Proposing the creation of a new asset class to finance transition
In June 2019, we called for new “Transition Bonds” to help companies go green. While green bonds have become established options for fixed income investors, AXA IM believes the asset class is at a crossroads, with the potential for the bonds to be undermined by a desire for further issuance which the sector cannot currently provide.
As such, AXA IM team is calling for a new type of bond that is required to help companies which are not yet green - and will therefore struggle to justify high quality and eligible for any “green taxonomy” green bonds - to instead issue debt which is tied to them becoming greener businesses.
Considering this, AXA IM has developed guidelines to support would-be issuers of transition bonds, covering considerations such as reporting, management of proceeds, and issuers’ sustainability strategies, to create a rigorous market for them.
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’ confidence about how their capital is being deployed. These transition bonds would help investors overcome the major challenge of providing capital not just to companies which are already green, but to those which have ambitions to become so.
The first Transition Bonds was issued in November 2019, on behalf of our parent company.
AXA IM has expanded its suite of private markets impact investment portfolios in 2019 by launching two new funds, one focusing on Climate and Biodiversity and another one focusing on opportunities that address the basic needs of emerging consumers across regions including Latin America, South and South East Asia, and Sub-Saharan Africa.
The latter invests in private companies focusing on creating intentional impact outcomes across scalable impact themes such as access to healthcare and financial inclusion. Within healthcare this will include the physical delivery of care through improved access to drugs and vaccines, whereas financial inclusion prioritises making financial services accessible and available to a previously under-served beneficiary group.
When looking at Impact investing in Listed Markets, we are conscious of the challenges, such as the low availability of clearly defined key performance indicators and the lack of industry agreed impact investing standards in listed assets. Despite these hurdles, we believe that impact investing can be carried out robustly across all listed asset classes, and that we can play a leadership role in influencing an industry common standard.
Taking stock of the intense debate as to how impact investing can be effective when implemented via listed assets, in 2019, we have defined a framework applicable to our Listed Impact Fixed Income and Equity strategies – based on five pillars which each fund has to adhered to: intentionality, materiality, additionality, negative externalities and measurability.
We propose two key approaches in terms of driving impact by investing in listed assets: allocating capital to 'impact leaders' and effecting change in 'transitioning companies', through a programme of focused investor engagement.
In 2019, a new Listed Equity strategy was launched, AXA WF Framlington Clean Economy, which invests across various clean technology companies including companies addressing water scarcity, and the transition from fossil-based to zero-carbon production and storage. For 2020, we plan to launch a new multi-asset impact fund to develop our impact offer on listed assets
For us, active ownership is about making the most of our right as an investor to engage investee companies in productive dialogue that makes a tangible difference – we significantly reinforced our approach to stewardship over the past year, focusing on the following dimensions:
• We are proactive: We identify material ESG factors and strive to engage companies before concerns materialise and harm investors. We commit our efforts to those ESG issues which we consider to be the most strategically and financially material for long-term investors. These are climate change, biodiversity, human capital management, public health, data privacy and corporate governance.
• We are research-driven: As a truly active investment manager, we conduct in-depth analysis of companies as well as the broader macro-economic backdrop and of ESG factors which shape investment outcomes. Our engagement and voting are built on the knowledge and insights we have developed .
• We create impact: Investors can drive impact in their investment activities by pressing for change at corporations – influencing the way they behave, and do business. We consider the likelihood for success in our engagement and assess the possible nature of the outcomes as well as alignment with UN SDG targets.
• We are an industry leader: Taking a bold stance on difficult issues and committing resources to delivering engagement outcomes helps us reach our goals for clients and society in the long term. We also seek to work collaboratively with other investors to achieve shared objectives.
We are committed to providing transparency and regular reporting on active ownership.