ERAFP, the €38.2bn French civil service pension fund, will from 2030 no longer make fresh investments in the debt of oil and gas companies developing exploration or production projects, unless they have a credible strategy for aligning with the goal of keeping temperature rises to 1.5°C by 2100.
The asset owner said the policy arose from the International Energy Agency’s (IEA) net-zero scenario analysis, which tends to exclude investments in new projects undertaken after 2021, but admits that previously committed projects will be implemented until the end of the decade.
Green bonds are an exception to ERAFP’s new stance on funding oil and gas exploration and production projects, and to other new exclusions that form part of a tightening of the pension fund’s fossil-fuel policy.
The policy consists of “three lines of action” to address the main fossil-fuel sources – thermal coal, unconventional hydrocarbons and conventional hydrocarbons.
ERAFP said the updated policy was aimed at strengthening the pension fund’s contribution to the financing of an economy compatible with a scenario of limiting global warming to 1.5°C.
A spokesperson for the pension fund said it was stricter on debt financing than on equity investment, as the former “leads to the direct financing of new oil and gas projects, which we wish to restrict as foreseen in the IEA’s Net Zero by 2050 scenario, and since debt financing does not offer the possibility of influencing the company’s strategy”.
With regard to equity, ERAFP considers that it can have a greater impact by remaining a shareholder and trying to drive change through shareholder dialogue. It will, however, on a case-by-case basis, after unsuccessful engagement, divest from the equity of oil and gas companies that do not align with 1.5°C temperature rise scenario.
New thermal-coal threshold
The other new measures ERAFP has decided include divesting equity and refusing new investment, including in bonds, for companies whose thermal-coal business exceeds 5% of revenues, with this threshold dropping to 1% as of 2026.
Until now, ERAFP had a thermal-coal exclusion policy based on a 10% of revenue threshold.
The pension fund will also no longer make new investments in the debt of companies where unconventional oil and gas accounts for more than 5% of turnover, and will exclude investments in stocks where unconventional hydrocarbons represent more than 30% of sales.
It will make exceptions to the new exclusions where companies have thermal-coal exit plans aligned with ERAFP’s exit deadlines (2030 for OECD securities and 2040 globally), for green bonds or companies with a credible 1.5°C alignment strategy.
As a member of the UN Net Zero Asset Owner Alliance, ERAFP’s goal is to achieve carbon neutrality in its investment portfolio by 2050. A first set of interim targets runs from the end of 2019 to the end of 2024. A first series of intermediate objectives extends from the end of 2019 to the end of 2024.