French civil service pension fund ERAFP has tightened its policy on investments in fossil fuels.
The pension fund, which is a member of the Net Zero Asset Owner Alliance (NZAOA), decided two main measures, with a capital expenditure-based exception for both until 2030.
One measure that was decided is to bring forward to 2026, from 2030, the end of debt financing for fossil fuel companies developing new oil or gas exploration or production projects (conventional or unconventional).
ERAFP will also tighten the eligibility threshold for equity investment (both new investments and existing holdings) in companies active in unconventional hydrocarbons. Companies whose share of revenue from this sector exceeds 15% will no longer be eligible, compared with the previous threshold of 30%.
Until 2030, the two measures will not apply to companies headquartered in Europe whose capex eligible under the EU green taxonomy averages at least 25% over the previous three years.
Other measures from the pension fund’s 2023 fossil fuel policy remain in place, ERAFP said, including the reduction of the revenue threshold for thermal coal to 1% (from 5% previously), except for companies aligned with a 1.5°C trajectory certified by the Science-Based Targets initiative (SBTi).
ERAFP also said it would make its best efforts not to increase the pension scheme’s overall relative exposure to equities of fossil fuel production companies, noting that its responsible investment framework already excludes companies that are turning away from the energy transition.
“The changes to our policy reflect our determination to take concrete action to limit global warming while safeguarding the pension rights of our members,” said Régis Pelissier, director of ERAFP.
“The changes to our policy reflect our determination to take concrete action to limit global warming while safeguarding the pension rights of our members”
Régis Pelissier, director of ERAFP
“They allow us to combine targeted restrictions, shareholder engagement, and transparency to accelerate the energy transition, while also taking into account the crucial issue of energy security in the current context.”
The adopted changes are to be applied during 2026 as part of ongoing dialogue with asset managers.
FRR tightens exclusions for unconventionals
ERAFP’s policy changes come after Fonds de reserve pour les retraites (FRR) last month also announced an update to its fossil fuel policy, although the new exclusions are only for unconventional hydrocarbons.
The changes include a reduction in the exclusion threshold from 20% to 10% of turnover for public securities issued by companies involved in unconventional fossil fuels, as well as any new unconventional fossil fuel projects.
The reserve fund allows certain exceptions to this policy, such as if the investment would be in a green bond whose use of proceeds is certified or externally audited, or the company has a decarbonisation plan aligned with a net zero 2050 pathway and validated by the Science Based Targets initiative (SBTi).
FRR also lowered the exclusion threshold for companies involved in thermal coal from 5% to 1% of turnover, and now excludes companies that develop new infrastructure related to thermal coal. The fund already did not have any company developing new coal mines in its portfolio.
FRR, which is also a member of the NZAOA, voluntarily follows Article 29 of France’s energy climate law, which requires institutional investors to publish a plan for phasing out coal and unconventional fossil fuels, including a timeline and what share of total assets is affected by these policies.
The French fund also said it would strengthen its shareholder engagement with other energy-sector companies.
While noting the changes that ERAFP and FRR have announced, Agathe Masson, sustainable investments campaigner at NGO Reclaim Finance, bemoaned that the asset owners were not completely breaking with fossil fuels.
She also lamented that the asset owners did not define an escalation strategy for their voting and engagement with corporates, and that they continue to work with asset managers like BlackRock that continued to invest heavily in fossil fuels and had left private sector climate alliances due to political pressure.
ERAFP and FRR have both previously defended themselves against Reclaim Finance’s criticisms, maintaining that engagement with corporates as well as asset managers was responsible and effective core pillars of their responsible investment approaches.
FRR, for example, has previously said that the way it chose asset managers – for their ability to generate financial performance while effectively implementing the fund’s responsible investment objectives – meant that FRR “helps maintain environmental, social and governance expertise with asset management firms, including those based overseas, and sustains a strong internal focus on ESG objectives”.
