"This is why we are also very committed against global warming" said Philippe Desfossés, director at ERAFP.
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Next Finance : The COP21 has aroused a widespread enthusiasm. What conclusions do you draw and what actions do you intend to pursue ?
Philippe Desfossés : ERAFP had put in place a portfolio decarbonisation and had joined the Montreal Carbon Pledge and the Portfolio Decarbonization Coalition before the COP 21. The central issue discussed at the COP 21 remains the target of keeping the average temperature rise below 2 degrees by 2050. To achieve this goal, an ambitious approach - facing many technical difficulties - is made from gas budget greenhouse that can still be issued by 2050. This amount will be allocated over this period, then by continent, by economic sector before reaching the company level. This process needs to master complex and highly sophisticated matrices. Realism suggests to proceed in the opposite direction by observing and monitoring the emission evolution and then by aggregation to evaluate a total amount of emissions to determine if this change appears compatible or not with a 2° patch for each company. During the COP 21, steps were set up to verify the willingness of governments (INDC) with a first checking forecast for 2018 and 2020. They can be an opportunity to check the relevance of this pragmatic approach.
Today for all asset classes, we see a lot of SRI or ESG investments. Green Bonds, Infrastructure "sustainable" Property "sustainable" low carbon index shares Shares sustainable / ethic, etc ... What is your view on the emergence of these SRI asset classes ?
This development seems positive! Particularly in the current environment where substantial asset volumes are needed to finance the energy transition. However, to avoid falling into the Greenwashing, it is important to develop in parallel frameworks in order to ensure proper integration of environmental, social and governance criteria in the management process and a sufficient level of transparency.
As a socially responsible investor, do you will build a 100 % SRI asset allocation ?
Since inception, the board of ERAFP has decided to put in place a 100 % ISR investment policy looking for the general interest on a permanent basis. Adopted in March 2006, the Charter identifies the approaches, materials and resources needed to implement the policy of socially responsible investment for all Plan investments taking into account the specificities of each asset class.
Most investors now provide a reporting on the "carbon" footprint of their portfolios but there is still no consensus on an appropriate methodology. How do you provide the carbon footprint of your portfolios ? Which method is used ?
In 2015, ERAFP decided to extend the measurement of the carbon footprint to sovereign and corporate bond portfolios and to change its methodology for carbon footprint calculation : from a measure of carbon responsibility to a measure of carbon risk (carbon intensity) for investors.
This new methodology calculates the exposure to carbon risk for an investor (from carbon intensity). It is a way to consider that the risk climate exposure of a portfolio is reflected in the average carbon intensity (CO2 emission by turnover) of companies weighted by their weight in their portfolio. This measure - even if it does not inform on CO2-induced or attributable to ERAFP investments - is declinable for all asset classes. If it is generalized, it would become possible to assess the correlation between this value and the level of emissions and thus determine how often this value should decrease to bring us back on a path for the 2 ° target maximum by 2050.
With negative interest rates and a more volatile environment, SRI investor should not be more focused on the long term and increase the holding period of their assets ? Is it not appropriate to evaluate asset managers - to whom you provide mandates - on long term performance indicators incorporating risk measures ?
A pension fund must be focused on its governance sustainability and intergenerational fairness. Therefore, it should be a long term investor. For ERAFP, since its set-up, it has fully justified the choice of its board of directors to invest in its own matrice of responsible investor. This is why we are also very committed against global warming. All our mandates integrate this concern which requires a regular review of performance in terms of risk but also for the three following criteria which determine the sustainability of any business model for us: governance and environmental respect.
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