Ethical Performance
inside intelligence for responsible business


huge French fund applies SRI to €3bn of its assets

May 2004

Socially responsible investment in Europe has received a major shot in the arm with news that the French state pension fund will take an SRI approach to about a fifth of its assets.

The French Pension Reserve Fund – Fonds de Reserve pour les Retraites, or FRR – says it wants its European large-cap equities portfolio, worth about €3billion ($3.6bn, £2bn) or 18 per cent of the fund’s total assets, to be managed along SRI lines.

It may also later extend this investment approach ‘to a broader universe’. In an eagerly awaited policy statement, the fund’s board has said that within five years it may use SRI techniques to assess large-caps in the US and Asia, middle-ranking companies in the US and Europe, smaller companies in Europe, and fixed income mandates. Antoine de Salins, a member of the executive board, is reported by the Paris-based consultancy Novethic as suggesting that eventually such techniques ‘will be extended to all of the FRR’s portfolios’.

Among the 12 investment management companies to have won mandates so far are Barclays Global Investors, Credit Lyonnais Asset Management and Vanguard Investments Europe. Other managers will be appointed in the summer. The French government has always said the fund should take account of SRI issues in some form, but has given no details until now.

At €3billion, the value of the SRI mandates already announced is close to the present value of the total SRI retail market for French funds. Novethic said it would put a ‘rocket’ under SRI in France and have a ‘profound impact’ throughout Europe. Including government contributions, the fund is likely to be the largest single European institutional investor by 2020 with around €150bn under management, so its sheer size will prompt other large institutional investors to follow suit, Novethic believed.

The investment statement says the fund ‘firmly believes that broadening the scope of risk analysis to encompass [SRI] factors has a positive impact on financial performance’, and confirms that ‘the challenges of SRI are an integral part of the fund’s identity’. But its approach will be ‘gradual and inclusive’, and stakeholders will help to develop SRI policies. ‘The FRR did not want to establish a fixed set of SRI criteria from the outset, applicable to all ... portfolios, without engaging in genuine consultation beforehand,’ it says.

The statement commits the fund to being an active shareholder, particularly on corporate governance, but suggests it will favour engagement. Excluding companies solely on negative criteria ‘is something the FRR does not wish to do’.

The FRR was set up by the French government in 2001 to cover the looming shortfall between contributions from existing workers and pensions paid to the retired (EP5, issue 9, p4). It is not the first government-linked investment portfolio to consider social and environmental factors – the Flemish health ministry in Belgium and the Norwegian government have applied such criteria to parts of their portfolios – but it will be by far the largest.


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