Clients are increasingly asking for the monitoring and assessment of environmental, social and governance (ESG) risks in their portfolios according to a report published by AXA Investment Managers.
Matt Christensen, Global Head of Responsible Investment at AXA IM, said: "Investors are assigning greater importance to how ESG factors impact their returns in the long run. In the last twelve months we have worked with several European pension funds as well as AXA Group to help them take responsible practices into account more explicitly. This is a clear trend and is gaining momentum."
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AXA IM responded to this demand by increasing its stewardship activities and coverage in 2013. The volume of responsible investment assets managed by AXA IM grew by 18% in 2013.
The team voted at 4,115 annual general meetings, up 42% on the previous year, and its proprietary platform, RI Search, evaluated 4,100 companies and 150 governments according to ESG. Some of AXA IM’s most significant projects included:
- A range of initiatives with AXA Group including the development of an impact investment fund of funds strategy. AXA IM is working to integrate ESG factors into the management of AXA Group holdings by 2015
- A mandate from a leading European pension fund, to manage a 200 million fixed income portfolio that integrates environmental, social and governance factors at every step of the investment process
- Development of a framework for analysing countries according to ESG criteria and applied to a sovereign fixed income universe, in response to growing client interest
- Research into the compatibility of smart beta and responsible investment as both are garnering greater attention from investors.
"Smart beta and responsible investment are both garnering greater attention from investors. They may seem unrelated, but both approaches reflect a move by investors away from the unintentional and often uncompensated risks associated with traditional index tracking and a greater willingness by investors to make their own determinations about desired exposures, risks and expected returns. There has been little academic research on their compatibility to date, but our back-tested investment analysis shows that ESG SmartBeta has the potential to offer investors a lower total risk and higher return than index investing, along with improved diversification and strong ESG performance"
Christensen added: "A number of academic studies have shown that there has been no penalty for pursuing a responsible investment approach, which was a concern for some investors in the past. Analysing assets according to ESG factors as well as traditional financial factors can uncover risks and opportunities that might otherwise not come to light. Responsible investment analysis is simply a good risk-aware way to manage a portfolio."
