French public sector pension scheme Ircantec has announced a revised climate change policy that includes a progressive tightening of fossil fuel exclusion criteria and increased investment in the energy transition.

The new exclusion policy is in particular aimed at companies that are not adopting credible plans to exit coal by 2030, that continue to exploit unconventional fuels or that develop new fossil fuel production capacity.

The pension provider said that from 2024 it was committing to apply the coal and oil and gas exclusion thresholds in the EU Paris-Aligned Benchmark (PAB) framework. However, it will suspend these if, in the case of coal, companies have a credible plan to exit by 2030 and in the case of oil and gas if companies have a credible emission reduction plan that is comptable with a 1.5°C warming scenario.

From 2024 Ircantec will also define exclusions for lenders and insurers related to coal and unconventional fossil fuels.

Ircantec said its shareholder engagement would prioritise, through collaborative actions and a review of the regime’s voting policy, the establishment of coal exit plans by 2030 accompanied by plans for job conversions, and companies’ adoption of strategies compatible with a 1.5°C warming scenario.

Transition allocation upped

In addition, the pension scheme is complementing its revised exclusion policy with an increased allocation to investments financing the energy transition. It currently has a 15% allocation to such investments and is targeting at least 20% by 2024, which it said would take the total to €3bn.

It said this increase would be pursued by way of a larger allocation to green bonds and the creation of new funds dedicated to the energy transition.

The new climate change policy comes as Ircantec has decided to commit its investment portfolio to an emissions reduction trajectory aligned with a 1.5°C warming scenario. Ircantec, which is a pay-as-you-go pension scheme but had €13bn in reserves at the end of 2020, previously subscribed to an investment trajectory compatible with a 2°C warming scenario.

It said its new ambition meant a 7% annual average reduction of the carbon intensity of its equity and corporate bond portfolios, as advocated by climate experts. The 7% reduction is at the heart of the PAB framework. In line with the PAB framework, Ircantec will also be progressively incorporating Scope 3 emissions.

The scheme currently has a tender outstanding for a PAB-aligned European equity index strategy.

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