French Law No. 2023-973 of 23 October 2023 on the green industry (the “Law”) has been published in the Official Journal of the French Republic No. 0247 of 24 October 2023.
This Law aims at making France the leader in both green industry and technologies in Europe, and in existing green industries. The Law is an integral part of the French response to the environmental challenge of decarbonization, which is part of the national low-carbon strategy (“SNBC”), and to the economic challenge raised by industrial job creation.
The scope of the Law, spread out between 40 articles divided into 3 Titles, is quite broad and heterogeneous, but with the development of industrial activities as a common thread.
Title I deals with reindustrialization while promoting the ecological transition, through measures to facilitate and accelerate industrial establishments.
Title II aims at strengthening the consideration of environmental issues in public procurement processes.
Title III focuses on improving the financing of the ecological transition. This last part will be the focus of this article.
Creation of a new savings plan and evolution of the retirement savings plan
Creation of the Climate Savings Plan
The Law creates the Climate Future Savings Plan (“PEAC”), a new general savings product with a specific tax regime, exclusively reserved for minors and individuals under 21 years of age residing in France. In keeping with this age limit, the PEAC will be closed at the latest when the holder reaches the age of 30.
Payments made to the PEAC will have to be allocated to (i) the acquisition of financial securities contributing to the financing of the ecological transition, and (ii) financial instruments benefiting from a low level of risk exposure and whose issuers have their registered office in France or in another Member State of the European Union with an administrative assistance agreement with France to combat fraud and tax evasion.
A decree will list the securities and financial instruments that may be housed in a PEAC, the principles of savings allocation to which the PEAC will be subject, and the investment strategies it may propose. The list of eligible securities and instruments will include at least transferable securities or assets with one of the labels provided for in the fifth paragraph of Article L. 131-1-2 of the French Insurance Code (i.e. labels recognized by the French State for the financing of the energy and ecological transition or socially responsible investment, the list of which is specified by decree) as well as green bonds.
The management of the PEAC will be inspired by that of the French Retirement Savings Plan (“PER”). The PEAC will result in the opening of a capitalization contract or a securities account with an associated cash account. The payment ceilings will be set by order of the French Minister for Economy, while the PEAC’s tax regime will be determined by decree of the Conseil d’Etat.
The PEAC may be distributed by credit institutions, investment firms, insurance companies, mutual health insurance companies and/or their unions and pension funds and/or their unions.
The date of entry into force of the provisions relating to the PEAC will be set by decree no later than 1 July 2024.
Modernization of the PER
The Law also seeks to develop the PER (sections 32, 35, 36 and 37).
As of 24 October 2024, the following changes will be implemented on the PER:
- it will be possible to set a regulated minimum number of unlisted assets and assets financing Small and Medium-sized Enterprises (SMEs) and Intermediate-Sized Enterprises (ETIs) in the investment grids of horizon-based management (i.e. grids allowing the distribution of investments to be gradually adapted according to the time remaining before retirement),
- funds open to professional investors and financing institutions will be eligible for investment in the PER, and
- the subscription conditions of certain investment funds will be less stringent, in cases where investor protection is deemed sufficient.
As from 1 January 2024, any sustainability preferences of the PER holder will need to be taken into account when defining the investment grids.
In addition to the above, sections 36 and 37 of the Law allow insurance companies to transfer the entirety of a supplementary pension plan (section 83) to a mandatory PER. The maximum notice period applicable to an application for a collective transfer of a company’s PER is also reduced from 18 months to 6 months.
The contribution of life insurance to the financing of real assets and framework for the arbitration mandate
Providing a framework for the Arbitration Mandate
As of 24 October 2024, section 35 of the Law provides, in the French Insurance Code, a legal definition and framework for the arbitration mandate for life insurance and capitalization contracts. The Insurance Code therefore defines the arbitration mandate as the agreement by which the policyholder or owner of a life insurance or capitalization contract entrusts a person, acting in the course of his or her commercial or professional activities, with the right to arbitrate investment decisions.
The new provisions also specify that only intermediaries and insurance or capitalization companies may act as an agent for these arbitration decisions, and that the execution of the mandate may not give rise to any commission or remuneration paid in connection with investment or divestment operations between the proposed vehicles (this prohibition will come into force on 1 January 2026). In addition, the content and form of the agreement, as well as the procedures for informing the insurance institution and the principal by the agent, are also determined by the texts.
In addition, the agent has the right to delegate to an investment service provider authorized to provide the portfolio management investment service on behalf of third parties, the execution of the transactions falling within the scope of the arbitration mandate entrusted to the agent (insofar that the following cumulative conditions are met):
- the possibility of delegation will be expressly provided for in the terms of reference, and
- these operations will be carried out in accordance with the terms and limits set out in the mandate agreement, under the responsibility of the agent.
The arbitration mandate will be subject to the usual rules of the Insurance Code (e.g. rules for the prevention of conflicts of interest).
Modernization of the life insurance regime
The new provisions on life insurance, which come into force on 24 October 2024, are an ambitious development, as they aim to bring about real changes in the behavior of investors by:
- making the presentation of a streamlined management method mandatory. This management method should provide (for some investor profiles) the possibility of setting a regulated minimum number of unlisted assets and assets financing SMEs and mid-caps in the management grids,
- considering extending the list of eligible assets to Specialized Financing Organizations (FSOs), and
- allowing for more flexible subscription conditions.
General obligation to list state labels in life insurance contracts
The Law generalizes the referencing of labels recognized by the French State for the financing of the energy and ecological transition and socially responsible investment in the presentation of life insurance contracts featuring guarantees expressed in units of account. These labels, their criteria and their methods of issuance will be specified by decree.
These provisions will enter into force on 1 January 2024.
French law currently defines three categories of funds (professional funds with a general purpose, professional private equity funds and specialized professional funds respecting certain quotas), as well as two types of labels (label recognized by the State and satisfying criteria for financing the energy and ecological transition, and label recognized by the State and satisfying the criteria of socially responsible investment) that insurers are required to present to policyholders in their life insurance policies (Article L. 131-1-2 of the Insurance Code). However, the two types of labels (SRI and Greenfin, which are limited to listed activities and are already sustainable) are insufficient for the entire so-called “sustainable” finance market.
Strengthening the protection of investors
The Law supplements existing provisions allowing investors to invest in unit-linked products through their life insurance contract, by strengthening the insurance company’s duty of care to make it mandatory throughout the life of the contract.
Therefore, as of 24 October 2024, when the contract manager is informed of a change in the investor’s personal and financial situation or investment objectives, he or she must ensure that the contract remains appropriate or adequate to the requirements and needs expressed, and inform the investor if it is not.
Furthermore, if the contract has not been the subject of any operation (excluding scheduled operations) during a period specified by order of the Minister for Economy, the contract manager must update the information collected, unless the investor refuses or does not respond, to ensure that the contract remains appropriate or adequate to the requirements and needs expressed, and inform the investor if this is no longer the case.
Finally, in the event of any transaction likely to significantly affect the contract, the manager must advise the investor on an alternative transaction consistent with the investor’s requirements and needs.
Support for the development of French funds with the ELTIF 2.0 label
Among the measures to mobilize financing for projects promoting the ecological transition, the new provisions also aim to support the development of French ELTIFs (European Long Term Investment Funds) to redirect savings towards SMEs, mid-caps, real estate and infrastructure projects promoting the decarbonization of the French economy.
Regulation (EU) 2023/606 of the European Parliament and of the Council of 15 March 2023, which will enter into force on 10 January 2024, relaxed the current requirements for ELTIF-labelled funds with the aim of (i) mobilizing long-term financing for sustainable growth and competitiveness, (ii) mobilizing pan-European savings and providing a source of return for retail investors, where the old regulation had not really been able to achieve this objective.
The main impacts are:
- a reduction in the minimum ratio of eligible assets from 70% to 55%,
- an increase in the diversification ratio from 10% to 20% per asset;
- the removal of the requirement that the value of physical assets must be at least €10 million,
- an extension of the scope of eligible assets to include shares of Alternative Investment Funds (AIFs) and Undertakings for Collective Investment in Transferable Securities (UCITS) that have invested in eligible assets, bonds issued in accordance with the future European Green Bond Regulation and certain simple, transparent and standardized securitizations,
- integration of financial companies less than 5 years old into eligible companies,
- an increase in the capitalization threshold for eligible listed companies from €500 million to €1.5 billion,
- a €10,000 entry fee for retail investors with financial assets of less than €500,000 and the cap of 10% of assets invested in ELTIFs,
- a simplification of marketing rules and the addition of certain exit possibilities.
However, it was recognized that the current range of French funds was not sufficiently competitive to promote ELTIF 2.0 domiciliation in France and that it was necessary to review it in order to ensure its complementarity with the ELTIF 1 label.
The Law therefore aims to encourage risk mutual funds (FCPRs) and real estate collective investment undertakings (OPCIs) to obtain an ELTIF 2.0 label by providing for a derogatory regime: FCPRs and OPCIs labelled ELTIFs will be able, during a period of 2 years starting on 10 January 2024, to choose to be governed by the more flexible rules of specialized professional funds (FPS) in order to avoid certain investment constraints and diversification.
The eligibility conditions of ELTIF funds for the equity savings plan (PEA) have been modified to facilitate investor access to these products (Article 39 of the Law).
Finally, the Law enables the French Government to take measures to adapt the provisions relating to collective investment schemes to facilitate the obtention of the ELTIF label and the rules relating to the composition and constitution of AIFs open to non-professional investors to ensure their complementarity with ELTIF 2.0 funds.
At this stage, a remaining number of elements will have to be specified by decree. However, this new Law sets a clear course for the financing of the ecological transition and offers new opportunities as well as very attractive outlets for players in the banking, asset management and insurance sectors. All of these developments therefore go far beyond measures aimed solely at the development of a new green industry.
1: Impact study of the Law, p. 260 and Report No. 1512 of the special committee in charge of examining the draft Law, adopted by the French Senate after the initiation of the accelerated procedure (No. 1443 rectified), 7 July 2023.
