The French public asset owner Fonds de réserve pour les retraites (FRR) updated its fossil fuel exclusion policy in mid-December (1). The weak measures announced do not include a halt to investments in companies developing new oil and gas projects, such as TotalEnergies. The institution has adopted almost none of the recommendations in a report published by Reclaim Finance in July, which already highlighted the flaws in FRR’s climate commitments. FRR risks continuing to make investments that exacerbate climate risks, in breach of its fiduciary duty. To protect future pensions which the institution is supposed to safeguard, FRR must cease its support for fossil fuel developers and consider science-based climate criteria when selecting its asset managers, to avoid entrusting its investments to BlackRock.
FRR is a public fund with assets of €20 billion (at the end of 2024) invested in the financial markets, whose reserves can be used to contribute to the sustainability of the French pension system. Currently, however, it contributes to financing French social security debts.
The tap remains open for oil and gas investments
Only two investment restrictions concerning the oil and gas industry have been announced by FRR, and these are limited to unconventional hydrocarbons (2): a reduction in the exclusion threshold from 20% to 10% of turnover and the stop of direct financing for new unconventional fossil fuel projects. The latter measure has virtually no impact, as FRR supports companies almost exclusively through investments in equities and bonds, which are not impacted by the measure.
Conventional oil and gas are still completely absent from FRR’s exclusions. Yet, science and the International Energy Agency are clear: any new oil and gas fields compromise our chances of limiting global warming to 1.5°C (3), the target set by FRR (4). The Science Based Targets standard for financial institutions also emphasises the importance of ending financing for new oil and gas projects (5).
In practical terms, FRR can still use public money to invest in oil and gas companies such as TotalEnergies, Saudi Aramco and Eni, helping to finance their new projects that are dangerous for climate.
If FRR aims to fulfil its mandate to ‘participate in the financing of pensions’, then protecting its investments from the climate-related financial risks is an obligation. This means immediately ending support for oil and gas expansion, as several asset owners have already done. Ircantec, another French pension body, no longer invests in oil and gas project developers. Several French life insurers have also made a similar commitment regarding their bond investments, as bonds are one of the main sources of financing for fossil fuel developers (6).
A non-existent shareholder dialogue with the oil and gas industry?
To justify its continued oil and gas investments, FRR claims to be engaging with companies in the sector but does not mention any concrete action, which calls into question the credibility of its approach. The FRR does not even make an explicit ask to companies to halt their expansion.
This was an opportunity for the FRR to define an escalation strategy with specific deadlines and actions, and to plan systematic opposition votes to resolutions proposed by the management of fossil fuel developers – and the institution missed it (7).
Some rare progress in thermal coal, but still no consideration for metallurgical coal
FRR fills certain gaps regarding the thermal coal sector. The institution lowers the exclusion threshold for companies involved in thermal coal from 5% to 1% of turnover. And FRR now excludes companies that develop new infrastructure related to thermal coal, without specifying whether this includes mines, in addition to the developers of coal-fired power plants that are already excluded.
However, the public fund still fails to define investment restrictions or a specific engagement for companies involved in metallurgical coal, even though it poses a major climate risk and decarbonisation technologies are now available.
Inaction towards asset managers’ inadequate climate practices
Other announcements are missing from this new FRR policy. The institution still lacks science-based climate criteria for selecting its external asset managers or engaging in a credible dialogue with them. In particular, FRR does not set any requirements regarding the fossil fuel policy of its external managers.
FRR recently joined a coalition of asset owners engaging their managers on climate (8), but without robust criteria, the investor may continue to entrust the management of public investments to asset managers with climate-damaging practices, as it already does with BlackRock.
Conversely, other asset owners are setting an example by distancing themselves from managers who exacerbate global warming. Préfon, another French asset owner, recently delisted 13 funds from its range of unit-linked life insurance products, including a BlackRock fund, due to insufficient sustainability practices. For its part, Ircantec is asking its asset managers for a coal exit plan and a specific policy for fossil fuel developers. And in Europe, the movement is gaining momentum: Dutch pension funds PFZW and PME have withdrawn mandates from BlackRock, citing sustainability concerns.
It is time for FRR to take its ambition to be a responsible investor seriously. The institution must immediately stop new investments in fossil fuel developers and systematically vote against their management at annual general meetings. FRR must also implement a structured approach to selecting and engaging its external managers on climate issues.
