How to invest responsibly while achieving potential good returns

Investors have long relied on financial metrics such as price-to-earnings ratios, and profit and loss indicators in their hunt for the next successful investment. However, many are now adding a non-financial consideration when making their investment decisions: Are my investments doing good for the world? 

This approach of responsible or sustainable investing took off in recent years as the Covid-19 pandemic showed that financial analysis alone was insufficient in predicting events that could dampen economic activity and rattle markets. 

Globally, sustainable investments reached US$35.3 trillion¹ (S$48.1 trillion) at the start of 2020, according to the latest data by the Global Sustainable Investment Alliance. This represents a 15 per cent increase from two years before and makes up 35.9 per cent of total assets under management, according to the data. 
 

At AXA Investment Managers, investing responsibly involves considering a company’s ESG impact. 

The company has more than 20 years of responsible investing experience², and its portfolio managers and strategists attach as much attention to ESG factors as they do to conventional financial metrics in evaluating potential investments.

“At AXA IM, we are clear on one very important belief: That following a more sustainable investment approach – one that addresses the significant risks such as climate change – will deliver stronger and more resilient financial returns over the years and decades to come," says Mr Hans Stoter, Global Head of AXA IM Core, AXA Investment Managers. 

As of the end of 2021, around 85 per cent of AXA IM’s liquid assets under management within the European Union meet regulated standards for responsible investments³.

Here, the company answers common questions that investors have about responsible investments.

 

The world is undergoing major changes that will define the investment landscape in the years to come. This includes a transition to a greener environment, a more inclusive society and better governance standards. 

The changes not only bring with it new risks, like an increase in regulations, but also opportunities such as the growth of green industries and innovative technologies that promote greater financial inclusion have sprung up too. At the same time, consumers are more mindful about the environmental and social impact of their purchases.

By investing responsibly, investors are aligning their portfolios to potentially benefit from such megatrends and mitigate risks that may arise from these changes. They can potentially make better investment decisions and build portfolios that are resilient and sustainable for the long term. 

More importantly, responsible investments allow investors to play a part in building a better world and promoting sustainable economic development for the next generation. There are many opportunities for investors to do good with their money: 

“As investors, we can make the decision to allocate capital to the companies, the projects, the innovations that we identify as the best placed to support and profit from promoting a more sustainable world,” explains Mr Stoter.

Some investors are concerned that they would have to sacrifice financial returns by investing responsibly. However, various studies have disputed that notion.

In fact, analyses by AXA IM found that incorporating ESG considerations into the investment process could boost returns. 

In one analysis in 2021⁴, AXA IM removed stocks that did not meet its ESG standards from the MSCI All Country World Index. It found that by doing so, the index’s total return increased from 18.54 per cent to 19.1 per cent.

A similar analysis in the fixed income market⁵ yielded the same results. The second half of 2021 was a challenging period for bonds, but AXA IM’s analysis found that a bond portfolio consisting of ESG leaders marginally outperformed the market throughout that year.

AXA IM believes that responsible investment strategies enhance traditional financial analysis. They allow investors to identify stocks and bonds with the potential to withstand volatility and outperform the market during challenging periods. Such assets may help to boost a portfolio’s performance in the long term.

There are several approaches to responsible investments.

One method that investors can employ is to avoid companies that are highly exposed to ESG risks. 

Risky companies could have activities that harm the environment, conduct unethical business practices, or operate in ways that violate international norms. These companies could be subject to more regulations or higher costs in the future, which would in turn hurt profitability and business prospects.

A second, but related, responsible investing method is to focus on companies that have taken steps to manage their ESG risks. Such companies are likely more prepared to meet new challenges and better positioned to navigate a changing business environment. 

ESG analysis can be complicated but AXA IM believes that ESG considerations will become a fundamental part of the investment process. That is why the company has invested significant resources into building a team of experts. It has more than 40 employees involved in responsible investing activities full time⁶, while many others have ESG-related work embedded in their daily routine.

For more information about responsible investing, visit the AXA IM SG website.

This publication is issued by AXA Investment Managers Asia (Singapore) Ltd. (Registration No. 199001714W) for general circulation and informational purposes only. It has been prepared without taking into account the specific personal circumstances, investment objectives, financial situation or particular needs of any particular person and may be subject to change without notice. It does not constitute an offer to buy or sell any investments, products or services and should not be considered as a solicitation or as investment advice. Please consult your financial or other professional advisers if you are unsure about the information contained herein. Investment involves risks. Be aware that investments may increase or decrease in value and that past performance is no guarantee of future returns, you may not get back the amount originally invested. You should not make any investment decision based on this publication alone. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. © 2022 AXA Investment Managers. All rights reserved.