France’s FRR reaches 85% integration for ESG research on investment

Assets run via an SRI process reach 13% as fund recovers on performance.

The €34.5bn ($42.6bn) French pensions reserve fund (FRR) has almost doubled the volume of its assets to 85% in the last four years that are subject to research integration on environmental, social and governance (ESG) factors. In its 2009 annual report, FRR said the percentage of assets managed on an ESG basis had risen from 48% in 2005, notably as a result of a major policy shift to responsible investment announced in March 2008. The fund said it also has 13% of its assets allocated on what it terms an ‘SRI process’. FRR initially invested about €600m in pure SRI mandates with asset managers in December 2006, but has also made sustainability factors a major part of its mandate tenders, including for two direct real estate mandates of €500m each initiated last year. The French fund made a significant performance recovery in 2009 with net returns of 15% following the rebound of equity markets. That reversed losses of 24.9% in 2008. Since inception in June 2004, the fund has now made annualised returns of 3.1%. Last year, the fund revised its asset allocation strategy to reduce equity exposure slightly to 45% with a further 10% allocated to risk capital split evenly between property (5%) and commodities (5%). Since 2008, the fund has had a policy of not investing in commodity derivatives based on agriculture or food production. Inresponse to the credit crisis, the fund said it had also beefed up its questioning of fund managers on their financial solidity. It said it had also implemented recommendations from the Pittsburgh G20 summit of September last year, including multi-year performance bonuses and the banning of guaranteed bonuses of more than one year. The number of votes the fund makes at global corporate annual general meetings has also risen to 93% of its holdings in 2009 from 70% in 2005. A significant RI development during the last year, FRR said, had been the adoption of a policy on tax havens, which means the fund will not invest with located asset managers, corporate or state debt in a list of countries put together by the French state, which includes Panama, Guatemala and Brunei.
The fund also has a list of sovereign debt in which it will not invest because of excessive risk, which includes Burma, North Korea, Iran and Zimbabwe. In 2009, the fund also announced the start of an engagement programme with selected corporations on ESG issues.
Separately, French President Nicholas Sarkozy is understood to be preparing reforms to the French public retirement age, which will see it rise from 60 to 62 by 2018 with an increase of four months during each intervening year.