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French Sub-Sovereign Governments: Strong Financials to Contribute to the National Low-Carbon Strategy

The French National Low-Carbon Strategy ("SNBC") aims to achieve carbon neutrality by 2050 while remaining at this stage consistent with the intermediary target of a 40% reduction in greenhouse gas emissions (GHG) by 2030 compared to 1990. It is based on a baseline scenario, which includes guidance and objectives for different economic sectors, including transport, waste treatment and housing. Given their significant contribution to public investment and their responsibilities, French sub-sovereign governments play a key role in the implementation of the SNBC. DBRS Morningstar takes the view that the French local public sector's strong consolidated financial standing offers it the capacity to absorb the estimated supplementary amount of capital expenditures (capex) needed to achieve the 2030 SNBC targets, while maintaining its strong budgetary performance and moderate debt levels.

Key highlights include:
-- French sub-sovereign governments' investment effort would need to increase by 12% a year up to 2030, compared to the average of the last five years, in order to meet the SNBC's targets.
-- Since 2015, French sub-sovereign governments have almost fully self-financed their investments which gives them some leeway to increase capex in the coming years.
-- The French local public sector benefits from strong financials, a very moderate debt burden and a level of access to diversified sources of funding which puts them on a strong financial footing to contribute to the achievement of the SNBC's targets.

“Although already significant, French sub-sovereign governments' annual investment effort would need to increase by 12% up to 2030 compared with the average of the last five years to meet the SNBC’s targets,” said Mehdi Fadli, Senior Vice President in the Global Sovereign Ratings Group. “Nevertheless, we consider that those needs come at a time when the French local public sector benefits from a favorable budgetary situation, a very moderate debt level and well-diversified and abundant funding sources.”