AXA IM's conviction is that responsibility is a key driver of value-creation, and the Management Board has decided to integrate ESG across its asset classes as a consequence, including on listed equity investments.
We have different level of ESG incorporation:
In 2019, in an environment where EU and national regulators are putting in place new standards and requirements notably to address greenwashing concerns, AXA IM has evolved its RI categories to ensure they remain in line with best practices in the markets, but also that they are easy to understand by clients. When doing so, we looked in particular at the EU Disclosures regulation as well as at the AMF work in France and sustainability-related labels. This explains some of the evolutions observed between the information reported in 2019 and the information reported in 2020.
ESG Integrated: 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.
FRAMLINGTON APPROACH - Fundamental equity
At Framlington equity we ensure a 360° approach to company evaluation through 3 different steps:
Quantitative: The initial step relies on incorporating the internally-developed ESG scores into our front office tools, internal research models, risk reports. The score of each company in the portfolio is a starting point to understand how the company is positioned on each of the ESG criteria/sub criteria and how this score has been evolving through time. The scoring also helps us on the reporting side to communicate more broadly and more systematically to our clients on the overall ESG footprint of a portfolio and impact metrics.
Qualitative: The first layer of quantitative analysis helps us understand some of the issues that a company is facing. It is however our intention to go beyond a pure quantitative scoring and gain a detailed and prospective knowledge of how a company is intending to deal with some of its ESG challenges. This type of “deep dive” qualitative focus forms the second pillar of our investment approach. It is Our goal is to incorporate ESG risks & opportunities more systematically in our portfolio construction and modelling as part of our risk/return/fair value assessment. This type of analysis is undertaken when we visit companies; meet them face-to-face to discuss and understand how their ESG and sustainability policies and practices are supporting their long-term strategic goals. At Framlington Equities, the ESG analysts take part in team and companies’ meetings. Their role is to assist PMs in the incorporation of ESG factors into investment decisions. Their recommendations are key for validating a company’s integration in the portfolio.. Their responsibilities include:
Analyse corporates on E, S and G considerations from both a risk and opportunities perspective
Using a bottom up approach, pro-actively monitor ESG risks and opportunities ahead of portfolio construction but also reactively, on request from the investment team.
As a priority, analyse securities with no or low ESG rating, complementing AXA IM quantitative scoring with an in-depth qualitative analysis
Assist managers (by participating in meetings with PMs and CSR managers) to engage directly with invested companies, by coordinating this process with AXA IM’s RI team Voting and Engagement specialists
Engagement: we see ourselves as key influencers towards better and more responsible corporate behaviours and disclosure, using our ongoing dialogue with company managements as an active engagement tool.