How regulation can encourage a responsible investment model

Luisa Florez, Head of Qualitative ESG Research at AXA Investment Managers (AXA IM), comments on how regulation can encourage a responsible investment model.

“Responsible investment (RI) is a topic of increasing importance among businesses and investors of all sizes.. It is interesting therefore that the Energy Transition Law in France, the first of its kind in Europe, agreed in August 2015 and coming into effect in June 2017, has attracted relatively little visibility so far. We believe that this law constitutes a landmark for responsible investment. It shows how regulation can encourage this trend and provide strong support for its further development. France has decided to provide a clear signal to institutional investors with this law, including the smaller and less sophisticated ones, and encourage them to become truly engaged on the subject of RI and start considering how to better integrate environmental, social and governance (ESG) factors in their investments. The law reinforces the role of institutional investors in financing the transition towards a low-carbon economy and encourages more awareness of long-term issues in investment decision-making.

“It provides a boost for the development of RI in France by focusing on two key aspects. The first concerns the annual publication of evidence showing how the relevant parties are integrating ESG criteria in their investment strategies. The second is focused on environmental criteria specifically and encourages investors to explain the measures they have implemented to support the transition towards a low-carbon economy each year.

“While this is a highly positive development, investors still need to better understand what these requirements mean for them. This is a particularly important issue for smaller institutional investors, who may require more support in the energy transition. Institutional investors need guidance on how best to approach this law and put in place the most appropriate initiatives tailored to the needs and specifics of each business.

“Asset managers can take action and help investors through this transition by providing different solutions and instruments of measure, such as alternative indicators to CO2 emissions that identify companies that are contributing in a positive and in a negative way to the low carbon economy. This also includes participating in an active way in engagement campaigns centred around climate change for highly intensive sectors, such as oil and gas, automotive and mining.

“It is likely that this regulatory signal sent by the French government will be used as an incentive by working groups such as the FSB Task Force on Climate Related Financial Disclosure (TCFD) chaired by Michael Bloomberg, or by other European countries that are starting to improve their knowledge and awareness of RI, such as Germany.

“With approximately €355 billion of assets under management/assets under administration currently integrating ESG criteria (AXA IM, as at 31 December 2015) and 20 years of experience in responsible investment, AXA IM is a knowledgeable partner in accompanying businesses in this transition.”