2020 has been a bumper year for ESG, with the COVID-19 crisis and a slew of natural disasters shining a spotlight on the issues that demand more action from global finance. Jonathan White, Head of Investment Strategy and Research, AXA IM Rosenberg Equities, believes now is the time to capitalise on the opportunities created by such significant environmental and social upheaval.
AXA IM has been mainstreaming ESG and integrating climate considerations into portfolios for decades. In 2014 it launched the Sustainable Equity strategy in Australia, which integrates ESG into all investment decisions.
“We went into 2020 thinking ‘can we build on the progress that we’ve made as an industry?’ and that we were entering into this decade of transition to a low-carbon future. And then COVID comes out of left field,” Mr White told InvestorDaily.
“It’s had a massive impact on everyone’s lives, but I think it’s fair to say that it’s only really strengthened the trends that were already in place and I think it should accelerate the climate transition, which certainly creates opportunities for investors.”
Having integrated ESG into its strategies since the mid-90s, AXA IM is no stranger to the territory. It takes a “carbon footpath” approach to many of its investments, looking at how companies which might have a historically high carbon footprint are now taking steps to address climate risk.
“We think it’s really important to take a holistic view of these kinds of companies. If you just look at their current carbon footprint, you’re not getting a sense of the path that they’re on,” Mr White said.
“Have they been cutting their carbon historically? Do they have plans to cut their carbon into the future? Investing in transitioning companies is absolutely critical for achieving a low carbon future.”
Another key ESG issue for AXA IM is boardroom and company diversity – an extension of the strategies traditional managers have always used to ensure the companies they invest in are well-run. Greater diversity creates “profitability moats” by bringing in different viewpoints and ensuring companies never become victims of groupthink – a key governance risk.
“Environmental and social data have pretty long horizons, they’re telling you things about structural changes, societal shifts,” Mr White said.
“Governance is a little more traditional, more aligned with ideas such as earnings quality. We found that governance information really did add to and improve our insights into earnings quality.”
Mr White says that ESG is part of AXA IM’s DNA, and as an active manager it feels a responsibility to ensure sustainability is “more than just the top line”. He believes that sustainability works best when company culture is focused entirely on ESG, and that it’s up to active managers to drive the transition to a more sustainable future.
“It’s the role of active management to express conviction and take on investment risk…to really effect the level of capital flows we’re going to need to drive material change, it’s only really active management that can deprive capital from bad actors and direct capital towards good actors,” Mr White said.