French pension funds Établissement de Retraite Additionnelle de la Fonction Publique (ERAFP) and Fonds de Réserve pour les Retraites (FRR) have launched a new initiative aimed at improving the transparency and impact assessment of environmental, social, and governance (ESG) engagement efforts. The initiative, which is supported by a consortium of institutional investors, asset management firms, and academic experts, is backed by the Forum for Responsible Investment (FIR).
Focus on Effective Engagement Actions
The initiative seeks to address the increasing importance of responsible investing, which aims to influence companies to improve their practices in areas such as environmental protection, social equity, and governance. FIR explained that such initiatives—known as engagement actions—are designed to influence companies to evolve their business models, ensuring the long-term sustainability of economic value creation.
The rise of shareholder and bondholder engagement is accompanied by growing demands for transparency in how these actions are executed and measured. The need for standardized metrics and frameworks to assess the effectiveness of engagement is becoming increasingly urgent, and the new initiative aims to fill this gap.
A Pilot Project for Standardizing Engagement Metrics
A pilot group has been formed to develop methodologies for measuring the effectiveness of shareholder and bondholder engagement. The group’s goal is to establish best practices for transparency and performance measurement, which could help create market standards. ERAFP and FRR have already taken the lead by creating a working group focused on qualifying engagement actions and evaluating their outcomes.
In addition to ERAFP and FRR, two other responsible institutional investors—Malakoff Humanis and MAIF—will also participate in this pilot phase.
Tools for Standardized Evaluation
The initiative aims to create tools that institutional investors and asset managers can use to assess engagement effectiveness. These tools will be based on standardized definitions and will enable asset management firms to publish data that demonstrates the impact of their engagement activities. The tools will also help institutional investors evaluate the performance of their asset managers in conducting impactful engagements.
The initiative addresses concerns regarding the lack of standardization in engagement efforts, which can make it difficult to assess their real impact. As such, the pilot group is working on creating a clear evaluation framework that will bring consistency and transparency to ESG engagement practices.
Goals of the ESG Initiative
The pilot group’s objectives include:
- Strengthening the credibility of corporate engagement efforts.
- Reducing the risks of “engagement washing” (i.e., superficial or misleading engagement claims).
- Enhancing the selection process for asset managers by institutional investors.
- Improving resource allocation and engagement activity monitoring within concerned entities.
The project will be executed in stages, with the pilot group having launched the first phase last month. A consultation on the initial deliverables is expected by the summer, and the group plans to finalize the method and incorporate feedback by autumn 2025.
A Step Toward Clearer ESG Metrics
Pierre Devichi, Head of Socially Responsible Investment (SRI) at ERAFP, emphasized the importance of engagement as a tool for responsible investors to influence the real economy. He acknowledged that measuring and evaluating engagement remains a challenge due to the lack of common terminology and practices in the field. The new working group is seen as a crucial step toward resolving these issues.
In conclusion, the initiative represents a significant step toward establishing a clear and standardized framework for evaluating the impact of ESG engagement activities, offering institutional investors and asset managers a practical solution for improving their engagement processes and demonstrating tangible results.
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