News
Issue 16
Edito
Clearing the path through labels and certifications
The increasing prominence of ESG (Environmental, Social, and Governance) issues, particularly environmental concerns, has led to the emergence of numerous labels and certifications. Facing the abundance and diversity of available options, both companies and their shareholders may feel disoriented, as ESG performance and its measurement are becoming key criteria for the company’s attractiveness to stakeholders. Therefore, it becomes crucial to navigate within this maze of thematic or sectoral labels, each pursuing different objectives. Indeed, their proliferation can lead to confusion for both companies and investors. As a result, investors tend to rely on French and European regulatory frameworks, while companies juggle between different labels and certifications. Furthermore, while these initiatives have gained considerable enthusiasm, obtaining and maintaining such certifications require significant financial and operational resources for the company. Beyond complexity and costs related issues, the question arises as to whether labeling provides an objective and relevant measure of transition progress towards an environmentally friendly production and consumption model.
In order to address these questions and shed light on the challenges of labeling, we have chosen to interview Ms. Giorgia Davidovic and Ms. Charlotte Allard, respectively Sustainability Manager at Reporting 21 and Sustainability Manager at the Sparring Capital Group, in this newsletter.
Sparring Portfolio News
Sale of Groupe Infraneo
In July, Sparring Capital announced the sale of Infraneo Group to Seven2.
Infraneo is an engineering group specialized in infrastructure asset management. The group enjoys a leading position thanks to its recognized technical expertise in soil, water cycle, building and infrastructure engineering, combined with a strong geographical footprint consisting of a network of 15 agencies in France and a European presence in Belgium, Spain, and Germany.
With the support of its shareholders and under the leadership of Bruce Xiste and his team, Infraneo has enjoyed a remarkable growth trajectory, reaching nearly 60 million euros in sales and 500 employees by 2023, and multiplying by five its size since the arrival of Sparring Capital.
With an expanded range of services and a European presence, led by a dynamic management team, Infraneo is remarkably well positioned to pursue its development with the support of its new shareholder.
Sale of Pure Trade
In July, Sparring Capital announced the sale of Pure Trade to AGIC Capital.
Founded in 1996 within The Brand Nation, from which it became independent in 2015, Pure Trade is a major player in the promotional products and high-end packaging markets for leading luxury and cosmetics brands.
The Group has developed a comprehensive and innovative range of services and products (pouches/bags, coffrets, textile, accessories, primary packaging, etc.) through an agile and flexible operating model supported by a network of more than 50 international supply partners.
With the support of its shareholders, the Group has since achieved sustained growth across all the continents on which it operates (offices in Paris, Barcelona, Hong Kong, Shenzhen, Shanghai and New York). Meanwhile, it has expanded its client base through the acquisition of prestigious brands. The Group, which employs more than 80 people worldwide, aims at reaching €90m of revenues in 2023.
Pure Trade has also substantially strengthened its innovation capabilities and enhanced its sourcing to become a key partner for major luxury brands regarding sustainability considerations. The Group is one of the first industry players offering life cycle analyses and environmental impact assessments of its products. This CSR excellence is reflected by a “Platinum” EcoVadis ranking.
ed by a dynamic management team with strong expertise in the international luxury market, the Group is well-positioned to continue its development with the support of AGIC Capital, its new shareholder.
Acquisition of Afitexinov
Sparring Capital acquired a majority stake in Afitexinov at the end of 2022, alongside its management team and Swen Capital Partners.
Established in 2019 following the merger of Afitex and Texinov, Afitexinov is one of the French leaders in the geosynthetics market, fabrics made of polymers used for the separation, protection, filtration, reinforcement or drainage of soils and surfaces.
Afitexinov is mainly specialized in the design, production and distribution of high value-added solutions for drainage and reinforcement, and also sells solutions for separation, protection and filtration. The group benefits from strong innovation capabilities (current portfolio of 23 international patents), thanks to its internal R&D team allowing the group to provide its clients with customized technical products, addressing the specific needs of each project.
As part of the operation, Sébastien Mathiot, current sales director, will become CEO of the group and succeed Yves Durkheim who will remain shareholder, alongside Didier Benamu, co-founder of the group. Yves Durkheim will also keep on supporting Afitexinov on strategic themes.
Acquisition of Kit Utilitaire and MyKitVan
In the first half of 2023, Sparring Capital completed a majority investment in Kit Utilitaire and MyKitVan, alongside the management team led by Pierre-Yves Buisson, the new CEO of the group.
Founded in 2008 by Stéphane Poppoff and based near Nantes, the group employs 35 people and operates two businesses, Kit Utilitaire and MyKitVan. The main subsidiary, Kit Utilitaire, the group’s historical business, designs and markets interior kits and exterior equipment for 3.5-tonne light commercial vehicles of all brands, for professional customers. MyKitVan transforms utility vehicles into leisure vehicles for which it has a team of experienced technicians.
Thanks to its hybrid “designer-assembler” approach and its multiple growth drivers, the group has developed quickly and today generates a revenue of nearly €12 million, with an annual growth of 20% over the last few years.
The partnership with Sparring Capital will facilitate the completion of a management transition to support the group’s growth, involving in particular the arrival of Pierre-Yves Buisson as the new CEO. The transaction takes place alongside the historical shareholders and the management team of Kit Utilitaire and MyKitVan.
Acquisition of Tecnizy-GCAT and H2O by Novakamp
NovaKamp, a specialist in life-base deployment, pursues its development and strengthens its expertise and presence outside of France through the acquisition of Tecnizy-GCAT and H2O.
Founded in 1998, Tecnizy-GCAT provides its clients with the expertise required to carry out their major infrastructure projects, mainly internationally, in the sectors of transportation, water, telecoms, industry, mining, defence and energy. Over the past five years, Tecnizy-GCAT has carried out more than 1,000 assignments for its clients, in 80 countries.
On the other hand, H2O assists its clients in autonomous water-related activities. NovaKamp’s operation involves acquiring the business mainly related to defense sector clients, with numerous replicable applications in the civilian world.
Following the acquisition of Fauché Energie (now eV-Teknology) in February 2022, NovaKamp continues its strategy of expanding its offering while enhancing its technical expertise, opening up new opportunities in the civilian sector, which is also a strategic priority.
These two external growth operations enable the group to target consolidated revenue of more than €40 million in 2023.
Acquisition of SNEA group et refinancement de sa dette par Weetec
Weetec, a major player in electrical and climate engineering in Ile-de-France, completed the acquisition of SNEA and SNEA Maintenance, specialized in climate engineering for tertiary activities. Therefore, the group reinforces both its presence in Île-de-France and its expertise in climate engineering. Through this operation, Weetec has also proceeded to a refinancing of its entire debt, aiming to strengthen its ability to complete further external growth operations.
Founded in 1974 and taken over by Eric Minet in 2008, the SNEA Group is a climate engineering player in Ile-de-France, serving mainly the tertiary sector with an expertise in specific areas (e.g. hospitals, laboratories, collective kitchens, etc.).
Thanks to this second acquisition of a climate engineering specialist, Weetec anticipates revenues exceeding €80m in 2023, almost entirely generated in Île-de-France, with approximately 25% from climate engineering activities.
Through this third build-up operation under Sparring’s ownership, Weetec has also seized the opportunity to refinance the acquisition debt contracted in 2019, in order to optimize its financing conditions and benefits from additional resources for new acquisitions in Île-de-France, thanks to a €20m financing facility structured by Caisse d’Épargne Île-de-France.
Pop changes its name
Following the merger of Pop and Cubik Partners, the group has adopted a new visual identity and now operates under the name Cubik.
REG Portfolio News
Acquisition of SMM Composites
Pechel completed a majority investment in SMM Composites in the first half of 2023, alongside the current shareholder, Aliamar, and the management team led by Olivier Kerdoncuff, the group’s president.
Founded in 1984 and based in Lanester, at the heart of the Breton Sailing Valley, SMM Composites (Société Morbihannaise de Modelage) is specialized in designing and manufacturing composite moulds and pieces (fiberglass or carbon) notably for naval and nautical industries.
Relying on a unique know-how in large moulds, which allows the company to meet the inherent requirements of sailing competition and ocean racing (the company is regularly involved in prestigious races such as the “Vendée Globe”, “Route du Rhum” as well as the America’s Cup), SMM has become an essential player in the ecological transition. The company is involved in green energies development – SMM Composites designs moulds for the latest generations of wind and tidal turbine blades – and in the decarbonation of maritime transport.
To meet its clients’ fast-growing needs, SMM will be able to rely on Pechel’s unique operational and extra-financial excellence system, which will enable the company to strengthen its expertise and accelerate its development.
Sparring Capital Foundation news
The Sparring Capital Foundation also continues its efforts by supporting a new program selected for its innovative solutions addressing social inclusion and environmental concerns: Carton Plein. Carton Plein is an organization focused on socio-professional inclusion that helps individuals facing exclusion to find employment by training them in environmentally innovative activities such as cardboard collection, reuse, and bicycle logistics in Paris.
The Sparring Capital Foundation supports the development of a workshop located in Nanterre, which will later become an integration project.
Sparring Capital news
Anne-Sophie Sainte-Cluque: Anne-Sophie joined Sparring Capital in September 2023 as Director.
Prior to joining Sparring, Anne-Sophie was Head of French Operations at Maisons de Famille, one of the leading nursing homes groups in France. As a member of the management committee, she was in charge of managing the nursing homes’ directors and defining operational quality standards. She had joined Maisons de Famille in 2015 as Head of International M&A, where she contributed to making the Group become the No. 2 private retirement homes company in Spain through external growth operations.
Anne-Sophie began her career in Strategy Consulting at A.T. Kearney before joining investment company Creadev.
She brings dual financial and operational skills, which will help strengthen the value proposition of Sparring Capital, an active player in the sustainable transformation of French SMEs.
Anne-Sophie holds a MBA from ESSEC Business School.
Charlotte Allard: Charlotte joined Sparring Capital in March 2023 as Sustainability Officer.
Charlotte, a graduate of EDHEC Business School, began her career in investment banking (Groupama Banque, Degroof Petercam) and then in lower midcap Private Equity (M80 Partners). Charlotte has built strong expertise in corporate sustainability through various sustainability-focused training programs and experiences in the nonprofit sector, including initiatives like the Fresque du Climat and Atelier 2tonnes.
As Sustainability Officer, Charlotte will oversee the implementation of ESG strategies for Sparring Capital and for Pechel, Sparring Capital’s subsidiary responsible for managing the “Responsible Growth” fund, which is currently being raised. She will work on regulatory issues and their integration in both investment processes and reporting. Charlotte’s mission also includes strengthening Sparring Capital’s ESG expert ecosystem and maintaining continuous monitoring of these topics. In addition, Charlotte will support investment teams in systematically integrating ESG issues into the value creation of each company in the portfolio.
Lyn Martinez : Lyn joined Sparring Capital in May 2023 as an Assistant Manager in the Finance Department.
She holds a degree in Accounting and Management and previously worked for 2 years on an alternating basis at Unowhy (an IT company) as a financial and commercial management assistant, followed by 1 year as an accountant, also on an alternating basis, at Ernest & Valentin (in the food sector). Subsequently, Lyn worked for 1.5 years in a permanent position as an accountant at MOORE DESIGN.
Cross interview – The thicket of labels
There has been an acceleration in the use of labels and certifications, at management companies, funds or holdings levels. How do we explain this phenomenon? Is it the proof of a sincere desire to improve practices, or the sign of a greater need for clarity in ESG practices, which are currently quite heterogeneous?
Charlotte Allard
The acceleration in the use of labels primarily demonstrates a growing awareness of ESG issues at all levels, at both investors and portfolio companies levels. Investors, enterprises, and consumers are increasingly aware of risks associated with unsustainable practices and actively seek ways to contribute positively. The use of ESG labels or certifications is one such way.
The use of labels and certifications helps to improve practices by encouraging companies to adhere to high sustainability and responsibility standards. These labels can also enhance transparency and visibility of a company’s ESG practices, going beyond mere declarations and becoming a compelling factor in establishing business relationships, for example.
However, it’s crucial to note that the growing use of ESG labels can also present certain challenges. Some actors may seek to “greenwash” their activities by using ESG labels without a genuine commitment to sustainable practices. Therefore, it’s essential that the chosen labels are rigorous, transparent, and verifiable to distinguish genuine sustainable initiatives from superficial marketing attempts.
Giorgia Davidovic
The acceleration in the use of ESG labels (such as B Corp, Lucie, etc.), certifications (including ISO), and legal statuses (such as Société à Mission and ESUS) is particularly noticeable in recent years in the corporate world, spanning from SMEs to large publicly traded companies. This choice is driven by the desire to showcase sustainable practices to various stakeholders, including employees, customers, investors, and civil society. ESG performance is increasingly becoming a criterion for selection and/or exclusion for investors and end consumers, as well as a key factor in attracting talent.
Investment firms, on the other hand, tend to focus on joining specific initiatives (such as France Invest, UNPRI, CDP, etc.) and prioritize compliance with French and European regulations. While some funds, primarily publicly traded ones, use labeling, the proportion remains low compared to companies. The priority given to alignment with the regulatory framework rather than labeling reflects the need for investment firms to agree on a common reference framework at the European Union level to harmonize practices regarding ESG performance monitoring and communication.
Between generalist labels, thematic or sector-specific labels and various certifications: how do you make the right choice? What selection strategy should be adopted in a world of uneven requirements (green share, sectoral exclusion criteria, points-based scales, etc.)?
Charlotte Allard
Indeed, there is a multitude of labels and certifications with various applications. Some are generalist (like B Corp, for instance), while others are thematic (e.g., Great Place to Work), but they may apply specifically to funds or to their investments. Others cover only specific aspects of ESG, such as the environment, and are applicable to specific investment vehicles, like the Greenfin or LuxFLAG Environment labels.
Before choosing a label or certification, it’s essential to understand your objectives: what are the ESG issues that matter most to you? Which themes or sectors do you want to prioritize? Does the chosen label need to have international recognition? Answering these questions helps to target labels that align best with your priorities and align with your values and specific ESG goals.
While some labels are more holistic than others, it’s essential to remember that the perfect label doesn’t exist. As an alternative, the status of a “Société à Mission,” introduced by the PACTE law in 2019, could be considered the “ultimate” label for certain companies or investment firms.
Giorgia Davidovic
The increasing complexity of ESG topics and the proliferation of ESG practices have accelerated the creation of sector-specific, thematic, and generalist labels and certifications covering the ESG issues faced by companies. For example, companies facing all forms of discrimination, especially during recruitment, may use the Diversity label. Concerning supply chains, the “Relations Fournisseurs et Achats Responsables” (Supplier Relations and Responsible Procurement) label distinguishes companies with ESG-aligned procurement practices. Lastly, the ISO 26030 label provides a framework for ESG best practices throughout the food supply chain. However, the level of rigor and labeling criteria vary significantly from one label to another: some are more focused on practices and resource requirements (e.g., EcoVadis), while others rely on results-based requirements (e.g., Ecocert certifications).
For investment firms, labeling is far from becoming the norm, despite the increasing number of labels. Except for certain asset classes for which specific labels exist, such as real estate with the ISR label, investment firms predominantly prioritize alignment with the regulatory framework.
Therefore, it’s up to each entity to determine which label best addresses its ESG challenges while taking into account the expectations of stakeholders. It’s relevant to consider certain criteria in their selection, such as the recognition and legitimacy of the label (especially its longevity), the scope that suits their needs and ESG strategy, as well as the independence of label attribution and the monitoring regularity.
With the multiplicity of labels and the complexity of the relating deciphering complexity, doesn’t the market end up clinging to the regulatory framework, as evidenced by the increased interest in fundraising for Article 8 and 9 funds?
Charlotte Allard
The proliferation of ESG labels for funds and their complexity can indeed create some confusion in the market. In this context, investors may turn to the regulatory framework to navigate and identify financial products that meet specific regulatory criteria.
The increased interest in funds falling under Articles 8 and 9 can be explained by the fact that these products are more easily recognized as sustainable financial products, especially for Article 9 funds, and investors seem to perceive a certain alignment between declared ESG objectives and investment strategies.
However, it’s important to note that the SFDR (Sustainable Finance Disclosure Regulation) classification, sometimes wrongly used as a label, currently relies only on a declarative transparency principle, unlike certain labels that undergo a very strict verification process.
It’s also important to note that other funds and products not falling under Articles 8 and 9 are not necessarily devoid of ESG approaches. Some funds may choose not to fit into these regulatory categories for various reasons but can still incorporate ESG criteria into their investment process.
Ultimately, labels could be one way to gain clarity, particularly for Article 8 funds, which exhibit highly heterogeneous levels of ambition.
Giorgia Davidovic
For a better understanding of market trends, it’s crucial to distinguish companies and investment firms. European regulations for companies, currently NFDR (Non-Financial Reporting Directive) and soon CSRD (Corporate Sustainability Reporting Directive), apply to a relatively small portion of the market (10,000 companies under NFDR and 50,000 under CSRD) because their mandatory nature vary according to several parameters such as size and revenue. Furthermore, these regulations require disclosure but do not necessarily enforce ESG compliance. As a result, companies seek to differentiate themselves and highlight their ESG initiatives through labels and certifications, particularly sector-specific and thematic ones.
On the other hand, investment firms prioritize compliance with French and European regulatory frameworks, especially through the SFDR classification of their funds, which allows to acquire a certain legitimacy and recognition for their ESG maturity. The SFDR classification is often considered as a “proxy label” by investors, even though it isn’t one in practice. Therefore, the prevalence of compliance with regulations weakens the role and use of labels in the financial domain.
Can green finance labels be a way of guarding against the risk of greenwashing?
Charlotte Allard
Yes, green finance labels can be an effective way to guard against greenwashing, provided that they are based on strict standards and well-defined criteria, undergo independent verification processes by neutral and qualified third parties, and are transparent in their labeling procedures.
They contribute to give investors and stakeholders greater confidence in genuinely sustainable initiatives and products. Investors and stakeholders must, therefore, pay attention to the reputation and recognition of the labels they rely on.
From the perspective of individual investors, a survey conducted by OpinionWay for the AMF (Autorité des marchés financiers) in July 2023, titled ‘French People and Responsible Investments’, shows that French investors support sustainable investment. However, while the majority of them expresses interest, many hesitate to invest due to the complexity of sustainable finance concepts, perceived as too jargon-heavy, and concerns that this complexity may hide a risk of greenwashing. Labels such as ISR (Sustainable and Responsible Investment) and Greenfin are still relatively unknown to the general public (69% of French people not being familiar with either).
Giorgia Davidovic
The labels of sustainable finance are still underutilized today, and the associated labeling criteria are relatively lenient and poorly controlled, making them not always effective in guarding against greenwashing risks. Public denunciations in the media and research publications assert that a certain number of certified funds do not adhere to the labeling eligibility criteria, particularly by investing in companies directly involved in fossil fuel or aviation operations. Furthermore, as sustainable finance labels are relatively new and not yet fully matured, they can create regulatory gray areas. Therefore, it is necessary to remain vigilant regarding sustainable finance labels, as they do not always provide sufficient guarantees regarding the adherence to ESG criteria for these investments.
Aren’t labeling and certification processes, which require substantial human and financial resources, likely to favor large management companies to the detriment of smaller ones?
Charlotte Allard
Yes, it is true that the certification and labeling processes can demand significant human and financial resources, potentially favoring large management companies at the expense of smaller ones. This can occur for several reasons:
High costs that are sometimes associated with applying for and maintaining a label (regular recertifications, etc.). Audit, verification, and monitoring fees can be substantial, making it challenging for small businesses to access these labels.
The certification and labeling processes can be complex and require significant human resources to collect, analyze, and report the necessary data. Management companies with dedicated ESG teams may be in a more favorable position to successfully complete these projects.
To address these inequalities, some certification and labeling organizations have taken these factors into account and have made their labeling processes more accessible and proportional, whether in terms of costs, data requirements, or simplified procedures, specifically tailored to smaller businesses.
Additionally, it is advisable not to hesitate in seeking assistance, whenever possible, from consultants whose expertise can save a significant amount of time, reduce the workload for teams, and minimize potential errors.
Giorgia Davidovic
As mentioned earlier, the overall trend in the financial market is not towards labeling: institutional investors prioritize classifying their funds according to SFDR regulations, and management companies focus on implementing good ESG practices related to investment selection criteria, exclusion lists, methodologies, and consideration of ESG risks and opportunities. Consequently, smaller management companies are not necessarily disadvantaged. Their primary challenge is often the lack of internal expertise and training necessary to understand and implement complex and constantly evolving regulations.