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Philippe Desfossés: ERAFP’s challenge is to play a full role in the carbon-free transition

How the 100%-SRI French state fund is tackling the future

ERAFP’s new challenge for the next ten years: to play a full role in the transition to a carbon-free economy and increase awareness of its action as a responsible pension scheme.

At COP 21, questions such as financing the energy transition and defining the price of carbon, which previously had been of interest mainly to specialists, essentially players involved in the fight against climate change, struck a resounding chord with institutions and the public alike. Beyond recognising the effects of climate change on our environment, society at large now understands the need to build the objective of limiting global warming to 2°C into the structure of our economy.

In exchange for the contributions that it receives from its beneficiaries, the Scheme undertakes to pay them pension benefits. This is a promise that the youngest among us will benefit from following a very long period of time. However, it is now accepted that investors must take climate change risk into account, failing which they run the risk of being unable to honour their commitments in the long term.

It is through nothing other than observance of our fiduciary duty that we have undertaken energy and climate-related initiatives, with a view to aligning our investment portfolios with international global warming containment objectives.

Article 173 of the law on energy transition for green growth, which refers specifically to ERAFP, establishes a framework that encourages French institutional investors to adopt best practice when it comes to informing the public about their environmental and social approach. In our case, these new provisions provide a stringent model for detailing what we have already undertaken as part of our socially responsible investment policy.

One year ahead of its application date, this report contains information in the corresponding regulatory publication format.Although we do not yet have all the information that would enable us to complete all the required sections, we are using this opportunity to carry out an initial review and measure the progress still to be made in order to refine our zero-carbon-investor strategy. Moreover, this was the thinking that led us, while remaining active within the IIGCC’s European contingent, to join the Portfolio Decarbonization Coalition in 2015.

While we have yet to acquire suitable tools to define this strategy in a systematic way, we are proposing new approaches. At COP 21, we entrusted amLeague and Cedrus AM with the task of setting up a virtual platform enabling asset managers to demonstrate their ability to reduce the carbon intensity of an international equity portfolio over a sustained period of time. This will no doubt lead to the emergence of innovative management strategies for this asset class.

In 2015, ERAFP also supported the Tera Neva initiative, led among others by the European Investment Bank, by investing in a ‘Climate Awareness Bond’, the yield on which is linked to the performance of companies that have implemented a convincing strategy to reduce global warming. At the same time, we continue to contribute to the long-term financing of the economy, notably through the creation of an unlisted asset portfolio. Thanks to the energy savings and efficiency gains that they offer, private equity and network infrastructures are perfect platforms for a zero-carbon strategy.

In 2016, in keeping with its socially responsible investment approach, ERAFP will continue to make a major contribution, in collaboration with the various other stakeholders, to speeding up the financing of the energy transition and to exceeding the objectives laid down by the Paris treaty.

Philippe Desfossés is CEO of ERAFP.

This article is kindly re-printed from ERAFP’s new 2015 Public Report.