1. Foundations: Our top-level screening policy applies to more than 90% of assets. We were among the first asset managers to put in place a blanket exclusion for companies which derive more than 30% of revenues from coal. We also exclude assets linked to food commodities and palm oil production, and follow exclusion rules on controversial weapons.

2. Analysis: We have developed our own ESG scoring system which we use to compare assets and influence decision making. We use raw data to deliver a score from zero-10 and poor performers are monitored for tail risks as we seek to protect client returns into the future. Separate ESG and carbon footprint scores are included in our standard reporting.

3. Framework: Screening and scoring provide a stable base for our approach. From here we steadily increase the intensity and assign investment products to one of three responsible investment categories, all of which are subject to our active stewardship policy:

Integrated [1]: Funds in this group expand on our screening policy to exclude tobacco producers and companies in violation of the Global Compact – a UN initiative which promotes 10 sustainability principles for corporations. ESG and voting training, as well as research and key performance indicators (KPIs) are provided for all portfolio managers.

ESG scores form part of the investment decision-making process and are used to identify and address risks. A portfolio manager must submit a written justification of any decision to hold stocks with an ESG score below 2. A review of these submissions is carried out twice a year.

On average, about 4% to 5% of a benchmark index would be excluded from investments at this level.

We manage about €508 billion of assets in this category across institutional mandates and 75 open funds.

By early April 2020, 80% of open funds will be eligible for this category. Our ambition is for that figure to reach 100% in 2021.

Sustainable: Funds in this category embed sustainability factors more meaningfully into the portfolio construction process. They adopt the same screening policies as detailed above but use responsible investment criteria to refine the investment universe further.

For example, funds might follow a best-in-class policy which removes low-ESG-scoring companies, or they might adjust portfolios to target a specific KPI such as a carbon footprint.

Each specific objective is clearly stated in the fund prospectus, and in a manner aligned to the latest regulatory demands in Europe. Granular ESG and voting reporting is published on our Fund Centre, and detailed information on the broad ESG approach at company and fund level is provided.

At least 10% of a benchmark index will be excluded from investments in this category. Local market labelling regimes may add further requirements.

We manage about €13.6 billion of assets in this category, across institutional mandates and 25 open funds.

Impact: This is our most focused responsible investment offering. Products incorporate the demands of the Sustainable category, but are specifically designed to have a direct and positive impact on society and/or the environment.

Our strategies will report definitive and measurable data against impact KPIs such as carbon footprint, and each will target one or more UN SDGs. These strategies have a parallel commitment to deliver market-rate returns by tapping into key themes of the sustainability economy.

Portfolio managers may directly invest in projects or companies which address the SDGs, or in listed assets or funds which are exposed. Funds incorporate our full exclusion and stewardship policies and take an enhanced engagement approach on ESG and SDG issues, seeking change where appropriate.

We manage about €1.2 billion of assets in this category. We offer fixed income, equity and direct investment strategies and focus on the eight UN SDGs listed below:

- SDG 2 : Zero Hunger

- SDG 4 : Quality Education

- SDG 5 : Gender Equality

- SDG 7 : Affordable and Clean Energy

- SDG 8 : Decent work and Economic Growth

- SDG 10 : Reduced Inequalities

- SDG 11 : Sustainable Cities and Communities

- SDG 12 : Responsible Consumption and Production

- SDG 13 : Climate Change

Key Facts: Our listed-asset strategies in the Impact segment are focused on several themes, including companies contributing to the growth of the ‘clean economy’, leaders in the field of gender diversity and financing delivered through the growing Green Bonds sector.

Key Facts: Our ‘Impact’ branded strategies seek out direct investments in projects and unlisted smaller companies that are actively addressing the UN SDGs. These can include everything from apps designed to help climate resilience, to businesses seeking to extend the availability of affordable education.

[1] The Real Assets approach to ESG integration is adapted to the idiosyncrasies of the real estate, infrastructure and debt business. The business is part of our RI governance and framework but does not follow all of the criteria (including screening policies). An initiative is on-going to review new areas of cooperation. 

AXA IM has strengthened the Responsible Investment (RI) capabilities over the past years, with the integration of ESG analysis into all of its investment platforms. The RI integration is implemented at many levels:

- First by defining the eligible universe by excluding issuers which are not in line with our AXA IM ESG standards (such as having poor ESG scores, being involved in controversial activities or carrying high reputational risks).
- At the issuer level, our Fundamental credit research assesses the materiality of ESG risks on financial metrics.
- At the portfolio construction level, as PM have access to all KPIs and ESG scores in their front office tool in order to make investment decisions.

In addition, for the impact bonds selection, we identify the most transparent and impactful sustainable bonds with our Impact Bond Framework analysis based on four pillars:

1. Issuer’s sustainability strategy: to assess the overall ESG quality of the issuer

2. Type of projects: the goal is to define the greenness and societal of the projects financed by the bond

3.Management of proceeds: controlling how the proceeds will be distributed

4. Impact Report – Ongoing monitoring and reporting: measure the impact generated by our investments

ESG approach for Corporates

A) Exclusions applied across all assets:

1) Controversial weapons: Since 2008, AXA IM excludes from its investments, those companies involved in the production of anti-personnel landmines as well as cluster bombs. Since 2011, this exclusion has been extended to include biological and depleted uranium weapons. The policy applies in principle to all portfolios under AXA IM's management, including dedicated funds and third-party mandates.

The definition of the exclusion list of companies is based on the treaty of Ottawa for the Anti-personnel Landmines, the treaty of Oslo for cluster bombs and is updated by the RI team once per year. The global exclusion list covers public and private equities and their issuers

2) Palm Oil: In 2014, AXA IM decided to implement a policy for investments related to palm oil production and made the decision to not invest in food commodity derivatives.

3) Climate risks: In 2016, AXA IM Management Board has decided to divest the biggest exposure on coal power generation and coal mining companies, as well as tar sands. Stricter criteria applied to ESG integrated and Sustainable Investing from 2017 to 2019, which have been extended across AXA IM in Q2 2019, showing the commitment of the company to fighting climate change.

4) Soft Commodities: AXA IM strives to not participate in short-term instruments (such as commodity futures, ETF, based on food (“soft”) commodities or enter into speculative transactions that may contribute to price inflation in basic agricultural or marine commodities (such as wheat, rice, meat, soy, sugar, dairy, fish, and corn). 

B) Exclusions applied to ESG integrated / Sustainable Investing / Impact assets

Going beyond this, we apply our ESG standards to our ESG integrated / Sustainable Investing / Impact assets.

These standards help us to manage ESG risks and focus on material issues such as health and social capital, while also considering severe controversies as well as low ESG quality.

As a result of these ESG standards, the following sectors and areas are excluded

•   Tobacco

•   White Phosphorus weapons

•   Severe breaches of United Nations Global Compact (UNGC) principles

•   Low ESG quality companies

ESG approach for sovereign issuers

Within our sovereign bonds strategies, the integration occurs at two levels:

Negative screening: We exclude countries sanctioned by international organizations such as the United Nations, by the European Union or by most government of the industrialized countries. The ban list applies to all AXA Group investments.

Integrate ESG risk & opportunities into the investment process: We leverage AXA IM’s proprietary ESG scoring and qualitative analysis to cover our investment universe. We integrate ESG factors into our fundamental research framework, which aims to help portfolio managers assess how issuers are mitigating ESG risk and taking advantage of these criteria to ensure the sustainability of their development. We use external data from organizations such as the UN, World Bank, OECD, etc. We currently cover over 100 countries, both developed and emerging economies.

For the government and quasi-government issuers ESG scores, we rely on the Environmental, Social and Governance indicators published by recognized international sources. Regarding Environment, we monitor three themes: Climate Change; Energy Mix; and Use of natural resources. For the social pillar, we consider four themes: Demographics& Health; Wealth and Social Inclusion; Labour Market; and Education. Then concerning Governance, we focus on Democracy and Government Effectiveness.

We have developed a set of themes, with universal indicators, but also specific indicators for mature countries or progressing countries:

- Environment: For climate change, we consider CO2 emissions per capita and CO2 emissions relative to GDP. For energy mix, we focus on energy intensity and renewable energy. For use of natural resources, we consider arable land per inhabitant, change in forest areas, protected areas and the overuse of water.

- Social: For demographics, we focus on ageing population through the old age support ratio (mature countries). For health, we take into account life expectancy (progressing countries) and healthy life expectancy (mature countries), as well as the share of health public spending relative to GDP. Regarding wealth and social inclusion, we focus on income per capita, the gini index, and the poverty rate. For the labour market, we focus on employment rate - total, women and older persons-. We consider also the unemployment rate for young people in comparison with the overall unemployment rate. We focus also on long term unemployment, structural unemployment and active labour market policies (mature countries). For education, we consider public spending in education, tertiary education, the PISA survey and the NEET rate (young people neither in employment, education nor training) for mature countries.

- Governance: We focus on Democracy and Government Effectiveness, through the World Bank Governance Indicators. We add a business conditions indicator, the share of shadow economy and the public debt per young person. (mature countries) and external debt (progressing countries).

Portfolio managers work hand in hand with the Responsible Investment (RI) team in conducting fundamental research for all sovereign issuers within the investment universe of the funds. The ESG analysis, produced by the RI team, is one of the three components of our quarterly country reviews along with Macro, Valuation, Sentiment and Technical (MVST) analysis and internal rating from our macroeconomic research team.

Pre-trade and post-trade controls are performed by the business teams themselves. Expertise COOs ensure that fund managers divest all investments in restricted companies and do not invest in restricted companies as long as there are restricted or absent new instruction.

Our Investment Guidelines team (“IG”) is monitoring the correct application of the exclusion list with pre-trade and post-trade monitoring systems. The portfolio managers must sell banned securities within a reasonable time frame after each update of the exclusion-lists.

External audits are performed for the funds which have sustainability related labels.

Our proprietary green bond analysis framework is publicly available here: https://www.axa-im.com/documents/23818/221263/Green+Bonds+Framework+v2.pdf/6b2b9bc7-b541-1a7c-10f1-e7f253463604

Financing brown to green: guidelines for Transition bonds: https://realassets.axa-im.com/content/-/asset_publisher/x7LvZDsY05WX/content/financing-brown-to-green-guidelines-for-transition-bonds/23818

Our proprietary Impact Bond framework is composed of 4 pillars to determine whether an Impact Bond is eligible or not to invest in at the issuance, but also through regular reviews after issuance. We believe that our approach to the Impact Bond market is robust because:

- Our qualitative framework is not only assessing the underlying projects and impact reporting but also takes into account the sustainability strategy of the issuer. We analyse the issuer’s sustainability strategy and ESG quality of the issuer and whether the Impact Bond issuance fits within a global strategy towards environment, and therefore we assess the broader environmental track record of the company and its environmental targets.
- We have an internal ESG scoring methodology which enables to assess quantitatively the ESG quality of each issuer
- Our fundamental credit analyst team is integrating ESG into its financial analysis providing qualitative insight on ESG quality of the issuer, its momentum and how it compares with peers. They also assess the materiality of ESG risks to financial stability of the issuer, reinforcing our risk-awareness approach
- The monitoring of the “impact” quality of the bonds in the portfolio is ensured by a regular review of the investment universe performed by the RI team.

When this review highlights that an issuer does not disburse bonds proceeds as described in the offering documents, notably thanks to the reporting, they will change their recommendation to negative (if the proceeds do not meet our criteria) and communicate to the Fixed Income funds managers. The policy is to sell the security within three months.

In addition, in 2019, AXA IM called for new "transition bonds" to help companies go green. The bonds would be used by companies solely to finance transition projects, with a high level of transparency around the bonds and their use to give investors' confindence about how their capital is being deployed. we are currently working on the Transition Bonds Assessment Framework. In our Transition Bond guidelines, we explicitly expressed that, alongside the issuance-level components, we also want to establish clear expectations on the issuer’s broader environmental strategy and practices. We believe the consideration of issuer-level practices is particularly important to legitimise transition bonds as an environmental investment. Issuers should ensure that their broader sustainability practices, such as policies and programmes, are capable of helping achieve climate transition objectives.

Transition bond issuers should clearly communicate what climate transition means in the context of their current business model and their future strategic direction. Senior management and board directors should make a commitment to align their business with meeting the COP21 Paris Agreement goals. We encourage issuers to explain their board and senior management’s strategic decision-making process and the capital expenditures needed to meet these targets.

The issuer’s transition strategies should be intentional, material to the business and measurable. The Transition Bond must fit into the broader transition strategy. This should be defined by quantified short and long-term environmental objectives. Transition Bonds should be a tool to principally finance a share of the issuer’s spending necessary to achieve targets.

We developed an internal mapping solution to present how our green, social and sustainability bonds investments contribute to the United Nations’ Sustainable Development Goals (SDGs). To do so, we performed an in-depth analysis of the 17 SDGs and their related 169 targets. Our ambition, in order to avoid a “tick-the-box” approach, has been to be able to justify any of these contributions in a systematic manner. When we make the link between an impact bond and an SDG, we are able to specify what the related target is and if we consider the projects have either a direct or indirect contribution to a specific SDG. This contribution breakdown is relying on the mapping provided by our RI analysts done at the project level for each Impact Bonds. This enables us to have a complete transparency in terms of SDG contribution and to provide a breakdown which sums at 100%.

 The fund’s contribution to UN SDGs is displayed in our standard impact report. This report also includes impact KPIs, the ESG score of the portfolio, the carbon footprint (CO2 tons per USD million of revenues), the independence of directors of the portfolio investments, the percentage of women on the board etc.

Portfolio Managers and Financial Analysts are provided with ESG information to ensure ESG risks and opportunities are incorporated in their analysis of a company. This includes:

- ESG scores, which are calculated twice a year using a proprietary methodology developed and maintained by the central Responsible Investment team, tested and signed-off before release by each investment team through a dedicated governance. These scores are then made available to portfolio managers and analysts across the company. RI specialists within the investment teams are able to support portfolio managers and financial analysts in their analysis of a company.
- Internal and External ESG research (including access to ESG data solutions – including MSCI, Sustainalytics, ISS and Vigeo). Internal ESG research on themes with a focus on climate change, human capital and health in particular. These analyses are supported by broker research, as well as regular meetings with companies, participation to conferences and industry events. The RI team also provides analysis and training and sector-related issues, as well as controversies.

In addition, all our Credit analysts within our Fixed Income credit research team are now responsible for the integration of ESG factors in their financial recommendation that feed into our credit allocation / selection process.

In order to enable our clients to measure the integration of ESG criteria into the funds and to communicate in a clear and transparent manner, AXA IM has taken the initiative to display three ESG metrics (i.e. indicators) to Business to Business and Business to Consumer reports for all our funds. The ESG score (absolute and relative) and the Carbon Footprint (CO2 relative intensity) are integrated into our ESG and Impact reports since January 2019.

ESG approach for Corporates

A) Exclusions applied across all assets:

1) Controversial weapons: Since 2008, AXA IM excludes from its investments, those companies involved in the production of anti-personnel landmines as well as cluster bombs. Since 2011, this exclusion has been extended to include biological and depleted uranium weapons. The policy applies in principle to all portfolios under AXA IM's management, including dedicated funds and third-party mandates.

The definition of the exclusion list of companies is based on the treaty of Ottawa for the Anti-personnel Landmines, the treaty of Oslo for cluster bombs and is updated by the RI team once per year. The global exclusion list covers public and private equities and their issuers

2) Palm Oil: In 2014, AXA IM decided to implement a policy for investments related to palm oil production and made the decision to not invest in food commodity derivatives.

3) Climate risks: In 2016, AXA IM Management Board has decided to divest the biggest exposure on coal power generation and coal mining companies, as well as tar sands. Stricter criteria applied to ESG integrated and Sustainable Investing from 2017 to 2019, which have been extended across AXA IM in Q2 2019, showing the commitment of the company to fighting climate change.

4) Soft Commodities: AXA IM strives to not participate in short-term instruments (such as commodity futures, ETF, based on food (“soft”) commodities or enter into speculative transactions that may contribute to price inflation in basic agricultural or marine commodities (such as wheat, rice, meat, soy, sugar, dairy, fish, and corn). 

B) Exclusions applied to ESG integrated / Sustainable Investing / Impact assets

Going beyond this, we apply our ESG standards to our ESG integrated / Sustainable Investing / Impact assets.

These standards help us to manage ESG risks and focus on material issues such as climate change, health and social capital, while also considering severe controversies as well as low ESG quality.

As a result of these ESG standards, the following sectors and areas are excluded

•   Tobacco

•   White Phosphorus

•   Severe breaches of United Nations Global Compact (UNGC) principles

•   Low ESG quality companies

ESG approach for sovereign issuers

Within our sovereign bonds strategies, the integration occurs at two levels:

- Negative screening: We exclude countries sanctioned by international organizations such as the United Nations, by the European Union or by most government of the industrialized countries. The ban list applies to all AXA Group investments.

- Integrate ESG risk & opportunities into the investment process: We leverage AXA IM’s proprietary ESG scoring and qualitative analysis to cover our investment universe. We integrate ESG factors into our fundamental research framework, which aims to help portfolio managers assess how issuers are mitigating ESG risk and taking advantage of these criteria to ensure the sustainability of their development.

Portfolio managers work hand in hand with the Responsible Investment (RI) team in conducting fundamental research for all sovereign issuers within the investment universe of the funds. The ESG analysis, produced by the RI team, is one of the three components of our quarterly country reviews along with Macro, Valuation, Sentiment and Technical (MVST) analysis and internal rating from our macroeconomic research team.