July 2023

Client engagement | Client story

Balancing equity
factors andsustainability targets“When selecting a smart beta index, we try to find one that performs quite
regularly in different market conditions and which is balanced between the
different factors we are seeking exposure to.”
Pierre-Olivier Billard, Head of Asset Allocation, Fonds De Réserve Pour Les Retraites

About the client
ProfileObjectives

Solution

Fonds de Réserve pour les Retraites(FRR) is a state-funded agency set up in2001 to help finance France’s public
sector pensions.

FRR sought to award an equity index
replication mandate aligned with theprinciples of the 2015 Paris Climate
Agreement and offering balanced
exposure to equity factors.

The FTSE Developed Eurozone Low
Carbon Comprehensive Equal Factor
index offers equal risk exposure tofive equity factors and reduced fossil
fuel reserves and carbon emissions.

Client engagement | Client story

Fonds De Réserve Pour Les Retraites
The Fonds de Réserve pour les Retraites (FRR) is a state-funded agency set up in2001 to help finance France’s pensions. As at end-2022, the FRR managed a totalof €22 billion across bonds, equities and unlisted assets.
As a founding signatory (in 2005) of the United Nations’ Principles for Responsible
Investment, the FRR has a long-standing commitment to sustainable investment
and to the acceleration of the green energy transition. Currently, 100 percent of theFRR’s investments in listed equities aim to improve the environmental, social andgovernance criteria in a Paris aligned approach.
Between 2013 and 2021, the FRR reduced the overall carbon emissions in its listed
equity portfolios by 53 percent.

Client Objectives
In 2021, the FRR issued a new tender for three asset managers to manage indexreplicating portfolios and improve its socially responsible investment characteristics.
Indeed, the final portfolios, said the FRR, should be consistent with the principles ofthe 2015 Paris Climate Accord (whose aim is to avoid dangerous climate change bycontaining planetary warming to a level well below 2°C, with continuing efforts tolimit warming to 1.5°C).
According to the FRR, the final portfolios should also integrate, at a minimum, thefollowing objectives:–––––a gradual reduction in carbon footprint and fossil reserves in absolute terms;
a reduction in carbon footprint and fossil reserves relative to the benchmark;an over-weighting of the “green share” of the investments;
measurement of physical and transitional risks;
an ESG score higher than that of the underlying benchmark;FTSE Developed Eurozone Low
Carbon Comprehensive Equal
Factor Risk Contribution Target
Exposure index
The index is part of FTSE Russell’sfamily of “Smart Sustainability” indices.
The index offers equal risk exposure tofive equity factors and a 30 percent
reduction in fossil fuel reserves andoperational carbon emissions.

Solution
In 2022, the FRR announced that it had chosen Candriam to manage an optimised,index-tracking equity portfolio based on the FTSE Developed Eurozone Low
Carbon Comprehensive Equal Factor Risk Contribution Target Exposure index.
This index is one of FTSE Russell’s family of “smart sustainability” indices, which
are designed to integrate both a commitment to ESG and the sophistication ofsmart beta and factor indices.
Our smart sustainability indices are built using a tilting methodology that adjusts
index weights according to a specific set of factor characteristics, climate change
considerations and/or ESG practices.
Drawing on stocks in the starting index (the FTSE Developed Eurozone index), theFTSE Developed Eurozone Low Carbon Comprehensive Equal Factor Risk
Contribution Target Exposure index achieves equal risk exposure to the following
five equity factors (factors are systematic drivers of equity market returns and carryan associated risk premium):––––

Value (Stocks that appear cheap tend to perform better than stocks that appearexpensive)
Quality (Higher quality companies tend to demonstrate higher performance thanlower quality companies)
Size (Smaller companies tend to demonstrate higher performance than largercompanies)
Momentum (Stock performance tends to persist, either continuing to rise or fall)

FTSE Russell

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Client engagement | Client story–

Low Volatility (Stocks that exhibit low volatility tend to perform better thanstocks with higher volatility)

The index methodology also targets a 30 percent reduction in the fossil fuelreserves of the starting universe, as well as a 30 percent reduction in operational
carbon emissions.
By balancing exposure to equity factors and sustainability goals, the index ishelping the FRR meet its financial objectives, while making sure its managers canachieve Paris-aligned goals with low tracking error, in a firm commitment to theclimate transition.

Additional information
For more information on the FTSE Developed Eurozone Index Series, visit ourwebsite.
For more information on our range of products and services, visit
lseg.com/ftse-russell;

No responsibility or liability can be accepted by any member of the FRR nor its
respective directors, officers, employees, partners or licensors for (a) any loss ordamage in whole or in part caused by, resulting from, or relating to any error(negligent or otherwise) or other circumstance involved in procuring, collecting,compiling, interpreting, analysing, editing, transcribing, transmitting, communicating
or delivering any such information or data or from use of this document or links tothis document or (b) any direct, indirect, special, consequential or incidental
damages whatsoever. o member of the FRR nor its respective directors, officers,
employees, partners or licensors provide investment advice and nothing in thisdocument should be taken as constituting financial or investment advice. No
member of the FRR nor its respective directors, officers, employees, partners orlicensors make any representation regarding the advisability of investing in any
asset or whether such investment creates any legal or compliance risks for theinvestor. A decision to invest in any such asset should not be made in reliance on
any information herein. Indexes cannot be invested in directly. Inclusion of an asset
in an index is not a recommendation to buy, sell or hold that asset nor confirmationthat any particular investor may lawfully buy, sell or hold the asset or an index
containing the asset. The general information contained in this publication should
not be acted upon without obtaining specific legal, tax, and investment advice froma licensed professional.

FTSE Russell

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ABOUT FTSE RUSSELL
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For over 35 years we have been at the forefront of driving change for the investor, always innovating to shape the next generation of benchmarks
and investment solutions that open up new opportunities for the global investment community.
CONTACT US
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