Life insurance takes a step towards sustainable financing in 2022


Solidarity funding is progressing, but remains primarily driven by employee savings Photo credit: GettyImages

Since 1 January 2022, life insurance has become greener and more inclusive. Indeed, insurance companies are required to integrate at least one unit of account supported by a fund benefiting from the SRI label (Socially Responsible Investment), at least one unit of account supported by a Greenfin-labeled fund and at least one unit of account, that is supported by a solidarity fund labeled Finansol in multi-support life insurance contracts.

Summary:

  • Summary

  • What is a Joint Life Insurance Agreement?

  • Solidarity savings are increasing, but whose total weight remains low

  • SRI rated funds: definition and principles

  • Greenfin labeled funds: definition and principles

  • Finansol-branded funds: definition and principles

  • What is ESUS accreditation?

  • The Finansol label is used to identify responsible investments

  • Life insurance: the obligation to disclose the percentage of marked units of account

Summary

What is a Joint Life Insurance Agreement?

Solidarity savings are increasing, but whose total weight remains low

SRI rated funds: definition and principles

Greenfin labeled funds: definition and principles

Finansol-branded funds: definition and principles

What is ESUS accreditation?

The Finansol label is used to identify responsible investments

Life insurance: the obligation to disclose the percentage of marked units of account

What is a Joint Life Insurance Agreement?

Solidarity financing includes savings products aimed at financing projects or structures with a strong social and environmental value. These actors grouped within SSE (Social and Solidarity Economy) have different profiles. It can be cooperatives, mutuals, savings associations, companies…

The financing of actors in the social and solidarity economy has two sources:

  • Sharing of products: when you donate all or part of the income from your investment to an SSE actor.

  • Financing products: The money placed in these structures comes from loans or equity investments.

While seeking performance, solidarity savings allow investors to make sense of their investments. By financing areas such as social housing, integration through employment and local businesses, solidarity funds respond to the growing demand for positive social impact, expressed by savers since the beginning of the health crisis.

Solidarity savings are increasing, but whose total weight remains low

Investments in solidarity savings increased sharply in 2020. According to the La Croix/Finansol solidarity financing barometer published in 2021, the outstanding volume of solidarity products jumped by 5 billion euros in 2020 to reach 20.3 billion euros the following year. An increase of around 33%. In 2021, solidarity funding weighed almost seven times more than ten years ago.

Despite these encouraging figures, at the end of 2020, solidarity funding represented only 0.36% of the total financial savings of the French. Outstanding bank solidarity savings increased by 59% last year, from just under €5 billion at the end of 2019 to almost €8 billion at the end of 2020. However, solidarity financing is still driven by employee savings. This amounts to almost 60% of the outstanding with almost 12 billion euros invested.

Life insurance accounts for more than 35% of households’ financial savings. However, these contracts account for less than 2% of outstanding solidarity savings. Since 2010, the obligation to refer to at least one solidarity FCPE (Company Mutual Investment Fund) in the company’s savings schemes has helped to steer employees’ savings towards solidarity savings. However, since 2020, new rules regarding life insurance contracts have favored investment in solidarity funds. Since life insurance outstandings are twelve times larger than employees’ savings (more than 1,800 billion euros), this system can provide an important lever for development.

Life insurance: Solidarity funds even more accessible in 2022

Since 1 January 2020, the Pacte Act (Action plan for growth and restructuring of companies) has introduced new rules in relation to joint financing. Insurance companies have since been required, within the framework of multi-support life insurance contracts, to offer at least one unit of account with the support of an SRI-branded fund, a Greenfin-branded fund or a Finansol-branded solidarity fund. From 1 January 2022, new multi-support contracts must jointly offer these three types of account units.

SRI rated funds: definition and principles

The SRI label (Socially Responsible Investment) was established in 2016 by the Ministry of Economy and Finance and corresponds to a generalist certification of responsible investments. It targets all types of investments (equities, money market, bonds, formula funds, ETFs, etc.) and all sectors of activity. It is awarded to securities and real estate funds whose investments meet strict environmental, social and governance (ESG) criteria. These are so-called “extra-financial” criteria, as they do not exclusively relate to financial criteria (such as turnover, profit or margins).

The SRI label is awarded after an audit and is valid for three years. It highlights products based on a particularly successful ESG analysis method. Their management must meet requirements regarding transparency, stakeholder information and measurement of the impact of the ESG approach.

Greenfin labeled funds: definition and principles

Unlike the SRI label, the Greenfin label, launched at the end of 2015 by the Ministry of Ecological and Inclusive Transition, is a specialized certification aimed at thematic funds. These are funds that focus on a specific business sector or sustainable development. Nuclear and fossil fuels (oil, coal, gas) are excluded from these funds.

By the end of 2021, 43 products were labeled Greenfin, guaranteeing their direct participation in the ecological transition. The awarding of the label depends on a nomenclature limited to eight sectors: energy, construction, waste management/pollution control, industry, clean transport, ICT, agriculture/forestry, adaptation to climate change.

Finansol-branded funds: definition and principles

The Finansol label, like the Greenfin label, is a specialized certification. However, the Finansol brand targets so-called “impact” funds. Or funds that invest in companies that offer concrete and measurable solutions. These include, for example, funds that directly support the financing of solidarity-based companies, promote access to employment or housing, the development of organic agriculture or support for entrepreneurship in developing countries.

Solidarity accounting units are mostly so-called “90/10” funds. These funds were created by the Fabius Act of February 2001 and were originally intended for employee savings in the form of Company Mutual Funds (FCPE). They were then rejected in the form of FCP or Sicav. They are led around two pockets:

  • From 5% to 10% of assets are invested in companies approved ESUS (Solidarity Company of Social Utility) or another financial instrument: Venture Capital Companies (SCR), Mutual Funds for Risk Investments (FCPR), Professional Funds Specialized ( FPS) if the assets of these funds consist of at least 40% of securities issued by ESUS companies.

  • The remaining 90% to 95% is traditionally invested in the markets, in shares or bonds.

To know

By the end of 2021, 178 products were branded Finansol.

What is ESUS accreditation?

An ESS structure can obtain ESUS accreditation if one of its main purposes is the following:

  • Produce goods or services with strong social and/or environmental utility, intended for vulnerable groups.

  • Produce goods for the preservation and development of social ties, education for citizenship.

  • Participate in sustainable development, energy transition.

  • Act in favor of cultural promotion or international solidarity.

These structures cannot be listed on the stock exchange. Their social provision activities must have a significant and demonstrable impact on the company’s profit and loss account or profitability. Finally, they are subject to a highly regulated salary scale.

The Finansol label is used to identify responsible investments

The Finansol label was established in 1997 and is awarded by a selection of independent experts. It confirms the solidarity of a savings product (FCP, FCPR, FPS or SCR). The solidarity and transparency of the fund, the real level of administration fees and the real degree of solidarity on the 5/10 pocket are particularly assessed.

Finansol can now give its brand to three types of life insurance products:

  • Funds in euros when at least 2.5% of the fund’s assets in euros are made up of solidarity assets and at least 1% is ESUS approved.

  • Billing units, if they meet the criteria that make it possible to consider them as joint and several within the meaning of the Insurance Act. In this case, the non-solidarity part of the fund must be under SRI management (Socially Responsible Investment).

  • Complete contracts when their funds in euros meet the criteria for the label and all their units of account are labeled Finansol, ISR or Greenfin (“green” label).

To note

If the Finansol brand is a guarantee of transparency, it is not required by contract law to refer to a joint and several unit of account in a life insurance contract.

Life insurance: the obligation to disclose the percentage of marked units of account

From 1 January 2022, when you take out a life insurance contract, your insurance company must inform you before signing what percentage of units of account labeled SRI, Greenfin and Finansol appear in your contract. The insurance company must also provide an overview of its responsible investment policy. The insurance company must also submit an annual report in which it specifies the part of the fund in euros that is invested in responsible and solidarity funds.

Life insurance: can ESG funds outperform traditional funds?

In addition, the performance of SRI funds is better than that of traditional funds. In April 2022, the European Securities and Markets Authority (ESMA) published its fourth annual statistical report on the costs and performance of investment products. According to this report, UCITS investments with an Environmental, Social and Governance (ESG) strategy delivered superior returns between 2010 and 2020 than their non-ESG counterparts. In addition, ESG equity, bond and mixed funds had an overall lower cost than non-ESG funds.

In France, there are no specific studies on the performance of ESG funds compared to traditional life insurance funds. Nevertheless, there are trends and the criteria of social and environmental responsibility (CSR) seem to gain more and more importance in people’s minds. Subscribers are looking for meaning in their investments, especially after the Covid-19 health crisis.

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