakeholders in 162 countries, sets the ambitions for tomorrow. It encourages organizations to deploy their carbon strategies, including through initiatives that address the Sustainable Development Goals (SDGs). Since 2015, they have been seen as a roadmap to follow for the implementation of the 2030 Agenda. Peace, safeguarding humanity, preserving the planet, solidarity, growth and prosperity... The 17 SDGs cover a wide range of development issues with the aim of finding a balance between economic progress, environmental protection and social well-being.

Sustainable finance

Defined by Larousse as “the set of professions whose object is currency, money and its representative means, in particular securities”, finance plays a central role in our society. Completed by the word “sustainable,” it aims above all to reduce negative social and environmental externalities and to promote positive social and environmental externalities through financial activities such as savings, financing, and investment.

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→ Sustainable finance from A to Z (Part 1/3)
→ Sustainable finance from A to Z (Part 2/3)
→ Sustainable Finance from A to Z (Part 3/3)

Sustainable Finance in a Few Dates

• 1971: Creation of the first ethical mutual fund in the United States, by Luther Tyson and Jack Corbett, employees of the United Methodist Church.
• 1990: Launch of one of the first indices focused on responsible investment, the Domini 400 Social Index in the United States.
• 1999: Birth of the world's first sustainability stock market index: the Dow Jones Sustainability Indices and emergence of the term "socially responsible investment" (SRI).
• 2004: Use, for the first time, of the term “ESG” (Environment, Social and Governance) in a historic report “Who Cares Wins”.
• 2015: Adoption and signing of the Paris Agreement.
• 2019: Proposal of a responsible investment framework by the UK Investment Association, which aims to establish a common language to define and classify responsible investment.
• 2020: Publication of the latest report by the Global Sustainable Investment Alliance (GSIA) on the 5 largest sustainable investment markets, which shows a 15% increase in amounts compared to 2018.

Sustainable labels

A quality label certifies to consumers that a project or product meets certain criteria. In terms of sustainable finance, the SRI, GreenFin, and Finansol labels combine economic performance with social and environmental impact.

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→ The truth behind green labels and eco-labels

The SRI label

Following the Paris Agreement, the Ministry of Economy and Finance created the SRI label to enable savers, as well as professional investors, to distinguish investment funds implementing a robust socially responsible investment (SRI) methodology, leading to measurable and concrete results. In short, it makes it easy to identify responsible and sustainable investments!

🔎 The SRI label in figures
In November 2024, there were 1,279 labeled funds, 210 management companies, and €834 billion in assets under management.
Labeled Funds

The Greenfin label

Created by the Ministry of the Environment in 2015 during COP21, the Greenfin label guarantees the quality of so-called sustainable financial investments. Based on sustainable specifications and transparent practices, its aim is to mobilize a portion of savings for the benefit of the energy and ecological transition.

💡 The advantages of the Greenfin label
For investors:
– certified by experts;
– resolutely green;
– eligible for Pacte bonds for life insurance;
– in line with savers' environmental preferences.

For funds:
– increased visibility;
– communication tool;
– strong credibility;
– future expertise.

The Finansol label

Founded in 1997, the Finansol label only concerns solidarity savings products such as activities dedicated to the fight against exclusion, social cohesion or sustainable development.

Impact investing

🔎 Did you know?
The term “impact investing” was first used in 2007 in a report by the Rockefeller Foundation.

Impact investing, also known as “impact investing”, refers to investments that generate a positive and measurable social and environmental impact alongside a financial return. But then, how is impact investing governed? It is based on four pillars:

• intentionality: an investor must have the intention of investing in a virtuous project;
• profitability: an impact investment must generate a good financial return or, at a minimum, a return on capital;
• asset class: depending on the asset class targeted, the rate may be below the market or a risk-adjusted market rate;
• impact measurement: essential, it is proof of the investor's commitment, which promises to report on social and environmental performance, as well as the progress of the underlying investments.

💡 Who makes impact investments?
– Family foundations
– Private foundations
– Pension funds and insurance companies
– Fund managers
– Investment finance institutions development
– Financial institutions or diversified banks
– Religious institutions
– Individual investors
– NGOs

ESG criteria

Since the Energy Transition for Green Growth law was passed in France, financial companies have been required to provide an extra-financial report so that investors can easily visualize the impact of their investment. This report is based on ESG (Environment, Social, Governance) criteria, which are defined by the Autorité des marchés financiers (AMF) as indicators that “allow an economic player to be evaluated outside of the usual financial criteria of profitability, share price, and growth prospects.”

1. The “Environment” pillar encompasses everything related to climate change, such as carbon emissions, and biodiversity protection, such as pollution, toxic emissions and waste, or water stress.
2. The “Social” section highlights human capital, with workforce management and access to infrastructure, health and safety, as well as data confidentiality and security.
3. The “Governance” axis studies the company’s structure, its behavior (business ethics), and its accounting. (employee salaries) and the instabilities (corruption) that may be present.

ESG Measures and ESG Rating Agencies

🔎 The 5 Most Well-Known Rating Agencies
– MSCI ESG Ratings
– Sustainalytics ESG Risk Rating (Morningstar)
– Vigeo Eiris (Moody’s)
– Refinitiv (Reuters)
– ISS (Institutional Shareholder Services)

Responsible for assessing a company’s ESG policy, the rating agency plays a fundamental role in the development of sustainable financial products. To understand a company’s ESG strengths and weaknesses, it carries out monitoring work that involves collecting information related to ESG performance. Once this assessment is completed, it issues a rating for each of the E, S, and G categories, then records an overall ESG.

However, be aware that there is still some subjectivity in this rating, as two analysts may rate the same attribute differently. For example, social diversity can be measured through gender pay gaps or the representation of minorities within a company, particularly in positions of responsibility. In short, human bias is inevitable and can raise questions about the objectivity of the rating.

ESG Regulation

With the aim of increasing the scope of ESG criteria, Europe is putting in place a regulatory framework. What is it?

• Of course, there is the European taxonomy, which defines and promotes sustainable economic activities based on six key objectives, including climate change mitigation and adaptation.
• The Sustainable Finance Disclosure Regulation (SFDR), which came into force in March 2021, complements it by adding new measures aimed at injecting transparency into the financial market's approach to environmental, social, and governance (ESG) factors.
• The Corporate Sustainability Reporting Directive (CSRD), for its part, represents a fundamental step in the European Union's journey towards sustainable economic development. What does that mean? It strengthens reporting requirements by guaranteeing stakeholders access to reliable and comparable sustainability information.

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→ CSRD sustainability reporting

France also imposes ecological obligations to encourage the energy transition.

• Article 173 of the Ecological Transition Law, dating from 2015, is aimed at institutional investors who are now required to transparently publish the integration of ESG criteria into their investment operations. This article encourages them to promote responsible investment and to communicate on their management of climate risk and the carbon share of their portfolios.
• The Energy-Climate Law also allows for the setting of ambitious objectives for French climate and energy policy. What does this mean? This text promotes the gradual phasing out of fossil fuels, integrates the development of renewable energies, combats thermal sieves, etc.
• The PACTE Law, or action plan for business growth and transformation, was adopted in 2019 with a view to strengthening CSR within companies.

ESG Investment Strategies

To make an impact investment, you must adopt an ESG strategy. What does this mean? A financial approach in which ESG factors are integrated in addition to traditional ones in order to assess the risk/return profiles of their potential investments.

• The best-in-class approach: meaning “best in its category,” this financial strategy consists of investing in each of the best-performing companies in its sector.

Example: you select the “best performer” in each category without excluding any sector. It is therefore possible to invest in a best-in-class sector considered to be polluting, such as energy.

• The best-in-universe approach: literally “best in the universe” of investment, the best-in-universe approach selects the best-performing companies based on non-financial criteria, across all sectors.

Example: you choose to invest in the best of sustainable development, so unlike the best-in-class approach, you will only have companies dedicated to renewable energy or recycling.

• The best-effort approach: this “best effort” strategy consists of choosing companies that show significant improvement in their ESG practices.

Example: You choose to invest in companies that seek to improve their carbon footprint regardless of the company's sector. This could be consumer goods, the airline industry, the transportation industry, etc.

• Sector exclusion: this investment method involves excluding certain investment sectors seen as harmful to society.

Example: imbued with an ethical vision, this type of investment allows you to select what you do not want to invest in, such as the tobacco or arms industry, which go against your values.

• Normative exclusion: this approach involves specifically excluding X or Y company that does not comply with certain international standards, despite their sector of activity.

Example: you want to invest in the textile industry and apply normative exclusion to avoid selecting companies that do not respect the Universal Declaration of Human Rights or the International Labor Organization's Declaration on Fundamental Principles and Rights at Work.

• Shareholder engagement: this technique allows shareholders to vote at general meetings to guide the company's policy according to the values ​​they wish to defend.

Example: in the food industry, shareholders vote to improve transparency policies on product traceability.

• Thematic approaches: this is a thematic investment. What does it mean? You select companies whose activity focuses on the same subject, such as sustainable development.

Example: by choosing a thematic fund, you opt, for example, for pharmaceutical or biotechnology investment.

• Impact investing: with a positive aim, this investment aims to generate a quantified positive social and environmental impact, in addition to an attractive financial return.

Example: if you wish to invest in an impact fund, you can, for example, favor funds specialized in the social and solidarity economy.

Enerfip supports you

🔎 What is crowdfunding?

An alternative to traditional bank loans, crowdfunding allows a project leader to raise funds online, through a dedicated online platform – like Enerfip – from contributors to finance a specific project.

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→ What are the advantages of crowdfunding?

Much more than a crowdfunding platform, Enerfip offers you competitive, transparent, and virtuous savings to support the energy transition. By making the impact of your investments positive and virtuous, you participate in the decarbonization of savings products.

By working with us, you invest in the energy transition, directly in renewable energy production, energy efficiency, or sustainable mobility projects. Efficient, diversified, and in close contact with projects and project leaders, our offers actively contribute to the promotion of a low-carbon society model and a strong financial return.

If you are interested in our crowdfunding platform dedicated to the energy transition, make an appointment with the Investor Relations department without further delay!

Conclusion

“Our credit card is, in a way, a voting slip. Every expense, every investment, every action can contribute to shaping a more sustainable future.”

Julien Hostache, President and Co-founder of Enerfip

As you will have understood throughout this Educational Guide on Sustainable Investment (and more), sustainable investment is not just a fad. It is a real lever for building a fairer, more equitable, and more environmentally friendly future.

Through this guide, we wanted to give you the keys to understanding sustainable finance and adopting a responsible approach to your investments, by showing you that you have an impact on tomorrow.

At Enerfip, we are convinced that our savings choices play an essential role in accelerating the energy transition. It is now time to transform these choices into actions, because it is by investing responsibly today that we will build the future!