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When Owner and Manager Align on Impact

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Stockholm (NordSIP) – Looking to understand how sustainability governs the relationship between an asset owner and an asset manager sitting under the same roof, NordSIP sat down with Matt Christensen, Head of AXA Investment Managers Responsible Investments team, and Erick Decker, AXA’s CIO for Southern Europe & Emerging Countries, to discuss the Group’s approach. Starting with the notion of additionality, the conversation revolved around the distinctions between impact investing and ESG integration.

Christensen starts by defining the notion: “Investments with additionality are those that would not happen in the absence of a specific purpose,” he begins. “We are not going to claim additionality on €700 billion worth of assets,” Erick Decker cautions. “Instead, we prefer to focus on ESG integration, based on sound methodology and principles. However, we do have a specific investment programme on additionality through impact funds. We have launched two impact funds and are developing a third one. The three together will be worth €500 million.”

- Promotion -

“The idea is to regularly launch successive thematic impact funds worth around €150 million, linked to the AXA business or to specific issues that our society would encounter,” the CIO continues. “Smaller but regular funds allow us to be in contact with clients to discuss our progress and whether we are meeting our impact objectives. This is what matters on the client-side,” Christensen adds. “Impact investments take place in private markets, specifically in private equity. To learn, we have built the business by following the market’s growth, not overinvesting and carefully deciding how to position ourselves in the market.”

ESG integration in Action

AXA IM impact investments do not exist in a vacuum. They are the tip of the pyramid of the company’s sustainable investments, which sit on top of a strong base of ESG integration.  “We have invested a lot of time and resources, providing ESG training to our staff. The effort to integrate ESG into our way of doing business has paid off. The results are visible in the depth of analysis that analysts can deploy when they appear before the ESG committee. This panel reviews the viability of specific investments or sectors ranking unfavourably in ESG terms,” Christensen argues.

“Analysts and portfolio managers have to defend the presence of the lowest ranking assets on our portfolio. The objective is not to exclude poorly scoring companies,” he adds.  “The committee, which is a recognised part of the company’s governance, can vote in any of three ways. If there is no issue, the investments receive a green light. Committee members can also decide to wait before allowing for an investment to be carried out. Lastly, they can decide in favour of divestment, which they have not done many times.”

“Following their training, our analysts are now able to discuss their investments on two levels,” Christensen explains. “The first one, the basic one, is about materiality and whether the ESG risks will impair the functioning of this investment. The second, which is more valuable, is to compare the ESG aspects of a given investment against its peer group. That’s when it forces the analyst to really incorporate the ESG factors into their decision and analysis.”

“Going forward, I think that in five years we’ll be talking about additionality and societal risks rather than pure ESG,” the Head Responsible Investments notes. “I believe our clients will expect us to incorporate insights about SDGs in our analysis then, even if they don’t ask just yet.”

Impact Through Carbon Capture

Finally, both executives noted that making an impact is not exclusively limited to ESG risk mitigation and efforts to combine returns with reduced carbon emissions. Carbon capture is an important follow-up consideration. “As a Group, AXA’s main action to compensate for our CO2 footprint is to invest in forests,” Matt Christensen explains. “For us, carbon capture is about meaningful direct actions. We have quite a significant investment in European forests, proportional to our carbon needs. These assets sit in our balance sheet rather than in any fund.”

“Buying a forest is different from going into the market and buying carbon credit to offset the production of CO2. What we will be trying to do is to reduce the carbon footprint of our investment portfolio,” Decker explains.

Christensen agrees. “Capturing carbon via forest investments seems more concrete than merely acquiring carbon credits that relate to projects that have already taken place. To stand behind our carbon offsetting claims, we believe in making tangible investments that we can understand and verify,” he concludes.

Picture © NordSIP

 

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