France's ERAFP Introduces Climate Divestment Criteria

ERAFP, the French civil service pension fund, has adopted criteria for divesting holdings on climate change-related grounds as part of a move to align its socially responsible investment (SRI) policy with the objectives of the Paris Agreement.

The pension fund has not had a divestment policy or exclusion criteria before, sticking to a “best-in-class” approach with a focus on promoting more sustainable and responsible economic activity.

However, it will now be pulling out of companies who do not adopt strategies consistent with the Paris Agreement goals and have more than 10% of their turnover coming from thermal coal-related activities.

“Limiting a company’s exposure to thermal coal-related activities today is a powerful way to limit greenhouse gas emissions, while providing scope for opportunities to contribute to the energy transition,” it said.

A spokeswoman at ERAFP told IPE it had two holdings to sell by the end of the year, worth around €15m, and had two more to look at more closely together with its asset managers.

She said the credibility of companies’ commitments would be verified using criteria such as having a greenhouse gas reduction target that has been validated under the Science Based Targets platform, and a climate strategy carried by the board of direcors and incorporated as a criterion in the company’s executive pay policy.

Sectors covered by the new policy include car manufacturers, haulage, cement, steel, aluminium, and oil & gas.

The €33bn public pension fund also said it will be stepping up its engagement activity with those companies remaining in its portfolio, in particular within the framework of the Climate Action 100+ programme, to redirect their strategies and activities towards a decarbonised economy.

It would be doing this “in order to comply with the timetable for phasing out coal completely worldwide in line with the Paris Agreement”.

The pension fund will heed the need for there to be what is known as a “just transition”, where the adverse social impact of business and economic restructuring is minimised.

ERAFP said the revisions to its SRI strategy were about “cementing its positioning with a view to ensuring that its investment activities are consistent with its commitment to a decarbonised economy.”

Earlier this year the Institutional Investors Group on Climate Change launched a project to help develop a common understanding of what it means to align portfolios with the Paris Agreement and how this can be achieved.