PRI in Person: Call for government action on pension fund carbon footprints

The Chief Executives of AP4, Sweden’s SEK276bn (€29.9bn) government pension buffer fund, and ERAFP, the €15bn Paris-based French Public Service Additional Pension Scheme, have both called on governments to oblige public pension funds to publish their carbon footprints, with ERAFP saying its is lobbying the French government to do so before the COP21 international climate meeting in Paris next year.

Speaking on the same panel at the annual PRI in Person conference in Montreal, Canada last week, Mats Andersson, AP4 Chief Executive and Philippe Desfossés, CEO at ERAFP, said mandatory carbon footprinting for public pension funds was now a necessary, publically important disclosure.

AP4’s Andersson said: “There is a serious risk that climate change could devalue a large part of our assets over the next 10-20 years and so we need to communicate this to our stakeholders.”

Desfossés said ERAFP was in active discussions with the relevant ministries in the French government to take a lead in advance of next year’s major climate gathering: “We are really arguing for the French government to make a mandatory proposal for public pension funds to disclose their carbon footprint for the COP 21 in Paris.”

The Swedish and French pension funds are among the most outspoken on climate and both have taken significant measures to reveal and reduce their carbon exposure.

Andersson said AP4 was into the third year of a ‘decarbonisation’ strategy, which has initially involved reducing its exposure to heavy carbon polluters in the S&P 500 following a carbon footprint evaluation by Trucost: “We picked 350 companies that were carbon efficient and excluded the worst polluters in each sector.The subsequent difference in tracking error was less than one. Into the third year performance is up by 100 basis points.

“We believe this is a free option that carbon is mispriced and that it will play out much more in the coming five to 10 years.”

He said the fund was now rolling out the strategy into emerging markets: “Within a year we will have a global platform for low carbon indices,” he added.
AP4 is also one of the seed investors in MSCI’s new Global Low Carbon Leaders Indexes, developed at the request of the fund along with FRR, the €36bn French government buffer fund and Amundi, the $1.1trn French asset manager.

Asked what he thought the biggest risk of AP4’s decarbonisation strategy was, Andersson said: “The biggest risk is doing nothing about climate change and its investment impact.”
France’s ERAFP is among the inaugural backers of the Montreal Carbon Pledge, a new portfolio carbon footprint disclosure initiative unveiled by the Principles for Responsible Investment last week. Signatories will disclose their carbon exposure with the aim of using the information to develop an engagement strategy and/or identify and set carbon footprint reduction targets.

Desfossés said he was disappointed that José Manuel Barroso, President of the European Commission, had said little at last week’s climate change summit in New York about reviving the European Emissions Trading System: “We need to lobby governments on a carbon price and market dysfunction. Investors should join the International Investors Group on Climate Change and its sister regional organisations to support this lobbying effort.”