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Sustainability is a buzzword that encompasses a broad spectrum of topics. At AXA, we have very clear ideas about ESG and sustainable investments.
The term "sustainability" is on everyone's lips these days and has become well established in the financial world in recent years. In everyday use, it usually refers to protecting the environment or more specifically to dealing with climate change. In our industry, however, it has a rather broader meaning.
Besides protecting and preserving the natural world, it also includes aspects of social justice and responsible corporate governance. This is why the abbreviation "ESG" (short for environmental, social, and governance) is often used instead.
Environmental, social, and governance factors are very different in nature and sometimes require completely different approaches, but it nevertheless makes sense to view them as a whole because all three contribute to making the world healthy and livable far into the future. So how exactly are ESG requirements taken into account in investment decisions?
The first step toward a sustainable portfolio normally involves filtering out problematic investments. The lines are drawn very differently from company to company. As a rule, however, companies that generate a substantial proportion of their revenues from coal mining and those that are linked to child labor or corruption aren't tolerated. AXA has already completely excluded many companies from the oil and gas sector in accordance with the AXA Group’s Responsible Investment Strategy.
In a second step, shares of companies with positive ESG profiles can be actively sought out and added to the portfolio. These are firms that operate in particularly sustainable fields like recycling or solar panel manufacture.
The next step is actively promoting an ESG-focused mindset. The portfolio with the lowest overall carbon dioxide emissions, for instance, isn't necessarily the one with the biggest positive impact on climate change. By helping companies with high carbon dioxide emissions to move toward a more sustainable future, we can often achieve a much greater impact that we would if we restricted ourselves to those that already have a small carbon footprint.
That's why, in 2019, AXA developed a new asset class that it calls "transition bonds" to support the effective decarbonization of the economy. Shipping companies, for example, can be supported in their switch from heavy marine diesel to liquefied natural gas until they can eventually power their ships with wind or hydrogen.
Incorporating ESG factors into our investments also means avoiding financial risks
Forward-looking approaches that deliver real-world results are also in evidence in the real estate sector in the form of less resource-intensive and more socially aware construction practices as well as more energy-efficient building operation.
It's clear that all of these measures need reliable data to make sure the right investment decisions are taken. In truth, environmental factors are easier to quantify than social or governance factors, so the availability of high-quality data is better in this area. That said, a holistic ESG approach must always focus on all three aspects.
At AXA, we incorporate ESG factors into the investment decisions we make and exclude companies that do not meet our ESG standards. As one of the largest asset managers, we want to make an impact both globally and locally. AXA firmly believes that responsible, sustainable use of all natural and social resources adds value over the long term.
Karin Stötzer is a Content Marketing Manager at AXA and researches interesting content for you on the subjects of mobility, sustainability and climate protection.
