Amundi, Candriam and Robeco win out in €5bn FRR shift to ESG indexing

Amundi Asset Management, Candriam Luxembourg and Robeco Institutional Asset Management have won out in a huge move by France’s €36bn Fonds de réserve pour les retraites (FRR), the country’s state pension reserve fund, to imprint ESG research into its assets by turning its entire passive equity exposure, worth up to €5bn, over to index replication strategies based on responsible investment criteria.
In July 2015, the fund launched a tender for managers to run “Equities Optimised Management Mandates with ESG approach”, which would incorporate new approaches in portfolio decarbonisation and exclusions. The index exposure was previously run against optimised indices without ESG specifics. In December 2016, FRR inked a new ESG policy excluding from its investments tobacco manufacturers and companies in which thermal coal extraction or coal-fired power generation accounts for more than 20% of turnover. Link to RI story
It aims to apply the exclusions to 95% of its assets by the year-end.
The new index mandates will incorporate the exclusions into the passive equity allocation, with the bond portion being looked at separately. The fund made hires for 11 bond mandates worth €8.5bn last year: Link to RI story said the new passive equity mandates have been awarded for four years, with a one-time potential to renew for a further year.
In a separate, but related move, FRR has also launched a tender process to hire companies to calculate and analyse the environmental footprint of its investment portfolio. It says the tender for one or more providers aims to hire research outfits that can identify its climate change risk exposure, particularly assets with a heavy carbon footprint, as well as physical risks in the portfolio against the backdrop of energy and ecological transition based on the international objective of limiting global warming.
In 2007, the FRR carried out its first environmental footprint, including a carbon footprint assessment for its financial assets, and since 2013, the FRR measures and assesses the carbon footprint of its developed and emerging markets equity portfolios. The assessment covers emissions generated by business activities, their direct suppliers, their reserves (including coal), and the contribution of portfolio companies to energy and ecological transition.
In September 2014, FRR signed up to the “Montreal Pledge” and the “Portfolio Decarbonisation Coalition” (PDC) and undertook each year to publish the carbon footprint of its equity investments and to decarbonize its portfolios.