Financial decisions have a considerable impact on our daily lives, but even more so on our future: the world of tomorrow is the one we finance today. Therefore, taking into account a set of criteria in an investment decision – and not just financial returns – is fundamental. This was also the meaning of the "Who Cares Wins" report published in 2004, at the initiative of the United Nations Secretary-General Kofi Annan. "Who Cares Wins" became a foundational text because it established the ESG framework, emphasizing the importance of social, environmental, and governance criteria in investment decision-making.
Nearly twenty years later, in 2023, the French Financial Markets Authority (AMF) published a study in which 19% of investors stated that they held at least one investment linked to sustainable development. This shows how widespread this analytical framework has become.
However, we also observe that the ESG framework is neither standardized nor homogeneous: a 2021 Ernst & Young study identified more than 600 different ESG standards worldwide. Sometimes competing with each other, they have different indicators, methodologies, and weightings, to the point where it often becomes difficult to understand what lies behind this acronym.
Moreover, the French State attempted to regulate the term – unusually – by creating the "SRI Label" in 2016. It quickly became the leading ESG label across Europe. But it too faced numerous criticisms, leading to its reform at the end of 2023.
In this article, we will see what ESG is, what SRI is, how to navigate the sometimes opaque world of sustainable finance, and above all, how to ensure that our investments have a real climate, social, or environmental impact.
What is ESG? Who defines an ESG standard? Can anyone create an ESG standard? The limitations and criticisms of ESG criteria What is Socially Responsible Investment? The limitations of the SRI Label before the 2023 reform The new SRI Label since 2025 Climate finance post-ESG Investing in climate through emission allowances with Homaio
What is ESG?
ESG is an analytical framework that systematically integrates three major families of non-financial criteria into investment decisions and the analysis of financial assets:
- Environmental (carbon footprint, biodiversity, natural resource management, waste management, renewable energies);
- Social (human rights, working conditions, diversity, equal pay);
- Governance (business ethics, independence of boards of directors, anti-corruption, diversity).
ESG is therefore the acronym of these three words.
The ESG approach aims to better assess the long-term risks and opportunities related to these issues, beyond financial results alone. Designed to better understand the non-financial risks likely to affect long-term performance, the ESG framework does not, however, define a single method or minimum requirement. Each actor can choose their own indicators, weightings, and thresholds, which leads to a great heterogeneity of practices. Furthermore, we immediately see a structural limitation of the ESG approach: it combines three extremely different criteria. For example, a company could have excellent governance and an abysmal environmental impact.
Nevertheless, the evaluation of assets according to ESG criteria remains fundamental to assess the sustainability of the social, societal, and environmental framework in which these companies operate, and therefore ultimately the sustainability of their activities and financial performance. These criteria also help guide investors in their capital allocation choices.
Who Defines an ESG Standard?
ESG standards are generally created by private organizations (extra-financial rating agencies, consulting firms, specialized NGOs, sector consortia) or by international bodies. There is no single authority that defines what a "good" ESG standard is. This is why there are now more than 600 different standards or frameworks worldwide.
Among them, some have gained a dominant position, either due to their longevity or their adoption by major players. The most recognized include, for example:
- GRI (Global Reporting Initiative): one of the most widely used frameworks for corporate ESG reporting.
- SASB (Sustainability Accounting Standards Board): focused on the financial materiality of ESG risks by sector.
- TCFD (Task Force on Climate-related Financial Disclosures): specific recommendations for climate risks.
- CDP (formerly Carbon Disclosure Project): a benchmark for climate and environmental data.
- PRI (Principles for Responsible Investment): a UN-supported initiative to encourage ESG integration among investors.
In 2021, the creation of the ISSB (International Sustainability Standards Board) was announced at COP26, aiming to harmonize ESG practices internationally. Indeed, the ISSB recognizes that the lack of standardization in ESG criteria is a barrier to the transition to a sustainable economy. The ISSB is a body of the IFRS (International Financial Reporting Standards), which defines international accounting standards, particularly for all companies listed in Europe.
Can Anyone Create an ESG Standard?
In theory, yes. No global regulation defines who can or cannot create an ESG framework. This explains the proliferation of initiatives, sometimes competing, sometimes complementary. Some are serious, others much more marketing-oriented. Hence the importance, for an investor, of understanding which standard is used, by whom it was developed, and with what level of requirement.
The Limitations and Criticisms of ESG Criteria
In the absence of a harmonized framework, the ESG approach can sometimes be confusing. Depending on the methodological choices made, the same asset can be considered exemplary by one actor and insufficient by another. This variability contributes to maintaining a certain opacity for investors and opens the way to communication strategies that promote the "ESG" label without any guarantee of structural change. This is why the emergence of more demanding standards and certified labels is essential to strengthen the credibility of sustainable finance and allow investors to better assess the real impact of their investments. This is what the French State did in 2016 by creating the SRI label.
Other actors, like Homaio, want to go even further and argue that we need to go beyond ESG criteria by rethinking the analytical framework. They speak of a post-ESG, or post-normative, climate finance. This must integrate a measurability of physical impact, with an individualization of criteria rather than a confusion between three fundamentally different criteria.
What is Socially Responsible Investment?
It is in this context that the French State created the SRI (Socially Responsible Investment) Label in 2016. The objective was to offer savers a reliable benchmark by certifying funds that apply a rigorous ESG integration methodology. Indeed, a report published by the General Inspectorate of Finance in 2020 highlighted the difficulty in demonstrating the effective integration of non-financial dimensions to final savers – that is, people like you and me. State intervention was therefore necessary to define a quality standard. Moreover, this label was created to succeed previous initiatives from the private sector that had been unsuccessful until then.
In other words, the SRI Label is one of the 600 different so-called "ESG" standards that exist.
Its approach is generalist and inclusive:
- It values the quality of ESG management processes without imposing any obligation on the precise content of portfolios.
- It leaves broad methodological freedom to managers (choice of ESG ratings, objectives pursued, definition of sustainability).
The State owns the label but delegates its promotion to associations and its awarding to accredited bodies (AFNOR, EY). To obtain this label, a fund must demonstrate that it selects its assets according to precise criteria, that it carries out regular monitoring, and that it implements a continuous improvement approach. The label spread rapidly: in 2020, it represented €212 billion in assets under management, or 5.8% of French financial savings.
However, a fund can very well present itself as responsible by respecting ESG criteria without being labeled by the SRI Label. Thus, an article published by AGEFI in February 2020 indicated that out of the 488 sustainable funds distributed in France and identified as such by Novethic, only 263 were SRI labeled. In 2025, Reclaim Finance counted 967 SRI funds compared to more than 4435 funds promoting ESG criteria.
The Limitations of the SRI Label Before the 2023 Reform
As early as 2020, the General Inspectorate of Finance warned of the "inevitable loss of credibility and relevance" of the SRI label. Indeed, the level of requirement was considered insufficient: some labeled funds still financed sectors poorly compatible with ecological transition objectives, particularly oil and gas companies. The label sought to know "how" companies invest, but not "what" they invest in. Thus, a fund holding stakes in companies with a direct impact on climate change could very well be SRI labeled, far from the perception of final savers.
Also, a committee was commissioned to strengthen the ambition and requirements of the SRI label. The French non-governmental organization Reclaim Finance notably campaigned for this reform to be particularly demanding. One of its guiding principles was the prohibition, for any fund labeled "responsible," from investing in companies developing new coal, oil, or gas projects.
The New SRI Label Since 2025
The framework for the new label was published by the Ministry of Economy and Finance in December 2023. It came into effect on January 1, 2025. Its new features include:
- Exclusion of the coal, oil, and gas sectors, as well as tobacco and non-conventional weapons;
- Strengthening of social requirements, with stronger constraints on human rights, working conditions, and diversity;
- Better governance, with greater transparency on executive compensation, for example, or on voting policies.
One of the consequences was the delabeling of a third of the previously SRI-labeled funds, as highlighted in a Reclaim Finance article from March 2025. This illustrates both the previous lack of rigor of the label and its voluntary and non-binding nature: instead of applying the new criteria, a third of the funds preferred to abandon the label.
Navigating Between ESG, SRI, and Climate Finance
The ESG approach served to remind institutional investors and asset managers that their financial decisions are not isolated from the world in which they operate: they shape the world of tomorrow. Therefore, taking into account how this world is shaped, through the lenses of governance, society, and the environment, was fundamental. While it seems obvious today, it was not always so in the early 2000s.
It has therefore helped to initiate an awareness in the financial world, but it now shows its limitations: lack of standardization, confusion of criteria, difficulty in measuring a real impact. The proliferation of ESG standards, issued by all types of actors, has contributed to creating confusion. If things are not named precisely, if we do not have a common vocabulary, then coordination and understanding are impossible. In terms of ESG, this is exactly what is happening: there are literally hundreds of different definitions.
The SRI Label constituted an attempt at public framing in France, imposing clearer requirements. It has been exported across Europe, illustrating the need for standardization. But also, perhaps, its low level of requirement, which has led to calls for its reform. Thus, its recent revision goes in the right direction, but it remains anchored in a declarative and methodological logic.
Thus, if the ESG approach designates all the non-financial criteria used to evaluate the social and environmental impact of a company or an investment, the SRI label is an ESG standard put in place by the French State to standardize the analytical framework. By analogy, we can say that ESG is the category of vegetables, and the SRI label is a zucchini!
To meet climate challenges, a new approach is needed: a finance based not on indirect criteria, but on physical and measurable results. And above all, a specific analysis of the climate challenge, to gain precision and transparency.
And this is precisely what we wanted to build with Homaio.
Climate Finance Post-ESG
In recent months, ESG criteria have faced unprecedented distrust. The loss of assets under management (i.e., the sums previously invested and then withdrawn by investors, otherwise known as "outflows") from ESG funds was nearly $9 billion in the first quarter of 2025, according to the Financial Times. In Europe, it is the first time since 2018 that ESG funds have seen outflows exceeding investments (-$1.2 billion).
One of the reasons – among other, very complex ones – is simply the lack of quantifiable proof of the impact of ESG investments on the criteria they are supposed to promote. No one can say what, for example, has been the reduction in greenhouse gas emissions thanks to ESG investments. And the reason is simple: these criteria are methodological, they are not quantitative. And this is the main problem with climate finance for twenty years: it is anchored in human norms rather than in a physical reality.
Investing in Climate Through Emission Allowances with Homaio
We created Homaio by distancing ourselves significantly from the world of ESG criteria and all the competing labels created on such and such standards, scopes, or methods. Because, at the end of the day, what really matters is the impact on the physical world: the atmospheric concentration of greenhouse gases, temperature, rainfall, glacier volume, or ocean temperature. And so we are building financial assets that act on these physical realities.
This is why we built Homaio and opened up the European emission allowances market, without ever seeking to fit into the arbitrary framework of any label. Because emission allowances represent the emission of CO2 following the combustion of a quantity of oil, gas, or coal. They are based on physical flows. They belong to the real world, that of atoms and molecules. And every time you invest in European Union emission allowances, it is not a label you get, it is a quantity of greenhouse gases that you confiscate.
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