FRR joins oil payments transparency initiative

France’s 28.8 billion ($41.7 billion) Fonds de Reserve Pour Les Retraites (FRR) has joined more than 80 institutional investors globally in becoming a signatory to an initiative aimed at strengthening transparency in the extractive industries sector through disclosure around company payments and government revenues from mining, oil and gas.

The FRR signed the Extractive Industries Transparency Initiative (EITI) and invited all companies belonging, directly or indirectly to the sector in its portfolio to take part in the initiative.

Pension fund signatories to EITI include ABP, CalPERS, CalSTRS, Forsta AP-fonden (AP1), Hospital of Ontario Pension Plan, New York State Common Retirement Fund, Ohio Public Employees Retirement System, Ontario Teachers’ Pension Plan, PGGM and Railpen.

“According to the EITI secretariat, 3.5 billion people live in countries rich in oil, gas and minerals,” the fund said.

“Through a transparent framework for managing financial transfers, the exploitation of these resources could generate large revenues fostering growth and reducing poverty. Conversely, the opacity of state-business relations may result in poverty, corruption and conflict.”

The fight against corruption and the promotion of good governance are part of FRR’s responsible investment strategy
adopted by the supervisory board in April 2008.

The strategy includes five “strategic pillars” around which the fund’s identity as a responsible investor will develop in the years to 2012.

These are: make further efforts to incorporate ESG considerations into investment portfolio management; improve
extra-financial risk prevention; continue to exercise proxy voting rights to improve corporate governance; analyse more precisely the impact of environmental issues on FRR’s investment strategy; and participate actively in
French and international research efforts in the area of responsible investment.

The investors’ statement on transparency in the extractives sector states:  “We are concerned that extractive companies are particularly exposed to the risks posed by operating in [corrupt operating] environments. Companies that make legitimate, but undisclosed, payments to governments may be accused of contributing to the conditions under which corruption can thrive”.

“This is a significant business risk, making companies vulnerable to accusations of complicity in corrupt behaviour,
impairing their local and global “licence to operate”, rendering them vulnerable to local conflict and insecurity, and possibly compromising their long-term commercial prospects in these markets.”