France frees up €20bn ERAFP for €6bn+ equities and PE; pushes ahead with state-backed SRI label

France is to press ahead with the introduction of a government-backed SRI label, which it hopes will push investment savings towards sustainable options, as part of broader support for ‘long-term finance’ to reinvigorate Paris as a financial centre. And in a further major announcement by Michel Sapin, Minister of Finance, as part of the ‘Comité Place de Paris 2020’ (Committee for Paris as a financial centre 2020) organized with Paris Europlace, which promotes the city as a financial centre, the government has raised the 25% equity allocation limit at ERAFP, the €20bn French public service additional pension scheme, a 100% responsible investment fund, to 40% with the possibility to invest in private equity for the first time.
The ruling, issued this week with immediate effect, could, the government says, see ERAFP put up to €5bn in public equities and €1bn in private equity by 2020, a potentially huge slug of extra mandate money for fund managers running sustainable investment strategies. It is thought that ERAFP, which outsources all of its money, might use its new freedom quite quickly, however. It has been lobbying the government for several years to free up its allocation limits in order to invest more internationally because of current low government bond yields in Europe where it has the majority of its investments.
The fund is already planning to diversify heavily this year into corporate bonds and equities in regions such as Asia-Pacific via a number of new mandates reported by RI
The Paris-based fund is one of the world’s fastest growing pension funds with nearly 4.5m beneficiaries and close to €1.77bn in annual contributions.The proposal for a single French SRI label, which would be one of the first state-sponsored kite-marks in the world, has already been backed by some of France’s most prominent institutional finance bodies who want to unify a number of different government initiatives and existing labels. The groups, including AFG, the French asset managers’ association and CIES, the inter-union employee savings organization, recently signed a joint letter supporting the creation of a single SRI standard.
France already has several SRI labels. The best known internationally is run by Novethic, the French responsible finance media and research company. Another is overseen by CIES, which focuses mostly on employee savings plans. A label called “Finansol” is also available for French solidarity savings funds that are invested in social businesses. Some French investment providers have also signed up for AFNOR Certification, which is a quality audit of their SRI approaches. The single SRI label push in France was kicked off in June 2013 by the Brovelli-Drago-Molinié report named after its three authors and commissioned by the Ministry of Economy and Finance, the Ministry of Foreign Commerce, the Ministry of Ecology, Sustainable Development and Energy, and the Ministry of Work, Employment, Professional Training and Social Dialogue, which said France should introduce a state-backed SRI label and consider tax breaks for responsible investments in private equity and the country’s huge life assurance fund market. The report said a label could be based on the joint RI transparency code of the French SIF (FIR), and AFG. A CSR platform launched by French President, François Hollande, last year also made SRI and responsible finance one of its three main working groups.