Fonds de reserve pour les retraites (FRR), France’s €37.2bn pension reserve fund, will no longer invest in the tobacco industry or certain coal companies.
Further, next year, it will launch €5bn of ESG-based passive equity mandates as part of the implementation of the new strategies.
The exclusion strategy will be applied to the fund’s existing bond mandates, so that, by the end of 2017, it will have been applied to almost 95% of the “overall scope” of FRR’s assets, according to the fund.
It yesterday announced that it decided to exclude, from its equity and bond portfolio, investments in tobacco-producing companies and companies for which more than 20% of turnover is derived from thermal coal extraction or coal-fired power generation.
The strategy was proposed by the executive board and approved by the supervisory board on 1 December.
In a statement, FRR said efforts by the World Health Organisation, governments and civil society to deal with the “scourge” of tobacco consumption could eventually weigh on the performance of tobacco companies.
It also believes engaging with companies will not lead to progress “because the whole purpose of engagement would be to demand that they should stop their activities altogether”.
“For this reason, FRR has decided to exclude the tobacco industry from its portfolio,” it said.
On its decision on coal companies, the reserve fund said it had already reduced its exposure to high-carbon sectors, especially those exposed to coal, which is accountable for more greenhouse gas emissions than any other fossil energy source.
FRR said that, after the international agreement on climate change reached at the UN Conference of Parties (COP21) in Paris last December, “governments, and also investors, are increasingly calling coal into question as being incompatible with the objective of limiting global warming to 2°”.
FRR will still invest in companies that generate more than 20% of their turnover – or their electricity, steam or heat production – from coal if they employ carbon capture and storage processes or “have formally announced their commitment and have begun to take action in this direction”.
The fund said the two exclusion strategies would be rolled out in 2017.
The coal exclusion decision contributes to portfolio decarbonisation efforts that have been underway at FRR over at least the past two years.
Individual and institutional investors representing more than $5trn (€4.7trn) of assets under management have committed to divesting from fossil fuels, according to a recent report.
FRR’s announcement comes a day after the local authority pension fund for the borough of Southwark in London pledged to sell its investments in fossil fuels.