FRR Climate Policy
Since its establishment, the challenges of climate change have been integral to the FRR’s investment strategy. Today, once again, the FRR reaffirms its commitment by gradually reducing its exposure to CO2 emissions and fossil fuel reserves.
The challenges
The FRR has set itself overall and per-mandate quantified targets for the decarbonisation efforts to be achieved.
Decrease its carbon footprint
Like the vast majority of investors, the FRR does not in principle exclude any particular sectors. It strives towards decreasing the overall carbon footprint of its portfolio by assessing risk and orienting its investments ever increasingly towards ecological and energy transition (EET).
The reduction of its carbon footprint is measured in absolute terms compared to its 2019 portfolio and comparatively against benchmark indices.
Concrete actions
The FRR has for several years voluntarily signed up to various international commitments to promote good practice amongst institutional investors and encourage the most polluting businesses to reduce their negative impact on the environment in whichever sector they may operate.
The FRR is taking the following actions:
Measuring
its carbon footprint.
Reducing
the carbon footprint of its portfolios and therefore the associated carbon risk.
Investing
in renewable energy and innovative technologies.
Pursuing
dialogue with institutional investors and issuers as part of a policy of engagement centered around existing collaborative initiatives (PRI, IIGCC, NZAOA…).
Encouraging
issuers to adopt virtuous behavior by promoting greater transparency of information.
The FRR: a committed partner in international initiatives on climate change
One of the main ways in which institutional investors can promote sustainable development is by exercising their influence over the companies they help to finance, as well as over their ecosystem.
With this in mind, the FRR has been involved in numerous engagement initiatives since its inception, both internationally and nationally. It has been a founding member of several of the most influential initiatives (PRI, Principles for Responsible Investment).
In addition, the FRR has chosen to support dialogue with companies through collaborative initiatives, in partnership with its mandate and fund managers and, where necessary, directly with the companies themselves.
Measuring the carbon footprint of its portfolio
In 2007, the FRR calculated the environmental footprint of its portfolio for the first time. Since then, in line with its responsible investment strategy, the commitments it has made and the decarbonisation efforts it has undertaken on part of its portfolios, the FRR measures the carbon footprint of its mandates and funds every year.
In 2023, the FRR launched a call for tenders to renew its service provider responsible for measuring and analysing the environmental and climate footprint of the FRR’s portfolio. At the end of this procedure, the FRR selected S&P Global Market Intelligence LLC for a period of four years, with the possibility of a one-year renewal.
Methodology
This mission is carried out under the authority of the FRR’s Executive Board and independently of the CDC’s other activities. It gives rise to the payment by the Fund of management fees equal to the expenses incurred.
It is carried out within the framework of the texts governing the FRR and the internal regulations of its bodies.
Carbon footprint of the equity portfolio
At the end of 2023, the weighted average carbon intensity (WACI method) of companies in the FRR’s global equity portfolio was 138 tonnes of CO2 equivalent per million euros of turnover. This was 38% lower than that of the FRR’s benchmark index. Between 2016 and 2023, the carbon footprint of the FRR’s equity portfolio decreased by 41% (approximately 5% per year), while that of the index representing the FRR’s portfolio decreased by only 30%.
| Portfolio | Index | |
|---|---|---|
| Global equities | −41.5 % | −30.3 % |
| Developed market equities | −43.7 % | −41.0 % |
| Emerging market equities | −42.2 % | −42.2 % |
Carbon footprint of the corporate bond portfolio
Green bonds finance projects that have a positive environmental impact, such as renewable energy or eco-friendly transport. In this sense, they could be considered to have net zero CO2 emissions. However, it is important to note that projects financed by green bonds are not always CO2-free.
For example, a renewable energy project may generate CO2 emissions during its construction phase. Furthermore, the issuer of the green bond may have other activities that generate CO2 emissions.
At this stage, the FRR attributes the issuer’s footprint to green bonds, which is in line with the service provider’s methodology. This is a conservative approach. Nevertheless, the FRR requires its managers to expose themselves to green bonds beyond their proportion in the benchmark indices. These exposures therefore appear in the footprints of the portfolios reported by the FRR, which are, in fact, increased.
