Three French pension bodies – Agirc-Arrco, ERAFP (Établissement de retraite additionnelle de la fonction publique), and FRR (Fonds de Réserve pour les Retraites) – are still supporting companies that are developing new fossil fuel projects through their investments and votes, contradicting the recommendations of climate science. Only Ircantec (Institution de retraite complémentaire des agents non titulaires de l’État et des collectivités) has a strict fossil fuel exclusion policy. Most of them have also failed to introduce robust climate criteria to select their asset managers, and therefore work with managers worsening the climate crisis. Reclaim Finance calls on these asset owners [1], responsible for managing 171 billion euros in financial assets at the end of 2024, to improve their climate commitments in these areas.
Although the French pension system is a pay-as-you-go system, rather than funded system, some pension-related organisations manage financial assets, mostly shares and corporate bonds. The money they invest comes either from pension scheme reserves (as in the cases of Agirc-Arrco and Ircantec), built up thanks to the accumulation of surpluses or as a precautionary measure, or from public money, as in the case of the FRR which was created to build up reserves to contribute to the sustainability of the pension system. Only a few schemes, such as ERAFP, work as pension funds, directly investing the pension contributions in financial assets.
Reclaim Finance has published a report focusing on the four main institutional investors in the French pension system, Agirc-Arrco, ERAFP, FRR and Ircantec, analyzing their climate commitments regarding fossil fuel expansion. This article summarizes its findings.
Agirc-Arrco, ERAFP and FRR still invest in and vote in favour of fossil fuel expansion, while Ircantec leads the way
While it is clear from climate science that developing new fossil fuel projects is not compatible with a credible 1.5°C trajectory, Agirc-Arrco, ERAFP and FRR have not yet committed to stop all new investments in the companies developing these projects. Although they have made quite robust commitments regarding thermal coal, these three asset owners can still invest in oil and gas developers that are exacerbating climate change, such as TotalEnergies and Saudi Aramco. And they are doing this with pension contributions and public money. In particular, they have not stopped purchasing new bonds from these companies whereas bonds are one of the main sources of financing for fossil fuel companies.
Moreover, their shareholder engagement approaches lack the credibility and efficiency needed to end fossil fuel expansion. They don’t have detailed escalation strategies, and they don’t sanction the management of the portfolio companies that develop new fossil fuel projects by voting against at AGMs. Yet, these asset owners have significant holdings in fossil fuel companies that could be used to encourage these companies to adopt 1.5°C-aligned climate plans. Agirc-Arrco holds 673 million euros for example, while ERAFP has 937 million euros and FRR holds more than one billion euros.
Only Ircantec has a limited exposure to fossil fuel developers of 30 million euros, due to its strict fossil fuel exclusion policy. Unlike the three other asset owners, Ircantec has stopped investing in thermal coal developers and in upstream and midstream oil and gas developers. The institution is in good financial health, demonstrating the compatibility between sound financial management and ambitious fossil fuel commitments, in accordance with the fiduciary duty of asset owners.
Portfolios entrusted to climate-wreaking asset managers
Agirc-Arrco, FRR and Ircantec delegate the management of their entire portfolios to external asset managers, while ERAFP delegates 70% of its investments. Even though these asset owners require their asset managers to invest according to their rules, the overall practices of these managers often contradict the 1.5°C goal of these asset owners and worsen the climate crisis. For example, FRR has entrusted investments to BlackRock and JP Morgan Asset Management, Agirc-Arrco to BlackRock and State Street, and ERAFP to Morgan Stanley Investment Management. These asset managers have all recently backtracked on climate issues and continue to strongly support fossil fuel expansion – including thermal coal expansion, whereas most French pension-related asset owners have reduced their support for thermal coal.
While several European asset owners are beginning to pull money from asset managers for climate-related reasons [2], Agirc-Arrco, ERAFP, and FRR have not adopted robust climate criteria as part of their selection process. Only Ircantec has strong requirements regarding its asset managers’ support for fossil fuels.
Even though asset owners have significant leverage as clients to encourage asset managers to improve their climate practices, the actions of Agirc-Arrco, ERAFP, FRR and Ircantec are still too limited in this area, often boiling down to having private bilateral discussions. Yet, several European asset owners have recently demonstrated leadership in climate engagement with asset managers. These initiatives are even more needed at a time when anti-ESG attacks are spreading.
A lack of transparency around voting and investments
All four asset owners assessed are accountable to French pensioners and working people, and should therefore report on the use of the pension contributions and public funds that they are in charge of.
However, they are not completely transparent regarding their practices. None of them publish the details of their votes at the annual general meetings of their portfolio companies, and Agirc-Arrco and ERAFP also don’t publish the list of companies in their equity and bond portfolios. This is in contrast to large European public pension funds, such as ABP (Netherlands), AP7 (Sweden), Bayerische Versorgungskammer – BVK (Germany), National Employment Savings Trust – NEST (United Kingdom) which do disclose their votes, and which are mostly more transparent about their portfolio companies.
Reclaim Finance is calling on Agirc-Arrco, ERAFP and FRR to make fossil fuel expansion a redline in their internal practices, in line with scientific recommendations. This requires stopping new investments in fossil fuel developers and adopting voting sanctions against the management of these companies. All four asset owners should also strengthen their actions to encourage asset managers to improve their climate practices, and provide more disclosure on their own votes and investments.
