French public pension scheme Ircantec has linked performance fees to ESG and climate change-related criteria for new active management mandates that are out for tender.

The pension provider, a mandatory pay-as-you-go scheme with some €12.9bn of reserves, recently launched two tenders, for equity and euro corporate bond mandates totalling €3.5bn-4bn.

The performance fees are available for all the mandates except for passive European equities, where Ircantec is looking for a strategy meeting the EU’s Paris-Aligned Benchmark requirements.

Under the performance fee structure, managers will have the possibility of earning a performance fee of up to 10% of the mandate’s outperformance, to be paid at the end of the mandate in a bid to align interests. The mandates are for five years, with the possibility of one year’s extension.

The majority of the performance fee will be available based on financial performance, but up to 20% each is dependent on performance against a set of ESG objectives and a set of specific climate criteria.

There is a reporting and “results” prong to each of these sets, with comprehensive information being asked of managers under the former.

In the case of the ESG criteria, the quantitative, results condition is that the average difference between the portfolio’s overall ESG rating and that of the benchmark is greater than or equal to 10%. This will be calculated using both the portfolio manager’s scores and the scores assigned by Ircantec.

Caisse des Depots, CDC, Paris, France

Caisse des Dépôts, Ircantec’s delegated asset manager

For the climate objective, the quantitative target is for the portfolio’s annual carbon footprint to be at least 30% below that of the customised benchmark. The carbon footprint is a composite of the weighted average carbon intensity and the total carbon emissions per million euros invested.

The formula for calculating the carbon footprint performance includes a sector weighting to prevent asset managers from being able to meet the target simply by avoiding exposure to polluting industries that are nonetheless important for the transition to a low-carbon economy.

“The main idea of adopting this structure was to make a link between performance and asset managers’ efforts to closely monitor ESG and climate,” François Tirmarche, head of external asset management, asset allocation and SRI at Caisse des Dépôts, the delegated manager of Ircantec, told IPE.

“Asset managers often perceive ESG as a cost, and the idea is to make them understand that there can be revenues directly linked to ESG and climate monitoring,” he added.

For Tirmarche, even if few asset owners have linked performance fees to ESG or climate critera, this is the way forward. EU policy is encouraging remuneration to be linked to ESG and climate performance across the investment chain, he said.

Caisse des Dépôts was planning to introduce some ESG criteria for employee bonuses, he added.

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