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INVESTING/PORTFOLIO STRATEGIES

France to require institutional investors to disclose carbon exposure

The French government will require institutional investors to measure and disclose their portfolio exposure to carbon.

Speaking at Climate Finance Day, which brought together investors, banks, insurers and policymakers to discuss climate change, French Minister of Finance Michel Sapin announced the requirement.

In his speech, obtained by Pensions & Investments, Mr. Sapin said the entire financial system must consider climate risks. For institutional investors, he said, that is about knowing the exposure of a portfolio to carbon risk, and implementing a decarbonization strategy. This strategy, he said, could include divestment of certain sectors, use of low-carbon indexes and engagement with companies.

The move was welcomed by the CEO of French pension fund Etablissement de Retraite Additionnelle de la Fonction Publique, Paris.

“I'm very happy because we have been arguing very loud and strong for that, and it is very satisfactory for us,” said Philippe Desfosses, CEO at ERAFP, in a telephone interview. “We think and we stress that carbon is a risk … and if you are running (that risk) in your pension fund, it is clear to us that from a fiduciary duty, you should assess that risk and mitigate it. How can you justify not assessing that risk, (despite the fact that) it will impact the value of the assets that you are invested in and will compromise your ability to deliver on the promise to pay pensions to your contributors?”

ERAFP, which has €23 billion ($26.3 billion) of assets, is a signatory to the Montreal Carbon Pledge, a United Nations Principles for Responsible Investment-supported commitment to measure and publicly disclose the carbon footprint of investment portfolios on an annual basis.

“We have been disclosing the carbon footprint of our portfolio since last year,” Mr. Desfosses said. At that point, the carbon intensity in the equities portfolio was 19% less than that of the MSCI All World index. “This year, the carbon footprint will show a small reduction, to 16%, because we have invested more in American companies, and they tend to be a little more carbon-intensive,” he said.