French public sector pension scheme Ircantec is to divest its equity and traditional bond holdings in specialised energy and non-European integrated oil and gas companies, citing climate change concerns.
By the end of this year it plans to have divested from traditional corporate bonds issued by oil and gas companies, with the proceeds to be reallocated to green bonds.
Ircantec, which is a mandatory public sector unfunded retirement scheme with €10.9bn of reserves, also plans to sell its equity holdings in specialised oil and gas companies and certain non-European integrated energy companies.
According to Laetitia Tankwe, responsible investment adviser to Ircantec’s trustee board, the trustees took the view that specialised companies would not be able to adapt to a low-carbon energy transition and therefore only represented risks, rather than any potential for change.
The scheme plans to divest its equity stakes in non-European integrated energy companies where these companies’ investment expenditure was not aligned with keeping global warming to within 2°C above pre-industrial levels.
These companies often obtained poor environmental, social and corporate governance (ESG) scores and were more difficult for Ircantec to engage with, Tankwe said.
Some €35m of bonds and around €51m of equity stakes were affected by the divestment decisions, according to Tankwe. The equity divestment would take place next year and the sale proceeds reinvested in sustainable funds.
European majors get the engagement treatment
Over the next two years the scheme plans to recalculate its strategic asset allocation within the next two years with a view to being able to review its exposure to the oil and gas sector based on its alignment with a 2°C warming trajectory.
This study, said Tankwe, would allow Ircantec to decide on whether and how to reduce or divest equity holdings in European oil and gas majors based on the companies’ investment expenditure.
In the meantime, the scheme would be engaging with these companies through the Climate Action 100+ initiative, the Principles for Responsible Investment, and “any other identifiable means”.
Tankwe said that, based on research from CarbonTracker, none of the oil and gas majors’ investment budgets were compatible with a 2°C pathway, but Ircantec considered these companies were key to making a success of the energy transition.
Representatives from Total and Engie took part in an event last week, at which Ircantec announced its decisions – although they had not been given prior notice of the exact substance of those decisions.
Tankwe emphasised that the scheme had not decided on a blanket oil and gas sector exclusion, in part because of the implications for jobs – Ircantec believed the energy transition needed to be a “just transition”.
Ircantec’s divestment plans were announced a day after the Intergovernmental Panel on Climate Change (IPCC) released a report detailing the benefits of limiting global warming to 1.5°C, compared to 2°C.
Asked whether Ircantec would consider adopting 1.5°C as its criterion, Tankwe said the trustees had not discussed the IPCC report and any decision would require a further period of analysis.
The decisions Ircantec had recently announced were the result of more than a year’s work, she said.