France state reserve fund FRR exits tobacco and coal investments

Fonds de réserve pour les Retraites says engagement doesn’t work

The Supervisory Board of the Fonds de réserve pour les Retraites (FRR), one of France’s most prominent pension funds, has agreed to an ESG policy which will exclude from its portfolio investments in equities or bonds linked to tobacco manufacturers, FRR has announced today.
The proposition comes from the state reserve fund’s executive board and covers also the exclusion of investments related to companies in which thermal coal extraction or coal-fired power generation accounts for more than 20% of their turnover.
It comes as fellow leading investor CalPERS is considering lifting a restriction on tobacco investment. But insurance companies have raised concerns over tobacco as a profitable investment due to its inherent risk and costs.
As such the exclusion announced today by FRR is motivated by the “6 million deaths worldwide” that tobacco consumption is responsible for every year, generating significant costs for insurers and health systems as a result.
The FRR added that engagement is not productive any longer when it comes to tobacco companies:
“Progress will not be achieved by dialogue with these companies, because the whole purpose of engagement would be to demand that they should stop their activities altogether.”

Regarding the exclusion of coal from its portfolio, the FRR said that such an investment is not consistent with its environmental commitments aimed at reducing portfolio’s greenhouse gas (GHG) emissions; nor coherent with its association with a coalition of investors pushing for more transparency on energy generation by investee companies.It said: “FRR has therefore decided to exclude companies more than 20% of whose turnover is derived from thermal coal or which generate more than 20% of their electricity, steam or heat production from coal (thermal or lignite).”

“Progress will not be achieved by dialogue with these companies”

There is an exception, however for companies that use carbon capture and storage (CCS) processes.
In November the International Energy Agency (IEA) published the report 20 years of CCS: Accelerating Future Deployment, in which the agency said CCS is the only technology able to significantly reduce emissions from coal-fired power plants and from industrial processes, including the production of steel, cement and chemicals.
Combined with other alternatives such as bioenergy, CCS can deliver so-called negative emissions, the IEA said.
The FRR confirmed that the exclusions would be in place during the course of 2017.
It concluded: “These two strategies will be rolled-out during the course of 2017 with the launch of passive equities management mandates based on an ESG approach in an amount of five billion euros and shall be applied in existing bonds mandates. Between now and the end of 2017, these exclusions will have been applied to nearly 95% of the overall scope of the FRR’s assets.” Link