Evolution of responsible investing, ESG integration is a long term trend: AXA IM

  • First known strategy providing top-down and bottom-up approach to delivering ESG factors within high yield credit – ERAFP mandate win
  • Deployment of €200m impact investing programme – represents one of the largest funds in this embryonic market

Clients are showing increasing interest in responsible investing and the market is continuing to evolve as environmental, social and governance (ESG) integration becomes a growing long term trend, according to a report published today by AXA Investment Managers (AXA IM).

The volume of ‘core’ responsible investment assets managed by AXA IM grew by 22% in 2014 to reach €6 billion(1). The RI team voted at 4,208 annual general meetings and engaged with 56 companies on a broad range of issues from board diversity through to remuneration and health and safety(2).  AXA IM’s proprietary platform, RI Search©, evaluated more than 4,500 companies and AXA IM now has €82 billion in ESG integrated assets under management.

Matt Christensen, Global Head of Responsible Investment at AXA IM, commented: “We believe that responsible investing can help deliver superior  risk-adjusted returns for our clients. In 2014, we continued to expand our offering in order to offer investors the opportunity to select the level of ESG integration which best fits their needs and objectives.  This ranges from core RI funds and impact investing through to ESG research, as well as bespoke solutions tailored to clients’ specific ESG requirements.”

Impact investing – deployment of €200m

AXA IM has become a market leader in impact investing with the creation of a dedicated team that combines alternative asset management expertise, operational due diligence and impact assessment in its approach. The current impact programme, at €200m deployed in 2014, represents one of the largest institutional investor impact funds in the market. This first fund has focused on delivering competitive financial returns while demonstrating social impacts in the financial inclusion, health and education sectors.

Matt Christensen commented: “While the impact investing market is still in its relative infancy, much progress has been made to enhance its credibility such as the setting up of standards like IRIS (Impact Reporting and Investment Standards) or labels such as GIIRS (Global Impact Investing Rating System).  Research shows the impact investing market is predicted to grow up to US$1 trillion by 2020 or 1% of global assets(3) and we’ve been very encouraged by the progress our impact investing strategy has made to date and the attention it’s getting from investors.”

Integrating ESG into high yield credit

Following an RFP, ERAFP (a French public service pension body) awarded AXA IM a mandate for an actively managed ESG Credit High Yield portfolio to help it broaden its investment universe in line with its SRI charter. This represents the first known strategy providing a top-down and bottom-up approach to delivering ESG factors within high yield credit and at up to €400m is a significant investment.

Commenting on the mandate, Matt Christensen said: “We are finally seeing more interest from investors in how ESG factors can be properly integrated into the spectrum of potential strategies that the fixed income asset class offers.  The ERAFP mandate demonstrates the evolution of ESG integration and the type of demand we’re seeing from clients across the globe who want fully integrated ESG solutions to meet their specific requirements.”

Other highlights from 2014 include:

  • AXA IM became the first asset manager in Australia to launch a locally domiciled ESG Global SmartBeta equity pooled fund. The AXA IM ACWI SmartBeta Equity Fund offers long term investors a more efficient way of capturing equity market beta, while avoiding the limitations of both market cap-weighted indices and alternative weighting schemes. After six months the fund is performing 5% ahead of its benchmark(4).
  • A leading German pension fund selected AXA IM for a significant European mixed asset mandate that explicitly takes ESG factors into account.
  • Development of a methodology that identifies and therefore avoids ESG tail risks.
  • Implementing RI policies concerning soft commodity derivatives and palm oil, as well as updating the controversial weapons policy.

Matt Christensen concluded: “2014 was a busy year and we expect awareness of and interest in ESG integration to only increase.  A key moment for the evolution and professionalization of carbon measurement for the asset management industry will be the United Nations Climate Change Conference in Paris later this year.  Ahead of this, we are working with other players in the financial services industry in order to develop improved means to measure Scope 3 (5) carbon emissions.  We look forward to engaging with clients and the wider industry on this important topic.”

Notes:

  • (1) Source: AXA IM as at end December 2014 – includes core RI and impact assets under management
  • (2) Further details of AXA IM’s stewardship activities in 2014 can be found here
  • (3) Source: J.P. Morgan, GIIN 2011
  • (4) Source: AXA IM as at end December 2014, gross of fees. Past performance is not a guide to future performance.
  • (5) Other indirect emissions such as the extraction and production of purchased materials and fuels, transport related activities of suppliers and electricity related activities.

 

 

 

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