We see engagement as a proactive way of making sure that companies that we invest in or might invest in are developing a sustainable business model that will prove to be resilient in the short, medium and long term. This is done through both our Stewardship & Research team, driving engagement initiatives (individual or collective) at the company level, and our investment team when they meet with issuers.
In addition, we see engagement as a broader practice that can be conducted with all stakeholders, from companies to ESG external providers and market participants (such as DCM teams in Investment banks). We believe that is it crucial to foster new initiatives in the market, such as the development of transition bonds to support further climate transition.
Our approach to engagement with sovereign issuers is based on our belief that environmental, social and governance (ESG) issues have a significant impact on debt and growth sustainability, in line with the long-term interests of investors.
With this in mind, we aim to:
- Identify and understand the most critical ESG issues that affect each country in which we invest
- Evaluate a country's specific policies regarding these issues
- Raise these issues to Treasuries and aware them about the increasing importance of ESG for investors
We meet main sovereign issuers within de the developed countries universe each year. Meetings are naturally more frequent with European Treasuries (twice a year on average). These meetings are often the occasion to raise critical ESG issues, ongoing government projects on these topics, possible green and social bonds emissions, etc.
Engagement with bond issuers is an important aspect of our active ownership programme, as we are long-term investors and often hold bonds to maturity. Engaging on ESG issues is a critical way to ensure we manage the value of our bond investments over time.
Our engagement goals and activity
In 2019, we engaged with 36 bond-only issuers – that is, organisations that do not issue shares. Many of these engagements took place with green or social bond issuers. We held extensive discussions with issuers about commitment to a robust climate strategy and providing clear ongoing reporting on how a bond’s proceeds are used. We used the opportunity to discuss other thematic areas of interest to us – in particular biodiversity.
Separately, we published a call-to-action to establish Transition Bonds as a complementary asset class alongside green bonds.These are aimed at issuers from carbon-intensive industries who want to raise money to finance decarbonisation-related projects.
Results and next steps
Setting out our proposed guidelines for Transition Bonds led to the formation of a Climate Transition Finance Working Group under the auspices of the International Capital Market Association’s Green and Social Bond Principles, which will begin in 2020. We also worked with Credit Agricole Corporate and Investment Bank on the first Transition Bond aligned with our guidelines. We subscribed to this private placement on behalf of our parent entity AXA Group.
Fixed income issuers are more willing to engage with investors than ever before. Many now actively seek views on sustainability issues from their investor base and we consider the quality of engagement discussion to be generally of high quality. This is particularly so with green and social bond issuers who have made commitments and transparency on sustainability.