Responsible Investor

France’s FRR: blue skies thinking on engagement and ESG manager selection

Reserve fund breaks the mould with planned corporate engagements and forthcoming ESG advisory hire.

France’s €31.1bn ($43bn) French pensions reserve fund (FRR) will come under the spotlight in the coming months when it announces its decision on the hiring of an advisor to help it examine whether companies in its investment portfolios respect internationally accepted environmental, social and governance (ESG) standards. The highly anticipated decision comes not just a result of the fund’s size and influence on its peers, nor its importance to fund managers who covet running its assets. It is also because of the ambitious and groundbreaking nature of the advisory contract. For the first time, the French fund could begin lobbying companies on their environmental, social and governance records. Corporate engagement is practically unheard of among French investors, even if it is relatively common in the US, UK, Netherlands and Nordic countries. In its request for proposal (RFP), which closed on September 15, the fund said the new advisor could be asked to support engagement alongside more traditional scrutiny of FRR’s portfolio of large and mid cap companies in developed markets. The selected company may also be asked to provide an ‘alert system’ on extra-financial risks. Nada Villermain-Lecolier, head of responsible investment at FRR, says the mandate has

two novel elements: “The first is its perimeter. The mandate is ambitious because it takes in Europe, the US and developed markets. We also want the selected research company to develop a project for covering emerging markets by the second year. The second is selecting a provider that can assist FRR in building engagement capacities – that’s very new for us.” Villermain-Lecolier says the fund is conscious that this combination of different elements – research, ethical alerts and engagement – could be “too new” for any one provider to manage. But she says the approach is a “push” for the market: “We were looking for providers to propose interesting solutions, to group together or look for different competencies with partners or delegate to other companies with strengths in different areas,” she says. Regarding the move to engagement, Villermain-Lecolier says decisions on corporate lobbying will remain with the FRR and its responsible investment committee, which was set up earlier this year to help the fund avoid investment in companies contravening accepted global conventions such as the UN Global Compact or International Labour Organisation standards.
Villermain-Lecolier says the fund needs external assistance because

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