Ircantec, the French public pension scheme with around €11.5 billion in assets, has taken its first step into passive investment by awarding a €200 million mandate to Amundi to create a dedicated Paris-aligned benchmark (PAB).
PABs – an innovation set out in the EU’s Action Plan on Sustainable Finance and defined in the bloc’s 2020 Benchmark Regulation – are indices whose constituent companies are aligned with the Paris Agreement’s goal of limiting the rise in global temperatures to well below 2C above pre-industrial levels.
Ircantec’s new benchmark fund will be created in early autumn, according to Cécilia Lyet, Caisse des Dépôts’s group head of external asset management, asset allocation and SRI. Caisse des Dépôts is the investment arm of the French state, which houses Ircantec.
When asked why the fund has decided to opt for a passive strategy now, Lyet told Responsible Investor: “This index is clearly in line with our new climate policies. That’s the main reason why we can invest in passive funds now. In the past, this was not always the case.”
To illustrate, Lyet pointed out that the PAB will allow Ircantec to implement its own policy voting. “It’s important for Ircantec to vote for all the stocks in the portfolio,” she said.
Amundi, Europe’s largest asset manager, beat off seven competitors for the mandate – four in the first round and three in the second.
Its benchmark, which will target a 7 percent reduction in emissions year on year, will be based on the Stoxx 600 and will be built to reflect Ircantec’s exclusions, which include restrictions around tobacco, controversial weapons and climate-based criteria.
In October, Ircantec adopted a new climate policy that requires it to put 20 percent of its assets in investments supporting the environment and energy transition by 2024. Strategies like the PAB will help the fund meet these goals, Lyet said.
The initial size of the PAB fund will be €200 million but that is “likely to increase year by year”, she said.
The new benchmark, however, will not be adopted more widely across the fund’s portfolio, as it does not yet have the required track record of 20 years plus.
Another “new assignment” given to Ircantec, Lyet said, is a requirement to reduce its portfolio emission in line with a 1.5C degree pathway, which means all new or dedicated funds need to reduce emissions by 7 percent per year.
Lyet said Ircantec will calculate what that means in January using December 2021 as the baseline. She added that it will be difficult to increase emissions reductions for some of the low-carbon funds it already has.
In the coming weeks, Ircantec is also preparing to go market with a €1.1 billion green and social bond tender.
The fund is looking for two managers, one to run a €900 million green bond fund and another for a €200 million social bond fund, which is the first of its kind for the firm.
Lyet told RI that the request for proposals (RfP) will include “a lot of questions” because it is important to the fund “not to finance greenwashing”.
Ircantec is also an active member of investor engagement behemoth Climate Action 100+, leading on French state-backed energy giant Engie.
Lyet said the engagement is going well but that Ircantec is planning to speak with Engie following the company’s deal with US gas firm NextDecade. In May, Engie announced it had agreed a 15-year deal with the Texas-based LNG specialist, despite suspending talks with the company in November 2020, reportedly after the French government raised environmental concerns about the deal.