Ircantec, the French public pension scheme with assets of around €11bn, is set to go to the market in search of a benchmark strategy that meets the EU’s ambitious Paris-aligned Benchmark methodology, RI has learnt.
An 'EU Paris-aligned Benchmark' is one where the underlying assets are selected so that the resulting portfolio’s emissions are consistent with the long-term global warming target of the Paris Agreement. The ‘Paris-aligned Benchmark’ category along with the less ambitious ‘Climate Transition Benchmark’ were introduced into law last year as part of the EU’s on-going sustainable finance push.
Last year, Swedish pension fund Andra AP-fonden (AP2) sold SEK8bn of securities and almost entirely exited the energy sector in order to move its global equities and bonds portfolios to indices that applied the EU’s Paris-aligned benchmark methodology.
Francois Tirmarche, Head of External Asset Management, Asset Allocation & SRI at Caisse des Dépôts Group, the investment arm of the French state which houses Ircantec, told RI that the benchmark strategy will be fund’s first investment in a passive product – to date Ircantec has pursued only active investment strategies.
He said that the planned benchmark will be “a low tracking portfolio management using one of the benchmarks, one of the indexes, that is linked to this new family of [Paris-aligned] indexes”.
Ircantec has long integrated responsible investment principles as a significant part of its manager selection criteria. Its search for a Paris-aligned Benchmark strategy is part of two request for proposals (RfPs) planned by the fund in the coming days.
The first RfP is focused on equities and is made up of three parts, including the mandate for a Paris benchmark strategy. The other two parts of the RfP call for a manager for a European equities and a global equities portfolio. The second RfP will be for management of a European credit portfolio.
Ircantec was unable to provide further details on the mandates, including their size, as the RfPs have not yet been made public.
But Tirmarche told RI that the RfPs contained “quite strong ESG and climate expectations”, including the integration of “performance fees linked to the achievement of ESG and climate goals” for portfolio managers. This will be the first time Ircantec has linked performance fees to sustainability factors.
The contract for the ESG assessment is currently held by Vigeo Eiris, the ESG house majority owned by ratings giant Moody’s. The climate change analysis is currently overseen by French environmental consultant I Care & Consult and Beyond Ratings, the ESG analytics provider owned by FTSE.
The ESG assessment of Ircantec’s portfolio is currently undertaken twice a year and the climate change analysis is done annually. As part of the new RfPs, however, Ircantec is requiring access to the providers’ data so that it can also make its own on-going assessments.
Tirmarche described the analysis by the providers as a “kind of second party opinion”, one which is different from that “provided by [our] asset managers”. It provides Ircantec with a birds eye view of it’s portfolio sustainability performance in a way that cannot be captured or provided by any of its 12 asset managers, Tirmarche said.
He added that the analysis also allows the fund to “challenge” portfolio managers, which is something, he said, the fund has done in recent years. “We challenged some managers to ask them to improve the ESG metrics of the portfolio,” he told RI.
Ircantec is a pay-as-you-go second pillar pension structure created in 1970. It covers state employees, and regional authority workers, including local politicians, and staff at companies such as EdF and GdF, the big French utilities, and the Banque de France.