France’s ERAFP launches low carbon dummy mandate experiment to test fund manager strategies for future money

French civil service pension fund, ERAFP, the 100% socially responsible investor with more than €23bn in assets, is coming to market with a pioneering experiment inviting asset managers to compete for a dummy mandate to test whether they can run a portfolio of international equities with a low carbon footprint.
ERAFP is one of the world’s largest public pension funds in terms of member numbers, with over 4.5 million beneficiaries, 45,000 employers and nearly €1.8bn in annual contributions, making it one of the fastest growing institutional asset pots in the world, all of which is outsourced to third party managers.
The fund has been a leader in low carbon investment and already has more than €1bn in a strategy with Amundi, the French fund manager, which employs a best-in-class strategy to exclude the most polluting companies.
It said the new test platform would be in place in November and would lead to new low carbon money being invested with managers either into a fund or a segregated portfolio at the end of the experiment if it has been impressed with the results. The amount of assets that could be committed has not been announced.
It said the aim of the dummy mandate was two-fold: firstly to get the largest number of fund managers to demonstrate the merits of their low carbon strategies; and secondly to raise awareness among fund managers of the urgency of using long-term savings to transition to a sustainable economy.ERAFP is working with Cedrus Asset Management, the Paris-based SRI combined adviser and fund-of-funds manager and amLeague, the Geneva-based investment manager performance measurement company started by Antoine Briant, who created AMR (Asset Management Rating), on the low carbon mandate platform.
The two firms will define the characteristics of the notional mandate in tandem with ERAFP to take into account the fund’s charter, which hinges on five values: respect for the rule of law and human rights, social progress, social democracy, environment and standards of governance and transparency. They will also determine the dummy mandate investment rules to limit any sector biases. In addition, they will outline the key information points to weigh up whether carbon risk has been reduced either by less carbon intensity of existing investments or by reducing investment in assets, thus avoiding future emissions.
France’s biggest pension funds have been leading the way in low carbon mandates ahead of the United Nations COP21 climate change conference in Paris in December.
In July, RI reported that France’s €38bn Fonds de Réserve pour les Retraites (FRR), government buffer pension fund had tendered one of the biggest ever allocations of institutional capital to low carbon, ESG-related equity index strategies by putting €3bn into the market via a highly original set of collaborative discussion mandates.