Sustainable investing has faced some roadblocks over the past year. Part of this has to do with rising concerns about greenwashing, or the act of leading consumers and stakeholders into believing that a company’s practices, products or services are more environmentally friendly than they really are.
For investors looking to do good with their money while still reaping financial returns over the long term, it has become increasingly important to engage a credible asset manager with a good track record in sustainable investing.
Sustainable or responsible investing is an approach that incorporates non-financial considerations, such as a company’s carbon footprint and environmental practices, into financial analyses and investment decisions. This is used alongside conventional financial analyses to assess investment opportunities and risks.
The approach can be carried out in various forms:
· Eliminating companies and sovereigns with the worst ESG (environmental, social and governance) practices from investment portfolios;
· Picking assets to invest in using an ESG scoring system and other methodologies to measure how the entities involved manage ESG-related challenges; and
· Investing in companies that are in a position to benefit from the global trend towards decarbonisation.
As countries around the world work to reduce carbon emissions, financial institutions play a crucial role in nudging the global economy towards more sustainable activities while helping clients to generate long-term value through their investments.
Investing in activities that benefit the environment and society
For the financial industry to promote sustainable business practices, it must make sure that enough capital goes into activities that benefit the environment and society. This includes investing in clean energy and new technology that helps to mitigate the harmful effects of climate change.
At the same time, financial institutions can help companies in traditional sectors – such as oil and gas, and construction – to adapt to a low-carbon future, which may see increasingly strict environmental regulations, rising carbon prices, and growing public demand for more sustainable services and products.
Asset managers, with their considerable amount of assets under management relative to that of individual investors, could use their influence to push investee companies to adopt or improve on their sustainable practices.
There are two main avenues for asset managers to affect changes in investee companies. First, asset managers can leverage their access to top management of these companies to raise concerns and discuss areas for improvements. Second, asset managers can use their vote at the companies’ annual general meetings to send a message to management.
AXA Investment Managers’ stewardship strategy
One asset manager with more than 20 years of experience* in responsible investing is AXA Investment Managers (AXA IM).
Central to AXA IM’s responsible investing framework is integration of ESG considerations – backed by research and data analysis – into its investment decisions.
To complement its ESG framework, AXA IM carries out a process it calls “stewardship” to help investee companies adapt to a more sustainable future. It involves actively speaking to investee companies to promote business practices that help the environment and society, as well as voting in annual general meetings to influence change.
Doing this allows AXA IM to protect client investments by potentially reducing risk and enhancing returns, while doing good for the world.
“As a major investor in many markets, we carry the potential to influence companies towards behaviours that we believe will be to the advantage of our clients and for the world,” says Mr Hans Stoter, Global Head of AXA IM Core, AXA Investment Managers.
“This may extend from highlighting short-term strategic risks for individual firms, to encouraging longer-term positioning that helps build secure and sustainable economies. Engagement is therefore a central pillar of responsible investment at AXA IM, and we continuously review ways to make this dialogue as effective and impactful as possible,” adds Mr Stoter.
Nudging companies to adopt sustainable practices
Regular and active dialogue with investee companies forms a major portion of AXA IM’s stewardship strategy. As of the end of 2021, the asset manager conducted 283 such engagements with 245 entities.
One company that AXA IM engaged is French energy firm TotalEnergies. In 2021, the asset manager was one of the investors that signed a Climate Action 100+ statement highlighting areas within TotalEnergies’ climate strategy that requires improvement. Climate Action 100+ is an investor-led initiative to nudge the world’s largest corporate emitters to take action to mitigate climate change.
AXA IM also held meetings with TotalEnergies directly to discuss in detail the company’s climate and business strategy. Subsequently, the energy firm broadened the scope of its climate targets and made certain business decisions that can arguably be linked to pressure from investors, including AXA IM.
Not all companies are responsive to investors’ call for change. For investees considered to be climate laggards, AXA IM will work with them on a timeline to make progress on agreed objectives. “If after three years of regular engagements, we see insufficient progress towards the objectives, AXA IM will divest from the companies,” Mr Stoter says.
In addition to dialogue, AXA IM also uses its voting rights to convey messages to management.
In 2021, AXA IM voted at 98 per cent of annual general meetings held by investee companies. It voted against company management on at least one resolution at 59 per cent of the meetings – an increase from 56 per cent a year ago.
One instance where AXA IM voted against company management involved American energy giant Chevron. At the energy firm’s 2021 AGM, AXA IM supported a resolution presented by Dutch campaign group Follow This calling for Chevron to set more rigorous targets to cut emissions.
Climate change has been a main theme of AXA IM’s “stewardship” strategy, and will continue to be a priority in the coming years. Besides that, the asset manager says it also aims to focus on issues relating to biodiversity, and a fair and just transition to a low-carbon economy.
* Source: AXA Investment Managers, as of June 2022.
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