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French pension reserve fund FRR has launched an index strategy developed with BNP Paribas that evaluates companies’ ability to finance, implement and successfully complete their climate transition.
The BNP Paribas FRR Eurozone Advanced Transition Equity Index will be included in FRR’s euro-area equity portfolio, which the fund said is in line with the Paris Agreement, according to a press release. Notably, FRR has allocated €100M to the new index.
FRR board member Salwa Boussoukaya-Nasr said in a press release that the fund has worked for more than two decades to integrate environmental considerations into its investment policy and that the new index marks a further step toward assessing not only companies’ current greenhouse-gas emissions and environmental impacts but also their ability to transform their business models to meet the challenges of the climate transition.
Designed specifically for FRR, the index covers large- and mid-cap companies in the euro area. It uses a proprietary methodology developed jointly by FRR and BNP Paribas to evaluate companies’ ability to finance, implement and successfully complete their climate transition by taking into account both their current position and future trajectory.
The methodology is based on four pillars:
Greenhouse-gas emissions intensity across Scopes 1, 2 and 3
Implied temperature rise
Share of capital expenditures aligned with the European Union taxonomy, known as Green Capex
ValueCo consensus indicator that assesses credibility and quality of companies’ transition strategies.
The index also applies FRR’s existing responsible-investment criteria, including exclusions, compliance with the United Nations Global Compact and assessments of the credibility of companies’ transition pathways.
In the release, Thibaut Heurtebize, head of Sustainable Structuring at BNP Paribas, said developing a meaningful climate index requires moving beyond approaches based primarily on emissions data.
FRR is a signatory to the Principles for Responsible Investment and a member of the Net-Zero Asset Owner Alliance. The new index will be implemented across the fund’s Paris Agreement-aligned equity index replication mandates and will contribute to its decarbonization targets for the asset class under its Net-Zero Asset Owner Alliance commitments.
The investment forms part of FRR’s 2024-2028 sustainability strategy, which focuses on climate, biodiversity and social issues. The fund said it will monitor the index’s financial and nonfinancial performance over time.