As part of its short, thematic 'SPOT' inspections, the Autorité des marchés financiers has examined the socially responsible investment (SRI) systems implemented by five asset management companies (AMCs) and their use of environmental, social and governance (ESG) criteria.

SPOT stands for Supervision des Pratiques Opérationnelle et Thématique, i.e. the operational and thematic supervision of practices. Its aim here is to ensure that SRI information provided to investors is fair, clear and not misleading, but also compliant in each case with the investment and management process to be followed.

The professional obligations of asset managers regarding socially responsible investing are based mainly on rules that govern the reporting of information to investors. Since 2011, asset managers have had to publish information about the ways in which they take account of criteria relating to the achievement of ESG objectives in their investment policies. The implementing decree of a French law regarding 'green growth' in energy, published on 31 December 2015, marked a new phase for ESG reporting requirements, in particular those that relate to the world's climate. In a detailed plan, it set out the information to be provided for each of the ESG criteria.

Over and above reporting obligations, the AMF examined the following during its SPOT inspections:

• the organisation of the SRI system in question and the means by which it came into being;
• the operational nature of the investment and risk management procedures that regulate the SRI system;
• the SRI methods (regarding data, ESG criteria, 'climate risk,' the rating of issuers, the selection of securities, the exclusion of securities, 'engagement policy' and the decision of whether or not to use external suppliers);
• the consistency of the investment process with regard to internal procedures by means of a test on a sample of four to six securities of the fund portfolio managed by the asset manager in question;
• whether the ex ante and ex post information provided to investors is satisfactory;
• internal control systems established on the SRI theme.

During both classical inspections and SPOT inspections, the AMF found that all the asset managers took the same approach to managing all funds in a socially responsible way. The AMF also noted that the AMCs use a broad range of methods. Three of the five companies use ESG data from four of the world's foremost Big Data providers.

The best practices that the AMF observed in terms of methods and investment process included:

• an SRI approach based both on the risks related to the products and services proposed by the issuer and on the opportunities linked to the issuer’s processes with regard to ESG issues;
• in dialogue with issuers, a focus on the ESG criteria announced to clients; and
• a formal and exhaustive audit trail of the investment and disinvestment process to ensure consistency between the investment policy, the methodology announced to investors and the actual process.

Information disclosed to investors

The information disclosed to investors is very extensive and varied from one asset manager to another. The AMF did not spot anybody breaking the rules. Generally speaking, at every asset management firm, the information it provides to fundholders is consistent between one document and another, although sometimes incomplete and unclear.

Some of the best practices observed by the AMF in terms of information include:

• making the prospecti/KIIDs describe the data service providers being used and keeping such information up-to-date;
• presenting, fund by fund, the companies that emit the most CO2, by defining the various scopes considered;
• specifying in the engagement report (a document that says how the asset management company exercises its influence to ensure that sustainable development issues are taken into account in financial markets) the universe of companies involved, the themes of the engagement policy and the actions for following up; and
• grouping the documents concerning engagement in a section easily accessible on the website.

This new series of SPOT inspections has given rise to follow-up letters.