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ERAFP - Etablissement de Retraite Additionnelle de la Fonction Publique Pension Scheme

PRI reporting framework 2020

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 carries out scenario analysis and/or modelling, and if it does, provide a description of the scenario analysis (by asset class, sector, strategic asset allocation, etc.).

Describe ERAFP implements scenario analysis at two levels: - Macro level - Micro level See "additional information" for more information

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]

As a universal and diversified Asset Owner, ERAFP does not apply a priori sector or geographic allocations. ERAFP's SRI policy, based on Best in Class approach, leads to select best issuers in terms of ESG in each sector for each geographic market where ERAFP invests. Except for direct investment in government bonds, for which States who have not abolished the death penalty, practice torture or use child soldiers are a priori excluded and for tobacco producers, ERAFP does not apply a priori exclusions. 

Regarding scenario analysis to assess climate-related risks and opportunities, ERAFP implements scenario analysis at two levels: 

- Macro level:

At the macro level, we analyse ERAFP's overall aggregate portfolio (i.e. consolidating ERAFP's positions in equities, corporate bonds and convertible bonds). The aim of this analysis is to estimate the value of a portfolio under specific conditions and for a specific time horizon. In this context, ERAFP uses different reference scenarios and time horizons.

- Micro level:

The analysis is performed on each asset class, based on a single scenario (a 2°C scenario). The aim of this analysis at the sector level is to assess issuers’ alignment with the Paris Agreement


SG 13 CC.

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

Describe

ERAFP uses climate scenario analysis to estimate the anticipated value of a portfolio under specific conditions and for various time horizons. The aim of this analysis is to assess a portfolio's behaviour under several configurations of risks and opportunities and, particularly, to test under extreme conditions. In this context, ERAFP chose to use different reference scenarios adopted by the IPCC and IEA, two credible and internationally recognised organisations.

The results of the physical and transition risk analyses are published for the first time in ERAFP's 2019 annual report.   

Since 2017, ERAFP has also measured its portfolio's alignment with a 2°C scenario. In 2020, ERAFP has extended this 2°C alignment assessment to all business sectors for its listed companies portfolios. ERAFP does this by using the Sector Decarbonisation Approach (SDA) for sectors with homogeneous activities and the GHG Emissions per Value Added Approach (GEVA) for sectors with heterogeneous activities.

Since 2018, the results have been published in ERAFP's annual report. While some sectors, such as electricity producers, are already in alignment with a 2°C scenario for the listed companies portfolio, other sectors still need to make substantial efforts.

This enables us to identify the issuers presenting the highest number of climate-related risks or opportunities and thus to prioritise engagement actions to be taken by ERAFP or its asset managers

Describe

As described above, an assessment of ERAFP portfolio's climate-related risks and opportunities according to different scenarios (mainly depending on asset classes) is done on a large part of its portfolio. 

In 2019, ERAFP added to its ESG framework, used for each issuer's evaluation, two criteria. The first one evaluates the capacity of issuer to define a strategy compliant with the Paris Agreement Goals; the second one excludes issuers that have more than 10% of their revenue related to thermal coal except if they plan to reduce their exposition in order to comply with the Paris Agreement. Those additional criteria aim to better evaluate and select issuers based on their climate-related risks and opportunities. At ERAFP's level, it aims to reduce climate-related risks and invest on issuers that are compliant with a 2°c world.

Describe

For the engagement that ERAFP directly leads (for instance, for its engagement with the Utilites and auto sectors through Climate Action 100+ initiative) or for asset managers' engagement on ERAFP's behalf, the scenario analysis is a crucial information. 

ERAFP or its asset managers could challenge an issuer on its own scenario analysis and/or its carbon emission's targets if the issuer publishes it or discuss with the issuer on the basis of the scenario analysis they used.

For instance, for utilities, the scenario analysis could allow to understand if the climate-related strategy (planned energy mix, CAPEX, carbon emissions' reduction targets, ...) of the company is well-aligned with the scenario and challenge company's business model if the energy mix/targets are not aligned according to scenarios used. 

13.5 CC. Indicate who uses this analysis.

13.6 CC. Indicate whether your organisation has evaluated the potential impact of climate-related risks, beyond the investment time horizon, on its investment strategy.

Describe

ERAFP has evaluated the potential impact of climate-related transition and physical risks on its investment strategy for different time horizons (2020, 2030 and 2050).

Physical risk: Assessments are performed based on three climate scenarios (low, moderate and high levels of global warming), that are in turn based on the IPCC’s representative concentration pathways (RCP 2.6, 4.5 and 8.5). For each of these scenarios, ERAFP has sought to evaluate company depreciation resulting from physical impacts (measured on the basis of the exposure and vulnerability of company assets to seven physical risks: water stress, fire, flooding, heat waves, cold waves, hurricanes and rising water levels) in 2020, 2030 and 2050.

Transition risk: Assessments are performed based on three climate scenarios (high, moderate and low carbon prices), that are in turn based on the IPCC’s representative concentration pathways (RCP 2.6, 4.5 and 8.5). For each of these scenarios, ERAFP has sought to evaluate company depreciation resulting from changes in carbon prices in 2020, 2030 and 2050.

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

13.8 CC. Indicate the climate scenarios your 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.

other description (1)

          Transition (carbon price, strengthening of legislation, ...) and physical (floods, temperatures rise,...) climate-related risks
        

other description (2)

          Access to housing
        

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.

ERAFP invests in low carbon and thematic funds focusing on environmental solutions and energy transition:

- Multi-assets funds investing in clean energy, technology and climate solutions

- Infrastructure funds investing in renewables (engagement vision)

- Equity funds investing in low carbon assets (Amundi's decarbonized mandate) and climate change solutions

- Green bonds (French state's and regions' green bonds, EIB Green bonds and World Bank's green bonds) 

- Forests through the Real Estate Portfolio

 

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

other description

          We work on decarbonation methodologies
We also use positive impact's criteria as green share; we also use transition and physical risks metrics
        

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

ERAFP has disclosed information on its climate risks and opportunities in its annual report 

https://www.rafp.fr/en/public-report-2018 (2019 to come)

Moreover, ERAFP published in 2016 a memo on "ERAFP and climate"  issued mainly for beneficiaries

https://www.rafp.fr/en/sites/rafp_en/files/publication/file/lerafp_et_le_climat.pdf

Finally, ERAFP elaborated an educational video on ERAFP and the Climate

https://www.rafp.fr/en/erafp-and-climate-0

ERAFP's publishes an internal presentation to present its climate-related risks and opportunities to its board each year

 

14.5. Additional information [Optional]

 

 


SG 14 CC.

14.6 CC. Provide further details on the key metric(s) used to assess climate-related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Weighted average carbon intensity
          To monitor ERAFP's carbon risk exposure and adapt ERAFP's climate-related strategy
        
          CO2 emissions per unit 
of revenue (weighted average)
        
          At issuer level: factoring in of carbon intensity, in terms of CO2 emissions per unit of either revenue (companies) or GDP (countries) 
Aggregation at portfolio level: average issuer carbon intensity weighted for their respective proportions of the portfolio
        
Carbon footprint (scope 1 and 2)
          Monitor issuers' carbon emissions and adapt ERAFP's climate-related strategy
        
          tCO2
        
          For sovereign, corporate bonds and equities, ERAFP uses the methodology of Trucost to calculate the carbon footprint of its issuers (Trucost uses public data when available or estimated data, based on scope 1, 2 and 3 for corporates) 

For unlisted portfolio, ERAFP uses the methodology of Carbone 4, based on several sectorial models.
        
Portfolio carbon footprint
          Monitor portfolio's carbon risk exposure and adapt ERAFP's climate-related strategy
        
          CO2 emissions per unit of revenue (weighted average in the identified portfolio)
        
          At issuer level: factoring in of carbon intensity, in terms of CO2 emissions per unit of either revenue (companies) or GDP (countries)  
Aggregation at portfolio level: average issuer carbon intensity weighted for their respective proportions of the portfolio
        
Total carbon emissions
          to understand the real carbon emissions of issuers
        
          tCO2
        
          on public or estimated data
        
Carbon intensity
          Monitor issuers' carbon emissions and adapt ERAFP's climate-related strategy
        
          CO2 emissions per unit 
of revenue
        
          factoring in of carbon intensity, in terms of CO2 emissions per unit of either revenue (companies) or GDP (countries)
        
Exposure to carbon-related assets
          Monitor issuers' exposure to fossil fuels and adapt ERAFP's climate-related strategy
        
          for sovereign bonds: % of fossil fuel energy  
for companies: % of companies with an extractive activity and % of revenue from extractive industry in the portfolio's returns
        
          sovereign bonds: share of fossil fuel energy in the global energy consumption by country 
for corporate bonds and equities: share of companies in the portfolio which issue incomes from fossil fuel extractive activities and share of portfolio's incomes that are exposed to fossil fuel's extraction activities.
for infrastructures: % of revenue from fossil fuels activities
        
Other emissions metrics
          Evaluate the contribution of ERAFP's portfolio to the climate transition
        
          For green share:  
- equity and corporate bonds: average green share % for electricity production
- sovereign bonds: % of low carbon electricity (production without emissions)
- Real estate: % of assets under some carbon emissions thresholds (2 thresholds: RE2020 and french BBCA label).
- Infrastructures and Private Equity: % of revenue from green share (Carbone 4 taxonomy)

for avoided emissions (only for corporate bonds portfolios): 
- CO2 emissions avoided per invested amount linked to green bonds
        
          For green share:  
- equity and sovereign and corporate bonds: financed Green GWh
- for infrastructures: % of Green projects (Carbone 4 methodology)
- for Real Estate: % of assets under the level of emissions defined by the label E+C or under the level of emissions defined by the label BBCA

For avoided emissions (only corporate bonds portfolios): 
- emissions avoided by green bonds in terms of tco2/€M invested
        

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

Please describe

In order to avoid its climate strategy being misinterpreted by its asset managers, as part of its strategic management, ERAFP monitors the actions taken by asset management companies to factor in climate-related risks. In particular, this monitoring takes the form of the following controls:

  • Controls before launching a mandate: ERAFP only selects asset management companies that are able to apply its SRI framework and whose offer demonstrates a perfect understanding of this framework;
  • Controls throughout the course of the mandate, by ERAFP, which checks that its SRI framework is properly applied by its asset managers, questions managers on how they manage, control and mitigate climate-related risks and encourages them to engage in dialogue with companies in the portfolio in order to promote greater transparency and increased availability of climate-related data.

In addition, to reduce the risk of an issuer’s climate profile being incorrectly assessed, ERAFP has obtained various sources of information:

  • the non-financial rating agency, Vigeo, via its half-yearly and monthly reports and its continuous alert-based monitoring system;
  • climate service providers S&P Trucost Limited and Carbone 4, via their analyses of climate change-related risks and opportunities;
  • analyses by our asset management companies via their reporting and side discussions relating to management committee meetings
  • collaborative climate initiatives in which ERAFP participates.

14.9 CC. Indicate whether your organisation, and/or external investment manager or service providers acting on your behalf, undertake active ownership activities to encourage TCFD adoption.

Please describe

At the end of 2017, ERAFP signed a letter of support for TCFD recommendations encouraging other business leaders to join TCFD recommendations supporters.

Moreover, at the end of 2017, ERAFP has joined the Climate Action 100+. The third pilar of this engagement is to engage with companies for providing more information in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and, where possible, with sector-specific expectations formulated through the Global Investor Coalition on Climate Change. This information should enable investors to assess the resilience of companies’ climate change strategies. In particular this requires evaluating different scenarios, such as taking into account legislation aimed at limiting global warming to less than two degrees Celsius in their financial plans. 

Finally, in its 2019 annual report, ERAFP chose to comply fully with the TCFD's disclosure recommendations in order to set an example for companies.


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.

7.44 %

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

0.6 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

  • Through our multi-assets fund of funds we are invested in four listed equity funds :

Robeco’s smart energy fund,

Pictet’s clean energy fund.

Amundi Global Ecology

Mirova Europe Environmental Equity

  • In 2019, ERAFP also invests around €100 millions in listed equity climate change thematic funds  

Asset class invested

0.3 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

  • ERAFP is  invested in three Infrastructure funds for renewables:

Mirova Eurofideme III and IV

Meridiam Transition

ERAFP has also opened a compartment dedicated to renewables through its infrastructure's mandate

Data reported correspond to the financial engagement 

Asset class invested

0.1 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

Through one of its Real Estate's mandate, ERAFP invests into sustainable forestry assets identified as a carbon sink 

Asset class invested

2.5 Percentage of AUM (+/-5%) per asset class invested in the area
1.2 Percentage of AUM (+/-5%) per asset class invested in the area
1.24 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

  • We have three segregated accounts, two focusing on French small listed companies and one focusing on European Small listed companies.  
  • Through its Private Equity funds, ERAFP is mostly engaged in SME funding
  • In three of our corporate bonds segregated mandates, we have SME investments
  • ERAFP has invested in six fixed income pooled funds for the financing of SME (Sofiprotéol Dette privée, BNP Paribas European SME Debt Fund, Idinvest Dette Senior 4 and Novo bond funds for the financing of French SME).

 

 

Asset class invested

0.014 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

ERAFP has invested in three Private Equity pooled funds: NovESS, Phitrust Partenaires Europe, Citizen Capital II for the financing of social enterprise and community investing

Asset class invested

0.9 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

In 2018, ERAFP has launched a real estate mandate focusing on intermediate housing (data reported in engagement vision)

Asset class invested

0.2 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

Through our multi-assets fund of funds we invest in Pictet’s water fund and KBI water fund

          Green Bonds
        

Asset class invested

0.35 Percentage of AUM (+/-5%) per asset class invested in the area
0.15 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

In 2018, ERAFP invests in four Green Bonds: 

- EIB Green Bond 

- French State Green Bond 

- Région Ile de France Green Bond 

- Amundi Planet Emerging Green One

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



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