Public HTML RI reports - PRI reporting framework 2020

ESG Integration is the core RI strategy for AXA IM. This approach targets all our investment platforms including Fixed Income. The purpose is to integrate ESG risks and opportunities in the investment decisions of all portfolio managers in addition to financial information. .

Integration of ESG factors within investment decision:

We apply a proprietary ESG framework to integrate key considerations in our analysis. We focus on the following factors for corporate issuers:

- Environment: climate change, resources and ecosystems
- Social: human capital, social relations
- Governance: business ethics, corporate governance

For sovereign issuers, we use the following factors:

- Environment: climate change, energy mix, use of natural resources
- Social: health and demography, wealth, job market conditions, education
- Governance: democracy, efficiency

ESG integration for Fixed Income into financial analysis is then conducted through both quantitative and qualitative analysis.

On the quantitative side, the Fixed Income team leverages AXA IM’s proprietary ESG scoring as a tool to identify key risks and opportunities and compare issuers within sectors and regions. The granularity of the scores (with sub-scores focusing on key areas in Environment, Social and Governance), in addition to other KPIs such as the carbon footprint, are very useful to provide information on the ESG quality of companies, and complement financial information.

We are constantly working on new tools to enrich our analysis framework. One of our current key focuses is climate change, and as such we are developing additional capabilities to assess our positioning towards climate risks and opportunities (temperature of portfolios, scenario analysis, Value-at-Risk measurement towards physical and transition risks), both internally and in partnership with external ESG providers.

On the qualitative side, our Fundamental Credit Research team conducts a detailed ESG analysis of all issuers, helping the portfolio managers to assess how companies mitigate ESG risks and take advantage of this criteria to improve their competitive position in their own sectors. In addition, this process is supported by the Responsible Investment team, mainly through their thematic research.

We focus on how material ESG factors are to a given issuer’s overall credit profile and wish to assess ESG quality when it matters most. It involves a systematic, explicit and therefore visible consideration of ESG factors as part of the fundamental credit analysis, alongside other financial factors, in a way fully consistent with our existing process.

We look at how the issuer fare ESG wise, both in absolute terms and relative to its peers, by extracting the relevant environmental, social and governance factors and realizing “ESG close ups” on specific factors if needed. By doing so we will be able to qualify whether a given issuer is positioned below, in line or above peers.

This information is then taken into account by portfolio managers when making investment decisions, and complements traditional financial information in order to make sure that we assess the credit profile and investment potential of each issuer in the most comprehensive way.

We benefit from various tools that support this approach:

- Access to ESG information: In order to support ESG integration into financial analysis, key ESG information (ESG scores, KPIs such as the carbon footprint, etc.) is distributed in the front office tools (used daily by the managers), so it can be fully integrated in analysis and investment decisions. We have also developed dedicated ESG tools and reporting capabilities to gather all relevant ESG information at both issuer and portfolio level. Finally, our analysts and portfolio managers have access to external ESG providers research.

- ESG Qualitative research: Our RI Stewardship and Research team (within the central Responsible Investment team) produces thematic researches that help portfolio managers and analysts to better identify key ESG risks and opportunities, through the identification of global long term trends requiring a specific focus. Various research papers have been written different topics, such as gender diversity, coal phase out or biodiversity.

Impact bonds: our ESG fundamental analyst team (within the central Responsible Investment team) is in charge of analyzing the level of impact of the instrument. If an impact bond does not receive this "stamp", portfolio managers will not be allowed to invest in it, at least not an impact bond.

Engagement: AXA IM approach is for an integrated engagement approach with the full participation of relevant fund managers and analysts in setting up the particular engagement strategy and the follow-up meetings with companies. In the fixed income space, this strategy has gained traction with the development of the green bond market. During the roadshows organized by the issuers, the RI Team is raising practices that can be improved as part of the Environment/Green strategies.

Trainings: The RI team organizes ongoing training on ESG issues to AXA IM staff. These sessions cover the team's activity (research methodology, proxy voting, engagement etc.); emerging ESG issues for many sectors, and the ESG initiatives in which AXA IM participates. In 2019, a mandatory e-learning on ESG and Responsible Investment was deployed across the company.

10.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

SSA

As mentioned above, we have developed a specific ESG framework for Sovereign issuers, focusing on the following areas, in addition to the consideration of international conventions:

- Environment: Climate change, Energy mix and Use of Natural Resources,

- Social: Health & Demographics, Wealth & Social Inclusion, Labour Market and Education,

- Governance: Democracy and Government Effectiveness

- International conventions: commitment of the countries to 21 international conventions covering the ILO, Human Rights, Biodiversity and Weapons.

The RI team has developed RI Services which include the High reputation countries risk framework and analysis. One pension fund in Netherland bought our Research based on this framework.

At the Fixed Income level, we have a Portfolio Manager Analyst model where the PMAs meet on a monthly basis to do country reviews. We improved our country reviews and strengthened our collaboration with the macroeconomic research and the responsible investment teams to better integrate their analysis into our sovereign research

Corporate (financial)

As mentioned above, our corporate ESG framework takes into account the following key areas:

- Environment: climate change, resources and ecosystems
- Social: human capital, social relations
- Governance: business ethics, corporate governance

The ban-lists emanating from the AXA IM responsible investment policies are implemented in the front office tools in order to enable the portfolio managers to monitor their holdings and assess the impact of applying such exclusions to their portfolios.

We mainstream ESG integration by involving our full staff on what we consider to be a strategic topic for AXA IM and our clients.

There is a governance in place to ensure reliable communication between RI team and investment platform is in place and best practices are implemented on a day to day basis

Corporate (non-financial)

As mentioned above, our corporate ESG framework takes into account the following key areas:

- Environment: climate change, resources and ecosystems
- Social: human capital, social relations
- Governance: business ethics, corporate governance

ESG integration is then done by cumulating an internal ESG scoring methodology, a fundamental and qualitative credit research, and the use of ESG integration tools such as portfolio ESG dashboards, ban-lists and reports. We mainstream ESG integration by involving our full staff on what we consider to be a strategic topic for AXA IM and our clients.

There is a governance in place to ensure reliable communication between RI team and investment platform is in place and best practices are implemented on a day to day basis

Securitised

As mentioned above, ESG integration is done by cumulating an internal ESG scoring methodology, a fundamental and qualitative credit research, and the use of ESG integration tools such as portfolio ESG dashboards and reports. We mainstream ESG integration by involving our full staff on what we consider to be a strategic topic for AXA IM and our clients.

There is a governance in place to ensure reliable communication between RI team and investment platform is in place and best practices are implemented on a day to day basis

10.3. Additional information [OPTIONAL]

FI 11. Integration - ESG information in investment processes

11.1. Indicate how ESG information is typically used as part of your investment process.

Select all that apply

	SSA	Corporate (financial)	Corporate (non-financial)	Securitised
ESG analysis is integrated into fundamental analysis
ESG analysis is used to adjust the internal credit assessments of issuers.
ESG analysis is used to adjust forecasted financials and future cash flow estimates.
ESG analysis impacts the ranking of an issuer relative to a chosen peer group.
An issuer`s ESG bond spreads and its relative value versus its sector peers are analysed to find out if all risks are priced in.
The impact of ESG analysis on bonds of an issuer with different durations/maturities are analysed.
Sensitivity analysis and scenario analysis are applied to valuation models to compare the difference between base-case and ESG-integrated security valuation.
ESG analysis is integrated into portfolio weighting decisions.
Companies, sectors, countries and currency and monitored for changes in ESG exposure and for breaches of risk limits.
The ESG profile of portfolios is examined for securities with high ESG risks and assessed relative to the ESG profile of a benchmark.
Other, specify in Additional Information

11.2. Additional information [OPTIONAL]

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.

FI 12. Integration - E,S and G issues reviewed

12.1. Indicate the extent to which ESG issues are reviewed in your integration process.

	Environment	Social	Governance
SSA	Environmental Systematically Occasionally Not at all	Social Systematically Occasionally Not at all	Governance Systematically Occasionally Not at all
Corporate (financial)	Environmental Systematically Occasionally Not at all	Social Systematically Occasionally Not at all	Governance Systematically Occasionally Not at all
Corporate (non-financial)	Environmental Systematically Occasionally Not at all	Social Systematically Occasionally Not at all	Governance Systematically Occasionally Not at all
Securitised	Environmental Systematically Occasionally Not at all	Social Systematically Occasionally Not at all	Governance Systematically Occasionally Not at all

12.2. Please provide more detail on how you review E, S and/or G factors in your integration process.

SSA

We provide ESG scores for 100 countries. We provide to fund managers or clients ESG country reviews on mature / emerging countries. In particular, ESG sovereign views are integrated in the country Fixed income process, via quarterly meetings. The RI team views are integrated in FI fund managers analysis. The conclusions of the RI team analysis are integrated in their analysis and during the meeting, the RI analyst shares his views.

The RI Team has also built a Sovereign ESG Framework based on recognised international sources. It covers the three E, S, and G pillars, as well as international conventions as mentioned in the previous questions

The score is calculated by taking into account not only the current level of indicators but also the way they have evolved over a five years cycle. This score takes into account the three ESG pillars, complemented by the "political commitment" and is updated once a year.

The RI team has also developed RI Services which include the High reputation countries risk framework and analysis. One pension fund in Netherlands bought our Research based on this framework.