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AXA IM comments on the proposals to foster sustainable finance announced yesterday by the European Commission.

AXA IM comments on the proposals to foster sustainable finance announced yesterday by the European Commission.

Market commentary
25 May 2018

AXA IM comments on the proposals to foster sustainable finance announced yesterday by the European Commission.

Matt Christensen, Global Head of Responsible Investment at AXA IM, said:

“You thought that the European Union’s GDPR (General Data Protection Regulation) was the only change that the European Commission (EC) was working on?
The notices flooding your inboxes around updates to privacy policies are a continuing indicator that the EU will punch above its weight in the world in taking an active stance on evolving its regulatory environment to meet emerging societal norms. With GDPR, the EU’s goal is to be a harbinger of the future around consumer privacy.

"So too with financial services where a similar approach can be seen in the recent announcement yesterday of the first four legislative proposals related to the EC’s Action Plan on Sustainable Finance. In one fell swoop, the EU is using this plan as a means to influence other jurisdictions by evolving its own financial services sector so that Environmental, Social & Governance (ESG) and climate change factors become a normal part of investment management decision making.

"We applaud their efforts to do so and agree with EC Vice President Jyrki Katainen’s comment that “Sustainable finance cannot be seen as a marginal phenomenon for some extremist group which doesn’t understand the logic of a market economy”[1].

"Indeed, the EC has an aggressive one year time horizon to implement elements of the HLEG[2]’s recommendations. Yesterday’s announcements ranging from low carbon benchmarks and green investments to ESG factors within fiduciary duty reveal that the EC will focus on ensuring that the building blocks to mainstream responsible investment are put into place by 2019.

"Here are our three key takeaways from the proposals announced by the EC yesterday:

  • We think these announcements confirm the commitment and proactivity of the EC to lead the way in the fight on climate change but also its willingness to involve global finance in that journey. The plan should progress reasonably quickly despite a challenging time frame (Parliament election year in 2019).
  • We appreciate that these legislative announcements allow for further refinement of methodologies and frameworks such as the underlying criteria behind the ‘green taxonomy’.
  • We consider the  EC programme still provides room for further deep research in the field of green finance and asset allocation. While the "green supporting factor" has not been kept at this stage in the list of first actions, the EC said it will work with the European Parliament on the capital requirements for financial institutions and investors offering green financing.

"As an investor, we still have a unique opportunity to give our opinion and vision on this ambitious and exemplary legislative package.”

 

Kathryn McDonald, Head of Sustainability at AXA IM Rosenberg Equities, added:

“Environmental, Social and Governance (ESG) criteria are a core part of Rosenberg’s investment decision-making because we believe they help us avoid future risks and capture future opportunities like those highlighted in the Action Plan for Sustainable Growth.

Put differently, we believe that sustainable investing is in support of, not in opposition to, the best investment outcomes. 

"While we must be mindful of the limitations of some ESG data, we are very excited about rapid improvements to ‘traditional’ ESG data sets as well as the prospect of using new, alternative data like geographic/physical risk or text-based information to help us paint a more robust picture of companies’ threats and opportunities. 

"As quantitative, data-oriented investors we are especially pleased to see enhanced transparency in corporate reporting as a key feature of the Plan. It is our belief that all investors will be better served by improved ESG reporting on the part of corporations. We should collectively continue to push for standards that seek to improve data timeliness, comparability, and accuracy. 

"To achieve the conditions that lead to a ‘cleaner, more resource-efficient, circular economy’ we need more investors to adopt sustainability principles. 

"We believe that improved transparency in corporate reporting will engender greater trust in ESG information and company reports generally, leading more investors to confidently step toward sustainability.”

[1] Full speech: http://europa.eu/rapid/press-release_SPEECH-18-3925_en.htm

[2] High-Level Expert Group on Sustainable Finance, established by the European Commission in December 2016.

About AXA Investment Managers

AXA Investment Managers (AXA IM) is an active, long-term, global multi-asset investor. We work with clients today to provide the solutions they need to help build a better tomorrow for their investments, while creating a positive change for the world in which we all live. With approximately €746 billion in assets under management as at end of December 2017, AXA IM employs over 2,390 employees around the world and operates out of 30 offices across 21 countries. AXA IM is part of the AXA Group, a world leader in financial protection and wealth management.

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