French Regulators Report Progress but Call for More Climate Action by Financial Firms

The Autorité des Marchés Financiers (AMF) and the Autorité de Contrôle Prudentiel et de Résolution (ACPR), France's financial regulators, have published their 4th annual report assessing climate commitments made by banks, insurers and asset managers in the Paris financial center.

The report finds that banks and insurers are making progress in exiting financing for coal projects, with exposures continuing to decline. However, the regulators say more specifics are needed on policies and timelines for restricting financing in the oil and gas sectors.

"Banks and insurance companies have tightened their policies on limits or exclusions for oil and gas, but do not generally envisage a date for exiting the hydrocarbon sector," the report states. It encourages more disclosure around the application of fossil fuel exclusion policies.

Banks' Fossil Fuel Policies

The report states that while banks have made progress exiting coal financing, they need to provide more specifics around the "limits or application of their exclusion policies, which are very heterogeneous."

This suggests compliance and ESG teams at banks should review their fossil fuel exclusion policies to ensure clear parameters and consistent application across the institution. Improving policy documentation and governance around implementation could be an area of focus.

The report also notes that most bank commitments on oil and gas have focused on the upstream extraction side, following IEA guidance. However, it leaves open the possibility that banks may need to consider broader limits across the oil and gas value chain over time.

Insurance Companies

For insurers, a third have recently tightened coal exclusions and reported exposures are "beginning to fall fairly sharply." However, the ACPR wants to see more disclosure from insurers on the amount of fossil fuel exposure across their liabilities.

This indicates insurance company compliance and ESG teams may need to enhance monitoring and public reporting of fossil fuel underwriting exposures, including breaking out exposures to different categories like coal, oil and gas.

Asset Managers

For asset managers, the report flags issues around transparency of fossil fuel divestment policies, management of exceptions, and policies covering non-coal fossil fuels. It encourages formalizing and disclosing more robust policies in these areas. This suggests compliance and ESG teams at asset managers should:

1. Clearly document fossil fuel investment exclusion policies
2. Establish rigorous governance around making exceptions
3. Extend policies beyond just coal to other fossil fuel categories
4. Enhance public disclosure on fossil fuel investment approach

Overall, the report emphasizes the need for more consistent, specific and transparent policies and disclosures related to fossil fuel exposures and climate risk management across the financial sector. This will likely require compliance and ESG teams to review and strengthen their programs in these areas.

The regulators specifically urge asset managers to enhance disclosure around exceptions to fossil fuel divestment policies and plans regarding non-coal fossil fuels like oil and gas. The report says further efforts are required across financial sectors to transparently manage climate risks. Significant methodological disparities remain an obstacle to comparability of fossil fuel exposures.

"With this report, as in previous years, we are urging banks, insurers and investment management companies to continue their efforts to take account of and manage the risks associated with climate change," the AMF and ACPR stated in a press release.

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