In accordance with its founding documents, the FRR’s voting rights are exercised by the asset managers it has selected and in the FRR’s sole interests.

The guidelines on the exercise of voting rights incorporate all of the elements specific to the FRR but must be sufficiently wide to also account for jurisdictional particularities (both in France and internationally).

The FRR’s aim is to capitalise on managers’ knowledge and ability to respect the practices in force in the various financial markets. Managers may also have regard to these local practices on matters that are not covered by the FRR’s voting guidelines.

The FRR engages with management companies and businesses through various channels.

The voting guidelines are public. The following points were highlighted in particular:

• The importance of setting up a committee within boards dedicated to Corporate Social Responsibility (CSR) issues.
• The desire to establish regular voting at general meetings on climate ambitions and climate reporting.
• The encouragement of companies to publish an equity ratio, including in countries where this is not mandatory. This ratio indicates the relationship between the highest remuneration in the company and the average and median remuneration of employees. In addition, in order to preserve social cohesion within the company, the FRR wants the total annual remuneration of executives to be capped at 100 times the minimum wage in the country where the company’s head office is located, or, in the absence of a minimum wage, at 50 times the median remuneration calculated at Group level.
• The need to analyse the distribution of dividends by portfolio companies:
  • taking into account changes in the company’s total payroll to ensure a fair long-term partnership between employees and shareholders
  • in line with the challenges of energy transition and related investments.

The 2024 Net-Zero Company Benchmark report paints an encouraging picture, but one that needs to be translated into concrete action in the short to medium term. It notes that the companies targeted continue to make progress in setting net-zero targets for 2050 or earlier. They now stand at 80%, up from 77% a year ago.

In addition, in 2024, the FRR, together with the ERAFP and under the aegis of the FIR, initiated a pilot group to measure the effectiveness of ESG engagement. More and more responsible investors are seeking to influence companies to adopt more sustainable practices and change their business models.

All FRR mandates (except those focused on French government bonds), whether listed or unlisted, now have engagement objectives with companies in their universe on ESG issues and must report to the FRR on their engagement actions.

The topics covered include:

• preserving biodiversity
• the transition to a low-carbon economy
• SBTi commitment validation
• the application of best practices from a tax perspective

In particular, as part of the NZAOA, the FRR has asked two managers to initiate engagement with a selection of companies in their portfolios. The 26 companies targeted were selected in accordance with the NZAOA’s “Target Setting Protocol“. This protocol provides for the selection of at least 20 companies in the portfolio, with a focus on those responsible for emissions “generated by companies held in the portfolio” or those responsible for a total of 65% of the emissions generated by companies held in the portfolio.

The desired outcome of these engagement actions is alignment with trajectories that do not exceed or only slightly exceed the 1.5°C threshold.

Both managers use the analysis grid developed by the CA 100+ initiative, the Net-Zero Company Benchmark, to carry out their own analyses.

Using this analysis grid makes it possible to:

• Measure as objectively as possible the positioning of the targeted companies and the progress made over the duration of the engagement.
• Compare the levels of progress made by companies on various topics: neutrality targets, decarbonisation strategy, alignment of capital expenditure, climate lobbying, climate governance, just transition and compliance of reporting with TCFD recommendations.

Of the 26 companies involved in this engagement initiative, eight show a slight improvement in their overall analysis and seven show significant progress over the 2022-2024 period.

Among the latter, two profiles emerge:

• Two companies that are also within the scope of CA 100+ engagement, one of which has made overall progress and the second of which was already among the “best performers” and has made particular progress on the issue of just transition.
• Five companies that are not within the scope of CA 100+ engagement and show overall improvement.