France’s pension reserve fund has launched a request for proposals for optimised equity indices capable of aligning the managed portfolios with a trajectory compatible with the Paris climate change accord.
A member of the UN Net-Zero Asset Owner Alliance, Fonds de réserve pour les retraites (FRR) has pledged to achieve carbon neutrality in its investment portfolios by 2050.
It indicated it was looking to allocate some €4bn to the indices for what will be its third generation of ESG-optimised passive equity mandates. Amundi, Candriam, and Robeco are the incumbents of the current mandates.
Olivier Rousseau, executive director at FRR, said the request for proposals was in keeping with the investor’s long-standing pragmatic approach of upping its demands when it felt the market had evolved enough to respond satisfactorily.
“We see significant improvements in the availability and quality of data and some improvements in methodologies, and also we see that meeting the climate targets is getting more urgent by the day,” he told IPE.
He also said more and more asset managers were able to implement the type of strategies FRR was looking for.
“You have the greenwashers, yes, but also a growing number of asset managers that are serious about this and have the capabilities,” Rousseau said, although acknowledging the mandates were geared towards larger managers.
More fossil fuel reduction
In a statement, FRR said its requirements for the new mandates included a progressive reduction of the carbon footprint and fossil reserves in absolute terms as well as a reduction relative to the index, and an overweighting of the “green share” of investments.
The managers will be asked to take into account Scope 3 emissions and greenhouse gas emission reduction targets set by companies in sectors identified by FRR. One of FRR’s objectives is to cut further the share of its portfolio comprised of companies with fossil fuels. It already has a strict coal exclusion policy, withholding investment from companies if revenues from thermal coal mining or coal-fired electricity, heat or steam generation business exceed 10% of their revenue.
Rousseau told IPE that engagement was on the agenda, but that FRR did not think it prudent to rely mainly on this as it could be “a convenient way of buying time”.
“There is a role for exclusions, there is a role for reweightings, and there is a role for emphasising companies that bring solutions,” he said.
The deadline for applications is Friday, 9 April.