Combating climate change

ERAFP's involvement within the IIGCC

The COP 21 climate conference to be held in Paris in late 2015 is seen as an opportunity to further implementation of the framework needed for economic players to become aware of climate challenges and, having done so, to agree to relevant behavioural change.

Discussions on ways to incorporate the negative externality associated with greenhouse gas emissions into prices are part of this framework. 

Further failure to reach a consensus at the 2015 conference would mean not only losing opportunities to invest and create jobs but also that the target of limiting the average temperature increase between now and 2050 to 2°C would be seriously jeopardised.

Right from ERAFP's creation, its board of directors decided that all of its investments would be made in compliance with an SRI charter that assigned major importance to the limitation of greenhouse gas emissions. According to ERAFP:

  • the best in class approach makes it possible to direct investments sector by sector and asset class by asset class towards the issuers best placed to contribute to sustainable development, and to energy and ecological transition in particular;
  • collaborative engagement makes it possible to pool resources and considerably increase investors' influence and clout with multinational corporations and other issuers. That is why ERAFP participates in the work of the Institutional Investors Group on Climate Change (IIGCC),

ERAFP's view is that to be credible in this approach investors must:

  • be transparent with regard to their backers and beneficiaries on the investment criteria that they use and how they integrate them (exclusions, best in class type selection, thematic approach etc.), 
  • provide tangible evidence of their approach's impact, by measuring their investments' carbon footprint, for example, by investing in "green" or "social" bonds that enable funds raised to be channelled into projects with environmental and/or social added value, or by publishing details of energy savings made through responsible real estate asset management, etc.

Measuring and publishing the carbon footprint of ERAFP's equity portfolio

It is for the above reason that ERAFP, a signatory of the Montreal Carbon Pledge, publishes details of its equity portfolio's carbon footprint. Carried out by Trucost, the footprint is broken down based on the portfolio's three main areas: euro zone, North America (mainly the United States) and international. A summary of the main results is available for download.

Trialling decarbonisation

Following on from the publication in early 2014 of its equity portfolio’s carbon footprint, ERAFP worked with the French asset manager Amundi on a methodology aimed at reducing significantly the carbon footprint of a €750 million portfolio managed on ERAFP’s behalf under an index-managed mandate.

The carbon footprint audit performed in early 2014 showed that our best in class approach, which takes into account a wide range of ESG issues, has reduced the carbon intensity of ERAFP’s equity investments. ERAFP therefore decided to deepen its involvement by testing on one of the equity funds a methodology aimed at increasing the selectivity of the “CO2 emissions” filter, in addition to applying its other ESG criteria.

This decarbonisation methodology in effect rounds out the best in class approach of selecting only the best companies in environmental, social and governance terms. An additional filter is also applied, based on companies’ carbon intensity data (teqCO2/€million of revenue): 5% of the most polluting companies globally and 20% of the most polluting companies in each sector are excluded from the portfolio.

The decarbonised portfolio’s performance is similar to that of the initial index but its carbon intensity is some 40% lower.

In addition to monitoring this mandate, ERAFP will continue its work in measuring carbon and climate risks, notably by supporting research and development initiatives to assess the alignment of investments with climate objectives. In particular, ERAFP supports the 2° Investing Initiative in respect of the launch of a three-year R&D programme to create a “climate performance” indicator.