We only invest in impact bonds (Green, Social & Sustainable bonds) that go through our internal screening:
- We exclude issuers which are not in line with our AXA IM RI Sectorial and ESG Standards policies (such as being involved in controversial activities or carrying high reputational risks)
- We have defined a qualitative Impact Bond framework based on four pillars:
1. Issuer’s sustainability strategy
Overall strategy’s alignment with green bond and social bond projects
- Environmental or Social track record and targets
- Impact Bond-specific one-on-one meetings with the issuer
- Meetings with the management team
- Controversies
- Scores
2. Type of projects: the goal is to define the greenness and societal of the projects financed by the bond
- Breakdown of projects mainly based on the Green Bond Principles (‘GBP’), Social Bond Principles (SBP) and the Climate Bond Initiative (‘CBI’) categories: renewable energies, energy efficiency, green buildings, low carbon transportation, water, waste management, sustainable land-use, adaptation structure, biodiversity protection, and others such as social themes.
- Environmental or Social benefits: determination of how the underlying project(s) contribute to environmental objectives such as climate change mitigation, biodiversity conservation or natural resource conservation.
- Some projects are systematically excluded, for instance:
-> Exploration, production and exploitation of fossil fuels
-> All nuclear subsidiaries: uranium extraction, concentration, refining, uranium enrichment, manufacturing fuel assembly, construction and exploitation of nuclear reactor, treatment of fuel assembly waste, nuclear decommissioning and radioactive waste management.
-> Large hydropower construction projects: construction of water dams with a capacity exceeding 20MW.
3. Management of proceeds
In order to ensure the proceeds will fund the eligible projects, analysts answer several questions:
- Are the proceeds used to refinance existing projects vs. finance new projects and assets?
- Does the company disclose its management of proceeds?
- Are the proceeds deposited in a segregated account?
- Is there an internal process to track the proceeds?
- Is there any external verification? (external auditors)
4. Impact Report – Ongoing monitoring and reporting
- We look for companies that are able and committed to report on the environmental impacts that the green and social projects achieve, at least on an annual basis.
- We look for specific KPIs on individual project basis or on an aggregated basis in order to measure the impact generated by our investments.
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' confidence 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.