“Green Industry" law misses the target on financing

The government will soon introduce in Parliament the “Green Industry” bill, which aims to decarbonise industry and develop new sectors for the “green” economy. The financing part of this law claims to mobilize French people’s savings for the ecological transition, without proposing sufficiently ambitious measures likely to massively direct private investments from carbon-based activities – in particular fossil fuels – towards companies and sectors truly committed to the ecological transformation. Critical analysis and alternative proposals by Reclaim Finance.

The “Green Industry” bill (1), which will be presented to the Council of Ministers next week, is part of a series of measures that the government plans to adopt by regulation or through the 2024 Finance Act. These measures have a twofold objective: to make French industry greener on the one hand – in particular the most polluting production sites such as metallurgy, petrochemicals and cement (2) – and to meet the industrial needs of the energy transition on the other.

This law is also a national translation of the European will to take part in the race to “green” industrialisation, in which the United States and China have already taken a certain lead (3), and this in a context of chronic deindustrialisation of the French economy (4).

The financing aspect of the law

Among the various areas covered (5), this bill contains four articles related to financing which aim to mobilize private investment for the ecological transition, in particular the “patient” part of the 5,700 billion euros (6) saved by the French (i.e. long-term savings for retirement or future purchases, which are less concerned with return or liquidity than with security).

The main novelty comes from the “Avenir climat” savings plan (Article 11). Reserved for minors, this new investment product will be managed by a public institution, will receive government contributions (7), and will benefit from tax advantages equivalent to those applicable to the Livret A. All withdrawals will be frozen until the saver reaches the age of majority.

Two other provisions related to existing savings products are proposed. Firstly, the bill revisits the obligation under the PACTE law for distributors of life insurance policies to offer at least one green-labeled unit of account (Article 10). On the other hand, it aims to direct investments towards SMEs, SMIs, real estate and major infrastructure projects (Article 13) and authorizes investment in private equity through life insurance and retirement savings plans (Article 12).

Modest mobilisation of savings, with no guarantee of their proper allocation

Although it states that its objective is to “finance the productive economy and the ecological transition”, the bill provides no guarantee as to how the funds of the “Avenir climat” savings plan will be invested (8). For example, for the energy sector, its investment perimeter does not provide for the exclusion of companies that continue to develop new oil and gas production and transport projects. A fortiori, no guarantee is required as to the transition trajectory of the companies, such as a decrease in hydrocarbon production in the medium term. Contrary to what its name implies, the “Climate Future” savings plan could support activities that serve the objective of limiting global warming to 1.5°C.

With this “Avenir climat” plan, the government also wishes to enable minors to “build up capital for integration into working life” (9) and to “familiarise minors with the workings of savings products, and even financial markets, in order to eventually train informed investors” (10). Considering that only a wealthy minority of the population has the possibility of building up a safety net by investing their savings in the financial markets, this “Climate Future” plan could, in addition to continuing to maintain the primary causes of climate change, contribute to the widening of inequalities.

The absence of significant earmarking and restrictive filters on other investment products poses similar problems, including for investments in SMEs and SMIs, where there is no guarantee of their contribution to the ecological transition. Worse, without any guarantee on the future of the SRI label (11), the law goes back on the only measure guaranteeing the – minimal but real – earmarking of a part of life insurance contracts towards activities useful to the transition (12).

Our proposals to mobilise savings for the ecological transition

During the preparation phase of the bill, Reclaim Finance sent the government a series of proposals to mobilise savings for the ecological transition:

Encourage savers to reduce the proportion of their investments in controversial activities by improving transparency on the allocation of their investments. To do this, we propose on the one hand that a tricolour indicator illustrating the exposure of investment products to controversial activities such as fossil fuels, deforestation, tobacco or arms be displayed next to each financial product (13). On the other hand, only savings products with rules excluding certain controversial activities can offer tax and/or social benefits (14).
Define minimum criteria for the investment policy of the various savings products that receive public support (regulated savings accounts, life insurance, employee savings (15), retirement savings plan, future “Avenir climat” savings plan) and those of green bonds (16). These criteria should make it possible to judge the credibility of the transition plans of the companies that would benefit from these funds (17), and on the other hand to exclude companies that are developing new oil and gas production and transport projects or that do not foresee a decrease in their hydrocarbon production;
Create a preferential borrowing rate for “credits” allocated in the framework of the financing of projects contributing to the ecological transition (18)

Without criteria to ensure that savings are rigorously channelled towards activities that are compatible with the objectives of limiting global warming to 1.5°C, the government is missing its target and losing a precious opportunity. Not only should it have strengthened the measures governing life insurance – a product with almost 2,000 billion euros in assets (6) and which benefits from more than one billion euros in tax advantages (14) – but it should also have looked into the implementation of strict measures guaranteeing the absence of investment in fossil fuels from the 520 billion euros in the Livret A and Livret Développement Durable et Solidaire (LDDS) (19).

Contact:

Antoine Laurent – Advocacy France – antoine@reclaimfinance.org – 06 42 42 69 05

Notes:

The analysis in this article is based on the version of the draft bill submitted to the National Council for Ecological Transition (CNTE).
In France, in 2020, industry will account for 31% of greenhouse gas emissions, distributed as follows: 11% from manufacturing and construction, 10% from the energy industry, and 10% from industrial processes (Ministry of Ecological Transition, Chiffres clés du climat, December 2022). Industry is also one of the main sectors responsible for outdoor air pollution. (Ministry of Ecological Transition, Bilan de la qualité de l’air extérieur en France en 2021, October 2022).
This bill aims in particular to respond to the American Inflation Reduction Act, which plans to inject nearly 400 billion dollars of public money into the economy of tomorrow (IFRI, Inflation Reduction Act versus Green Deal. Transatlantic differences on the energy transition, March 2023), as well as to face up to China’s monopolisation of many strategic sectors for the energy transition (ASPI, Critical Technology Tracker, April 2023).
“Since 1980, the industrial branches have lost almost half their workforce (2.2 million jobs), and industry now accounts for only 10.3% of total employment. Industry’s share of GDP has fallen by 10 points over the same period and stood at 13.4% in 2018, compared with 25.5% in Germany, 19.7% in Italy and 16.1% in Spain. (France Stratégie, Les politiques industrielles en France Évolutions et comparaisons internationales, December 2020).
In addition to the part on financing, the Green Industry Bill deals with industrial planning (Chapter 1), public consultation and planning permission procedures (Chapter 2), the circular economy (Chapter 3), plug rehabilitation (Chapter 4) and public procurement (Title 2).
Banque de France, Household savings 2022Q3, February 2023.
The government anticipates several scenarios depending on the amount of the top-up that will be chosen when the 2024 Finance Bill is examined. The cost to public finances varies from 682 million to 1.14 billion euros per year depending on whether the contribution varies from 50 to 500 €.
The first objective of the “Avenir climat” savings plan, as explained in the impact study of the bill, is to “create long-term savings geared towards financing the economy and the ecological transition: this would involve draining the savings held by minors in regulated passbook accounts or life insurance in euro funds – liquid and guaranteed investments invested in interest rate products – towards a new long-term product designed to finance the productive economy and the ecological transition“;
Second objective explained in the impact study of the bill: “Constitution of a capital for integration into working life: this new savings product could represent an incentive to build up savings dedicated to financing the future expenses that young adults must face (studies, housing, driving licence, etc.)“.
Third objective explained in the bill’s impact study: “Financial education: the creation of this new savings product would be accompanied by appropriate support, with regular and educational documentation in particular, in order to familiarise minors with the operation of savings products, and even financial markets, in order to eventually train informed investors.
The SRI label is currently undergoing a final review. Although the latest proposals of the SRI Label Committee will lead to a significant strengthening of the label’s credibility, political arbitration has not yet been completed and improvements can still be expected (SRI Label Committee, Proposals of the SRI Label Committee for a revision of the standard, April 2023).
The PACTE law already provided that from January 2022, distributors of life insurance policies are obliged to offer at least one unit destined to finance SSE, one unit labelled “green”, and another unit labelled “SRI”. In the draft “Green Industry” law, this obligation is limited to offering at least one unit investing in SSE and another labelled unit (whether investing in “sustainable” or “socially responsible” funds).
Reclaim Finance, Legibility and transparency of funds and savings products, April 2023.
State support for French savings represents an annual cost of nearly €5.8 billion for public finances, of which €2.6 billion is related to employee savings (€2.1 billion in exemptions for sums paid under employee savings and company retirement savings plans, €280 million in exemptions for income from employee savings and €300m exemption of gains made on the sale of securities acquired under employee savings schemes), €1.3bn exemption or reduced taxation of income from life insurance policies, 400 million in exemptions for interest and premiums paid in connection with housing savings, €380 million in exemptions for interest on Livret A savings accounts, and €300 million in exemptions for interest on LDDS, PEP, LEP and Livret Bleu savings accounts (Programme 145 of the General Budget: Savings, page 13, October 2022). However, these tax breaks benefit all households, regardless of their standard of living, and support savings products that have no ecological investment rules.
Reclaim Finance, Mobilising employee savings for the ecological transition, March 2023.
Reclaim Finance, Essential Criteria for Green Debt Financing, February 2023.
Reclaim Finance, Essential criteria for a corporate climate transition plan, February 2023.
Reclaim Finance, Preferential Interest Rates for Green Finance, February 2023.
Reclaim Finance, Epargne, Nos économies au service du chaos social et climatique, October 2020 / Reclaim Finance, Réforme des retraites : quel impact sur le climat ?, January 2023 / Collectif de personnalités de la société civile et politiques, Stop au greenwashing de nos livrets d’épargne !