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Ircantec

PRI reporting framework 2019

You are in Strategy and Governance » Investment policy

Investment policy

SG 01. RI policy and coverage

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate if you have an investment policy that covers your responsible investment approach.

01.2. Indicate the components/types and coverage of your policy.

Select all that apply

Policy components/types

Coverage by AUM

01.3. Indicate if the investment policy covers any of the following

01.4. Describe your organisation’s investment principles and overall investment strategy, interpretation of fiduciary (or equivalent) duties,and how they consider ESG factors and real economy impact.

Long-term investment performance not only depends on the impact of the financial strategy, it also depends on the company's interactions with its social, economic and financial environment. The inclusion of SRI criteria in portfolio management allows a full assessment of risks and opportunities of companies in which Ircantec invests.

The pension scheme believes that respect of these criteria allows companies to have a positive impact on their valuation, improve their social behaviour and reduce the risks whose they are exposed to.

Thus, Ircantec defines its investment policy by three major concerns :

  • Acting in the best long-term interests of its beneficiaries with a 100% SRI approach;
  • Optimizing the performance of its investments over the long term within risk limits accepted by the institution;
  • Maintaining the consistency of the investment policy - while upholding its own collective values.

Furthermore, the board of trustees has endorsed a strategy roadmap (2016-2020) in order to:

  • Optimize the return on investments over the long term;
  • Strengthen the responsible investor approach;
  • Enroll in an investment trajectory compatible with a 2°C scenario;
  • To be a benchmark investor in the field of supplementary retirement at European level.

Furthermore, Ircantec is positioning itself on Sustainable Development Goals (SDG). 

01.5. Provide a brief description of the key elements, any variations or exceptions to your investment policy that covers your responsible investment approach. [Optional]

 

1. Shares and corporate bonds

- Reference framework : Ircantec will assess companies' social responsibility in particular by examining their ratification to key organisations and their different measures (in terms of remuneration policy, health & safety, ...)

- Exclusion : Companies are excluded from investments when they are exposed to ILO and others UN conventions' restrictions (forced labour, child labour, corruption, environmental pollution, manufacture and market internationally prohibited weapons). 

Coal and utilities companies which fall under specific criteria are also excluded :

  • Regarding mining companies, exclusion of any company with a coal-related turnover exceeding 1% of the world market share;
  • Regarding power-generating companies, exclusion of any company with an energy mix including more than 30% of coal or with a carbon intensity exceeding 500 gCO²/KWh;
  • For both sectors, coal-related turnover must not be over 20% of the total turnover of the company; 
  • On a case-by-case basis, a company could be considered for investment opportunities if it shows significant improvements and involvement for its energy transition. For instance, Ircantec could invest in a green bond issued bv a company under exclusion if it contributes to a better energy mix.

In 2017, the Board of Trustees has also voted the divestment and exclusion of the tobacco sector.

Concerning the year 2018, Ircantec has unveiled an action plan in line with its socially responsible investment approach. The pension scheme intends to:

  • Divestment from traditional oil and gas sector bonds and reallocate the proceeds to green bonds;
  • Divestment from specialized oil and gas companies due to their limited capacity to adapt their model to the ecological and energy transition, as well as in non-European equities and integrated companies whose investment expenditure is not compatible with a 2°C trajectory. The proceeds will be reinvested in green funds;
  • Recalculate its strategic asset allocation over the next two years so as to be able by 2020 to review its exposure to the oil and gas sector based on its alignment with a 2°C trajectory.

- ESG selection : Ircantec puts forward best-in-class strategies in its investment process, even if the scheme has worked with its asset managers to improve the ESG quality of its funds by integrating other approaches.

2. Sovereign bonds : values of the Institution tend to lead it towards supporting long-term public policies to ensure resources for future generations. Investments are focused on States that promote social progress and climate/environmental protection. Our datas on climate and ESG indicators cover this asset class, with methodologies mainly provided by Beyond Ratings.

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

01.6. Additional information [Optional].

          
        
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SG 01 CC. Climate risk

01.6 CC. Indicate the climate-related risks and opportunities that have been identified and factored into the investment strategies and products, within the organisation's investment time horizon.

In terms of reducing the exposition to carbon risks, the board of trustees has decided to divest from coal investments under specific thresholds in September 2016 (€ 46 million and 18 companies divested). Two years later, the pension scheme has also decided to divest from traditional oil and gas sector bonds and to discontinue investing in specialized oil and gas companies, as well as in non-European equities and integrated companies whose investment expenditure is not compatible with a 2°C trajectory (€ 42 million bonds divested in 2018, which was reinvested over the same period in green bonds and around € 50 million will be reinvested in green funds in 2019). Asset managers are also asked to monitor their climate-related risks in their funds, and they provide insights on it in their quarterly ESG reports for Ircantec.

Giving priority to best practices/solutions and excluding risky practices provide opportunities for developing strong collaborations with asset managers. In 2015 and 2017, two main initiatives have been headed : the first one with Allianz GI (2015) on a € 1 billion equity portfolio where we are looking to outperform a standard index when attempting to mitigate the carbon exposure by a system of targeted exclusion and investing on best-performer, best-effort and best-solution companies. A second one with CPR AM (2017), focused on enriching the ESG filter with weak ESG signals to better identify companies which have average ESG scores but lag behind on a crucial criteria.

Finally, Ircantec directly finances the transition by investing in green bonds (€ 542 million as of 2018 end), which are considered as a distinct asset class to improve their monitoring. The pension scheme also invests in energy infrastructures and energy efficiency funds (€ 178 million committed) as well as in real estate (€ 714.7 million) by taking into account environmental criteria.

01.7 CC. Indicate whether the organisation has assessed the likelihood and impact of these climate risks?

01.8 CC. Indicate the associated timescales linked to these risks and opportunities.

The timescale follows the progressive 2° alignment of the Ircantec global portfolio. Some major risks are set aside (illustrated with the oil and gas divestment), some others are still in portfolio and controlled by Ircantec, through engagement with the companies bearing them.

01.9 CC. Indicate whether the organisation publicly supports the TCFD?

01.10 CC. Indicate whether there is an organisation-wide strategy in place to identify and manage material climate-related risks and opportunities.

Describe

The purpose of Ircantec's policy is to protect the value of the portfolio's investments by reducing its exposure to carbon risk, in particular by controlling the carbon footprint and thanks to a system of targeted exclusions.

Thus, Ircantec identified the main carbon risks :
• Coal exposure;
• Oil and gas exposure;
• The physical risks of climate change exposure.

Regarding fossil energies, the board of trustees has decided to divest from coal investment under specific thresholds and has unveiled an action plan concerning the oil and gas sector in order to :

  • Divest from oil and gas sector bonds and reallocate the proceeds to green bonds;
  • Divest equities from specialized oil and gas companies (exploration, drilling, refinery, etc.) due to their limited capacity to adapt their model to the environmental and energy transition.
  • Divest equities from non-european integrated companies whose capital expenditure is not compatible with a 2°C trajectory. The proceeds will be reinvested in green funds;
  • Recalculate its strategic asset allocation over the next two years so as to be able by 2020 to review its exposure to the oil and gas sector based on its alignment with a 2°C trajectory.

Furthermore, an analysis of physical climatic risks was carried out on the sovereign bonds investment. The equities and corporate bonds segment will be soon analyzed. The methodology developed by our service provider (Beyond Ratings) is based on three dimensions:
• physical climatic risks (scenarios of temperature evolution, water stress, etc.);
• economic climate risks (economic damage related to climate risk factors, etc.);
• climate risk mitigation factors (economic, social indicators ... to measure the resilience of countries to climate risks).

The aim of this approach is to support the transition to a low-carbon economy and seize opportunities.

1.12 CC. Indicate the documents and/or communications the organisation uses to publish TCFD disclosures.

specify

          ESG and Climate report
        

SG 02. Publicly available RI policy or guidance documents

New selection options have been added to this indicator. Please review your prefilled responses carefully.

02.1. Indicate which of your investment policy documents (if any) are publicly available. Provide a URL and an attachment of the document.

URL/Attachment

URL/Attachment

URL/Attachment

URL/Attachment

URL/Attachment

02.2. Indicate if any of your investment policy components are publicly available. Provide URL and an attachment of the document.

02.3. Additional information [Optional].

Our SRI Charter includes specific subsections regarding :

  • Asset class-specific guidelines (p. 4 - 6)
  • Screening/exclusion policy (p. 4)
  • Active shareholding policy (p. 7)    

Our voting policy includes specific guidelines regarding :

  • Corporate governance factors (p. 7-8)
  • Social factors (p. 9-13)
  • Shareholders' rights (p. 14-15)

Our shareholder and institutional engagement policy includes specific guidelines regarding :

  • Social factors (p.5)
  • Environmental factors (p.5)
  • Corporate governance factors (p.6)

All investment policy documents are translated in English.

Regarding screening/exclusions policy, there has been the divestments from the coal (€ 46 million and 18 companies divested in 2016) and tobacco sector (€ 21.4 million divested in 2017). More recently, last move concerns the divestment from oil and gas sector bonds, which represented € 42 million in 2018 year end.

In 2019, Ircantec plans to invest approximately € 50 million in energy transition open funds (trade off following the equity oil and gas divestment).


SG 03. Conflicts of interest

03.1. Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process.

03.2. Describe your policy on managing potential conflicts of interest in the investment process.

Our conflict of interest policy is laid out in our bylaw regarding ethics considerations. It includes specific provisions on board members’ reporting of any potential conflict of interest regarding their mandates. It also contains provisions on the use of financial privileged information and perceiving unfair advantages likely to compromise our administrators' independence.

03.3. Additional information. [Optional]


SG 04. Identifying incidents occurring within portfolios (Private)


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