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Ircantec

PRI reporting framework 2019

You are in Strategy and Governance » ESG issues in asset allocation

ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

13.1. Indicate whether the organisation undertakes scenario analysis and/or modelling and provide a description of the scenario analysis (by asset class, sector, strategic asset allocation, etc.).

Describe The investment strategy includes taking into account climate-related dimensions and the decarbonizing of the economy. Description of scenario : Comparison between Ircantec fund and its aggregated benchmark over a 2°C trajectory in 2018, in terms of : portfolio carbon intensity target; over and under exposure of key economic sectors; etc.

13.2. Indicate if your organisation considers ESG issues in strategic asset allocation and/or allocation of assets between sectors or geographic markets.

We do the following

13.3. Additional information. [OPTIONAL]

We have tested the Mercer approach on climate risk evaluation as well as a 2°C scenario investments model in our ALM.

Scenario analysis that includes factors representing the investment impacts of future climate-related risks and opportunities is issued in our 2017 ESG & Climate report.

Media : https://www.ircantec.retraites.fr/sites/default/files/public/bac_2017_ircantec.pdf


SG 13 CC.

13.4 CC. Describe how the organisation is using scenario analysis to manage climate-related risks and opportunities, including how the analysis has been interpreted, the results and any future plans.

Describe

Pursuant to its pragmatic and progressive approach, Ircantec has worked in 2016 with several services providers and has tested different methodologies (Carbone 4, 2° Investment Initiative, Trucost) to carry out its climate and environmental assessment and its 2°C path. A multi-year contract has then been attributed in 2017 (I Care, Beyond Ratings) to renew and pursue the analysis.

The stated objective is to better integrated climate-related risks and opportunities while preserving an efficient diversification. This collaborative mode (use of different service providers) allows to mix up methods and standpoints, and offset some methodology shortcomings.

Analysis show different results from one consultant to another, which allows to get a bigger picture of the climate impacts of the scheme.

Describe

We have been trying to engage with our main CO2 emitters, as well as our largest stranded assets holders. 

specify

          Oil and gas divestment
        

Describe

To be in line with a 2° scenario and reduce its climate risks, Ircantec has divested from a large range of oil and gas specialized sectors, and from non european majors having a weak low-carbon strategy.

13.5 CC. Indicate who uses this analysis.

13.6 CC. Indicate whether the organisation has evaluated the impacts of climate-related risk, beyond the investment time-horizon, on the organisations investment strategy.

Describe

As an asset owner and long-term investor, we work with our services providers to determine our main climate-related risks, including :

  • Top biggest stranded assets of the Ircantec portfolio;
  • Top largest greenhouse gas producers of the portfolio;
  • Exposition to fossil energies by asset classes;
  • Potential carbon equivalent emissions compared to benchmark.

Transition risks (most of them : legal, market, reputation risks) are one of the main concerns, especially when it comes to stranded assets in the oil and gas industry. Physical risks are also under process but more difficult to estimate, we integrate some measures and commentaries in the last climate report.

13.7 CC. Indicate whether a range of climate scenarios is used.

Indicate the climate scenarios the organisation uses.
Provider
Scenario used
IEA
IEA
IEA
IEA
IEA
IRENA
Greenpeace
Institute for Sustainable Development
Bloomberg
IPCC
IPCC
IPCC
IPCC
Other
Other
Other

SG 14. Long term investment risks and opportunity

14.1. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following are considered.

14.2. Indicate which of the following activities you have undertaken to respond to climate change risk and opportunity

Specify the AUM invested in low carbon and climate resilient portfolios, funds, strategies or asset classes.

Total AUM
trillions billions millions thousands hundreds
Currency
Assets in USD
trillions billions millions thousands hundreds

Specify the framework or taxonomy used.

The board of trustees has endorsed a strategy roadmap (2016-2020) to engage Ircantec portfolio into a 2°C scenario.

Many lines of work have been deployed to reach these objectives:

  • Divestment from fossil energies: The board of trustees has decided to divest from coal investment  in 2016.  They also divest from oil and gas sectors : every bonds ; specialized oil and gas equities ; and non-european equity majors when they are not aligned with a 2°C trajectory. 
  • Invest and measure : consists in integrating ESG and climate dimensions in every steps of the investment chain, as of the allocation model construction process. It means also measuring and publishing a range of indicators to assess the different transition and physical risks bore by the aggregated portfolio.
  • Be involved : as a long-term investor, Ircantec works on strengthening its voting and engagement activities, while cooperating with peers and contributing to methodologies evolutions.
  • Finance : Ircantec finances assets dedicated to the energy transition : green bonds and infrastructure funds on renewable energies and energy efficiency.

Ircantec's strategy follows a low carbon strategy, with a portfolio carbon intensity currently 22% lower than the benchmark (Scope1 & 2, Scope3 only for the Automotive sector).

other description

          Engagement and voting activities linked to climate transition.
        

14.3. Indicate which of the following tools the organisation uses to manage climate-related risks and opportunities.

other description

          Companies' ranking : top CO2 emitters, top stranded assets holders, main contributors of avoided emissions, "green part" of the portfolio
        

14.4. If you selected disclosure on emissions risks, list any specific climate related disclosure tools or frameworks that you used.

The Climate & ESG report that Ircantec releases since 2016 (experimental test in the 2015 annual review) responds to our engagement towards the Montreal Carbon Pledge and the French law on energy transition (article 173-VI). Disclosure methodologies are still tested and on progress, based on tools developed by our services providers and standards recommended by international institutions like the TCFD.

2017 Climate and ESG report : https://www.ircantec.retraites.fr/sites/default/files/public/bac_2017_ircantec.pdf

14.5. Additional information [Optional]

Ircantec has emphasized several shortcomings in its report :

Since 2015, Ircantec has solely measured the carbon footprint of its “Corporate” portfolio (equities and bonds). For the first time, this measure was extended in 2017 to cover sovereigns’ portfolios as well as infrastructure, private equities and impact investing funds. The goal is to have a more impactful portfolio on climate and climate risks.

A first shortcoming concerns the different methodologies used by Ircantec’s advisors. The implementation of new approaches requires a time of adaptation to understand and apprehend data meaning and usefulness. As any modelling work, it's important to mix caution, precision and determination for progressing. Besides, all these approaches try modelling a complex reality (energy transition) whose we don’t know every issues and implications.

Thus, the results of this first "global" analysis of climate and environmental performance must be taken with caution as the methodologies used are not completely stabilized.

A second one concerns the carbon footprint approach, which brings in interesting information to the debate but doesn’t fully comply with Ircantec’ view to accompany the transition towards a low-carbon economy (and not specifically low-carbon investments). It is also important to measure the decreasing emissions dynamic in its prospective dimension (broken down by economic sector attributions and objectives).

To complete this indicator and to have a more holistic and prospective vision, other indicators are being developed. For the first time in 2017, the positive impacts of the Ircantec portfolio on climate are also assessed. This extension in terms of indicators to positive impacts, as well as the change of scope (now the global portfolio is concerned), requiring complex work, this approach will be developed over three years (2017-2019).


SG 14 CC.

14.6 CC. Please provide further details on these key metric(s) used to assess climate related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Carbon footprint (scope 1 and 2)
          Identify the biggest CO² emitters
        
          KgCO2/1000€ invested
        
          
        
Portfolio carbon footprint
          Identify the biggest CO² emitters
        
          KgCO2/1000€ invested
        
          
        
Carbon intensity
          Identify the most carbon-intensive sectors
        
          KgCO2/1000€ invested
        
          
        
Exposure to carbon-related assets
          Identify the most carbon-related assets
        
          % of AUM in carbon-related assets
        
          
        
Other emissions metrics
          
        
          toeCO2/M€ invested
        
          Avoided emissions
        

14.8 CC. Indicate whether climate-related risks are integrated into overall risk management and explain the risks management processes for identifying, assessing, and managing climate-related risks.

Please describe

For the first time, the Ircantec portfolio assessment was extended to the whole AUM in 2017. Now, it covers sovereigns’ portfolios as well as infrastructure, private equities and impact investing funds. Nevertheless, methodologies used are still under development. However, results are useful for understanding how does climate change and energy transition impact financial reserves of the scheme.


The fiduciary manager (Caisse des Depots) and services providers have a co-lead responsibility for identifying and assessing climate-related risks, based on their knowledge of the portfolio and methodologies. The overall objective, set by the Board of Trustees, is then to adjust investments for coping with a 2°C scenario and financing the energy transition towards a low-carbon economy. Different ways of actions are open to this end :

  • Reduce the exposition to carbon risks ;
  • Favour best-practices companies and solutions providers ;
  • Exclude risky practices ;
  • Finance energy transition assets.

14.9 CC. Indicate whether the organisation undertakes active ownership activities to encourage TCFD adoption.

Please describe

Our active ownership program incorporates stewardship and dialogue activities, based on : 

  • Developing high-quality dialogue with companies;
  • Improving co-operation with fellow investors ;
  • Stimulating progress in practices and methodologies. 

We notably participate to Climate Action 100+ and a PRI-led collaboration group on oil & gas transition. One of the drivers for these initiatives is to encourage compagnies (we co-lead engagement on Total, and BP) to follow the TCFD recommendations.

Furthermore, we evaluate the energy transition policy of key portfolio holdings.

Each annual general meeting from key energy companies (those having a high environmental sensitivity) is the subject of an analysis of the energy and ecological transition, in order to better assess the company's positioning in the transition. 

Ircantec also votes on executives compensations, dividend payments, financial statements and executive director's reelection in function of environmental and energy strategy of the company. This shows our disapproval when a company is not active enough on energy transition and other environmental issues in its business.

After received recommendations and indicators from our services provider and asset managers, we are voting as follows :

  • against executives' compensations ballots, if they do not include a long-term environmental criteria for determining the variable part;
  • against dividend payments, if net results are not enough allocated to R&D and especially in energy transition-related investments;
  • against financial statements validation, if the global energy transition strategy is not enough convincing;
  • against executive director's reelection, if there is a breach concerning the duties of environmental and energy strategy of the company.

SG 15. Allocation of assets to environmental and social themed areas

15.1. Indicate if your organisation allocates assets to, or manages, funds based on specific environmental and social themed areas.

15.2. Indicate the percentage of your total AUM invested in environmental and social themed areas.

12.88 %

15.3. Specify which thematic area(s) you invest in, indicate the percentage of your AUM in the particular asset class and provide a brief description.

Area

Asset class invested

1.2 % of AUM
0.07 % of AUM

Brief description and measures of investment

Ircantec is currently invested in 2 infrastructure funds dedicated to energy efficiency for a total commitment of € 27.9 million. The current level of investment represents about € 7,7 million (0.07% of AUM). These investments are made as part of Ircantec's involvement to finance the energy transition.

€ 542 million (4.9% AUM) are invested in green bonds. A large part of it is issued by utilities trying to switch their energy mix and their activities towards renewables. Approximately 1.2% of its AUM correspond to energy efficiency.

Asset class invested

1.6 % of AUM
0.72 % of AUM

Brief description and measures of investment

Ircantec is currently invested in 6 infrastructure funds dedicated to renewable energy production (wind farms, solar power plants, etc.) for a total commitment of € 150.2 million. The current level of investment represents about € 79.8 millon (0.72% of AUM). These investments are made as part of Ircantec's involvement to finance the energy transition.

€ 542 million (4.9% AUM) are invested in green bonds. A large part of it is issued by utilities trying to switch their energy mix and their activities towards renewables. Approximately 1.6% of its AUM correspond to renewable energy.

Asset class invested

6.49 % of AUM

Brief description and measures of investment

Property investments are carried out by taking into account social criteria (health facilities, student residences, affordable housing, social tourism,etc. ) as well as environmental ones. The current level of investment represents about € 714.7 million (6.49% of AUM).

Asset class invested

0.11 % of AUM

Brief description and measures of investment

Sustainable management of our forestry assets is ensured through various undertakings taken by our asset managers. Through our charter of sustainable forestry management, we namely state the guiding principles which must guide forestry management with a focus on ecological factors e.g. maintaining forests’ good health, fostering biodiversity (notably through its “Natura 2000” membership), protection protected areas, preservation of high cultural-value sites and landscapes as well as ecological quality of maintenance.

Our ”green work” charter also includes guiding principles of sustainable management, such as the limitation of construction work’s direct and indirect impact on its environment. It also has a social component, e.g. preserving a wholesome environment for inhabitants. Limitation of the use of natural resources is also a primary concern.

Asset class invested

0.47 % of AUM

Brief description and measures of investment

Ircantec is currently invested in 4 PE funds dedicated to SME's for a total commitment of € 138.8 million. The current level of investment represents about € 52.1 million (0.47% of AUM).

Asset class invested

0.06 % of AUM

Brief description and measures of investment

Ircantec have committed 10 million to the social economy (in French ESS). The current level of investment represents about € 6.1 million (0.06% of AUM).

Asset class invested

6.49 % of AUM

Brief description and measures of investment

Property investments are carried out by taking into account social criteria (health facilities, student residences, affordable housing, social tourism, etc.) as well as environmental ones.

          Water & waste management & other minor environmental items
        

Asset class invested

2 % of AUM

Brief description and measures of investment

€ 542 million (4.9% AUM) are invested in green bonds. A large part of it is issued by utilities trying to switch their resource management (water, waste, etc.).

15.4. Please attach any supporting information you wish to include. [OPTIONAL]



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