French funds follow lead on exclusion

French asset managers are joining other European companies in the application of negative ‘normative exclusion’ screening to their investments.

Few companies stand consistently excluded from investment universes, but research by French consultancy Novethic suggests France is following Scandinavia in blacklisting companies falling foul of international conventions, such as the Global Compact, the International Labour Organization and the Universal Declaration of Human Rights.

Although a best-in-class approach still dominates French sustainable investment, the signs are that exclusionary practices are becoming mainstream – a quarter of SRI managers practise normative exclusion. After weapons manufacturing, mining seems the first in line for divestment.

The five most excluded companies in France, apart from businesses involved in cluster munitions and landmines, are: Barrick Gold, Chevron, Freeport-McRan, Vedanta and Walmart. Most breach international environmental or labour laws, or both. Defence companies, including Lockheed Martin and Textron, were almost universally excluded.

The present lack of consistency on exclusion is hampering a strong economic impact on the offending companies. But Novethic concludes: “The risk to image and reputation is real. The idea of practising exclusions alone is sufficient to prevent the black sheep entering SRI. Even beyond the scope of SRI, a growing number of investors see these exclusions as a normative tool to all of their assets, allowing them to keep at bay criticism of their legitimacy and social utility that have grown steadily since the beginning of the financial crisis.

“As investors advance on the path of sustainable development, they are further seeking to preserve their reputation, assume strong postures and, sometimes, make political exclusions on specific issues such as respect for human rights.”