Completing the circle
Judge’s comment: “A solid, active and credible policy and implementation, with good transparency and monitoring and a serious approach to climate change.”
France’s €21bn ERAFP is no stranger to the awards podium when it comes to ESG and SRI, with an approach that relies on a comprehensive SRI policy and charter defining stock selection rules covering all asset classes and extensive shareholder engagement guidelines. A logical extension has been management of climate related issues.
As ERAFP’s investments in most asset classes are delegated to external managers, it has developed a monitoring system in order to ensure that its investment managers effectively implement its dedicated policy. To this end, it relies on the quarterly portfolio reviews of a specialist research provider. This third-party assessment has consistently shown how successful this approach is, since it regularly achieves higher ratings than its benchmark.
During 2014 and throughout 2015, ERAFP’s engagement priorities have focused on the following areas:
- The fight against climate change
- Prevention of tax avoidance practices
- Responsible lobbying
- Integration of social standards in the agricultural supply chain.
ERAFP considers collaborative engagement to be the most efficient way to make its voice heard by large multinational companies and consequently it has opened a dialogue with companies on its four key areas of priority. Elsewhere, ERAFP has been proactively involved in an initiative focused on principles of responsible investment in agriculture, as well as in two Institutional Investors Group on Climate Change (IIGCC) initiatives that question companies in carbon intensive sectors on their climate change and lobbying practices.
Through its voting policy, ERAFP strives to promote corporate governance practices that are consistent with its expectations as a long-term responsible investor. In this respect, it has adopted quite singular positions on several issues, including:
- Promoting sustainable dividend distribution policies to take debt and investment capacity into account
- Seeking fairness, moderation and transparency with regard to executive remuneration packages
- Promoting gender diversity among board members
- Expecting multinationals in the financial industry to disclose detailed financial reporting on each country they operate in to place them under closer scrutiny and limit their potential for tax evasion.
In 2014, ERAFP began assessing and disclosing the carbon footprint of its equity portfolio for the first time before signing the Montreal Carbon Pledge the same year. The logical next step is to devise appropriate measures to mitigate or hedge the risk that this exercise uncovers. While the assessment is not yet complete, ERAFP has already joined the Portfolio Decarbonisation Coalition and has begun to investigate the various methodologies it could adopt to enhance its management of risk related to climate change in its equity holdings.
ERAFP already uses climate change as a key criterion when considering target investments. The main area it looks at is the extent to which target companies limit their greenhouse gas emissions and how this matches ERAFP’s own expectation. The fund tends to invest in companies that demonstrate the highest level of performance on climate change issues. This approach has proved successful and ERAFP’s equity portfolio had a carbon footprint that was 16% lower than its overall MSCI World equity benchmark at the end of 2014.
However, ERAFP recognises that it has some way to go to truly comply with international climate change mitigation targets. It therefore collaborates with its external asset managers to implement ad hoc decarbonisation strategies. It points to two notable examples. First, it recently added a specific carbon emissions filter to one of its segregated accounts with Amundi worth €1.2bn. Next, as part of its engagement activities as a member of the IIGCC, it takes part in several engagement initiatives including lobbying regulatory authorities and exerting its influence over companies in the most exposed sectors.
Founded in 2005
Defined contribution public sector multi-employer
- active: 4,806,655
- retirees: 42,406
- one year: 12.81%
- Comprehensive ESG SRI charter covering all asset classes
- Consistent SRI outperformance versus scheme benchmark
- Large scale reassessment of carbon footprint of equity portfolio
- Oliver Draeger
- Andreas Hoepner
- Peter Kraneveld
- Gerard Moore