Investor interest in responsible investment and the incorporation of environmental, social and governance (ESG) factors into investment choices increased in 2013, according to AXA Investment Management (AXA IM).
The growing demand is recognised in AXA IM’s Responsible Investment Annual Review for 2013. The firm says that clients are increasingly asking for the monitoring and assessments of ESG risks in their portfolios.
In order to meet this demand the firm has upped its stewardship and engagement activities. Last year the volume of responsible investment assets managed by AXA IM grew by 18%, whilst voting at annual general meeting grew by 42%.
The firm voted on a range of issues including board structure, remuneration, pre-emption rights and shareholder interests. It noted that it had engaged with 48 companies over 2013, including Siemens, Royal Bank of Scotland and Glencore.
The firm also introduced a framework to systematically assess sovereign issue risk on key ESG factors. The company added that the result proved “promising” and uncovered insights that traditional financial analysis might not have captured.
Matt Christensen, global head of responsible investment at AXA IM, commented, “Investors are assigning greater importance to how ESG factors impact their returns in the long run.”
He said that over the last 12 months the company has worked with several European pension funds to help them take responsible practices into account when making investment decisions. “This is a clear trend that is gaining momentum,” Christensen added.
The report also highlighted the growing importance of impact investment, which seeks to provide both a financial and social return. As a result the firm says such investment require both the management of social and/or environmental performance, in addition to financial risk and return.
AXA IM categorises impact investment as sitting in the space between philanthropy and responsible investment.
Christensen said, “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.”
Research has recently linked sustainability initiatives to investment stability, particularly during economic downturns. A separate study also found that companies with positive sustainability records are valued higher by investors.
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