Three leading French pension funds "continue to support" companies developing new fossil fuel projects through their investments and votes, contradicting the recommendations of climate science, according to a report from Reclaim Finance.

In particular, it claimed that the pension funds had not stopped purchasing new bonds from these companies.

The funds, Agirc-Arrco, the French public service additional pension scheme (ERAFP), and the French Pension Reserve Fund (FRR) have also failed to introduce robust climate criteria to select their asset managers and therefore work with managers that worsen the climate crisis, the report added.

Reclaim Finance urged the asset owners, who were responsible for managing €171bn in financial assets as of the end of 2024, to strengthen their climate commitments in these areas.

The report also noted that their shareholder engagement approaches "lacked the credibility and efficiency needed to end fossil fuel expansion," citing a lack of detailed escalation strategies and management of the portfolio companies that developed new fossil fuel projects.

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 oversee, Reclaim Finance warned.

Indeed, it highlighted a lack of transparency, claiming that none of them published the details of their votes at the annual general meetings of their portfolio companies.

Additionally, Agirc-Arrco and ERAFP didn't publish the list of companies in their equity and bond portfolios.

Responding to the report, the FRR defended what it described as an "ambitious responsible investor policy".

It emphasised that it is a member of the Net Zero Asset Owners Alliance (NZAOA) and among the first signatories of the Principles for Responsible Investment (PRI).

The FRR stated that it considered financial performance and environmental, social, and governance (ESG) responsibility to be "complementary tools."

Addressing its investments in coal, the fund argued that there was currently no economically viable substitute for metallurgical coal for certain industries.

As a result, it does not exclude this type of coal, which is necessary for steel production.

Instead, it urges industrialists to reduce pollution related to production processes significantly and to promote investments in researching more environmentally friendly alternative solutions.

Regarding thermal coal, the FRR stressed that it had tightened its restrictions by excluding companies deriving more than 5 per cent of their revenue from it and excluding those developing new coal-fired power plants.

Consequently, it claimed that no company developing new coal mines was part of the FRR portfolio.

In terms of oil and gas, the FRR argued that it imposed "very ambitious" objectives for reducing the overall carbon footprint of the portfolio.

The firm stated that the reduction would be at least 60 per cent between 2019 and 2029, in line with the targets of the NZAOA and the Paris Agreement.

Furthermore, it added that to decarbonise the real economy, the FRR prioritised engagement with companies so that they adopt and implement ambitious decarbonisation trajectories rather than systematic exclusion.

Meanwhile, the firm argued that its selection criteria for management companies related to climate was "robust" and represented a "significant weight" in the evaluation, accounting for approximately 30 per cent of the evaluation of the management process.

It emphasised that the management of its mandates was entrusted to managers selected through a call for tenders, notably for their ability to generate financial performance within a controlled risk framework, ensuring payments to the Cades, and effectively implementing the FRR's responsible investment objectives, particularly regarding decarbonisation.

ERAFP also responded to the report, stating that while it shared the objective of a decarbonised economy, it differed with Reclaim Finance on the modalities of the strategy to be followed and "regrets" that the reality of the significant results obtained in the decarbonisation of its investments is hidden.

"Contrary to what Reclaim Finance claims, ERAFP does not believe that it is by divesting or ceasing to invest in companies in the fossil fuel sector as a matter of principle that the interests of RAFP members are best served," the response reads.

"On the contrary, it is as the ERAFP board of directors, composed of representatives of beneficiaries and employers, has long decided, by operating several complementary levers to decarbonise the portfolio."

Primarily, ERAFP argued that the exclusion approach does not serve the energy transition and would even be counterproductive.

Instead, the firm favours a selective approach to companies, known as 'best in class', as well as a shareholder engagement policy marked by high standards and consistency.

It claimed that this strategy has enabled ERAFP to achieve very convincing results on the path to decarbonising its portfolio, such as a sharp decrease in the carbon intensity of its corporate equity and bond portfolio in the last five years.

Agirc-Arrco did not respond to requests for comment.

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