Why we believe RI is a compelling opportunity for investors
In recent years, the investment landscape has witnessed dramatic change as the multiple factors that companies must address to deliver long term value and mitigate risk have been redefined. These include hard trends such as regulation as well as softer trends which are shaping corporate and social behaviours, and emerging investment opportunities.
An effective tool to address regulatory change
COP21, the UN Climate Change Agreement signed in 2015 by nearly every country in the world, was a seminal moment in influencing corporate behaviour globally. At the national level, important initiatives such as the Energy Transition Law (Article 173) in France, which requires investors to disclose how they manage ESG criteria, have dramatically transformed the global investment landscape as it relates to RI. Around the world, regulations that include specific RI requirements are growing, as seen in pension fund legislation in the Nordics, Canada and South Korea1.
These have been joined by a series of so-called ‘soft trends’ that are compelling companies and investors to place greater focus on ESG factors in their operations and communications, including the Financial Stability Board’s move to increase transparency on climate-related financial risks (FSB TCFD2), and ratings agencies such as Standard & Poor’s and Moody’s committing to ESG benchmarking and measurement.
Launched in 2016, the UN’s 17 Sustainable Development Goals (SDGs) are quickly becoming a norm in certain geographies, for example the Netherlands, where many Dutch pension funds have announced that their mandated investment managers must make reference to how their solutions will contribute to one or several of the SDGs all the while still ensuring market rate returns.
A smart approach to increasing social pressure
This backdrop has been complemented by an increasing social conscience where an ever-rising number of consumers want to know that their purchasing power is having a more positive, and less destructive, impact on the world.
For example, 76%3 of millennials said they regard business as a force for positive social change, according to a 2017 Deloitte survey. Similarly, a global study by consultants Mercer found that 81% of asset owners and 68% of asset managers view climate change as either a material risk or opportunity4.
And as appetite grows for a new, sustainable approach so does demand for new instruments to meet these expectations. New financial instruments such as green bonds (see figure 1), green infrastructure or investment vehicles that target gender diversity, financial inclusion or healthcare are rapidly growing in volume and accessibility.
Annual green bond issuance has grown in volume and in geographic diversity:
Source: Bloomberg New Energy Finance. Note. APAC is Asia Pacific, EMEA is Europe, Middle East and Africa, AMER is North, South and Central Americas.
1 Principles for Responsible Investment (PRI) Global Guide to Responsible Investment Regulation 2016
2 Financial Stability Board Task Force on Climate-Related Financial Disclosures
3 The Deloitte Millennial Survey 2017
4 Morgan Stanley Research 18 May 2016
Important Backtest Disclosures
The backtested portfolio characteristics shown were created using a computer program to estimate the characteristics the referenced model(s) “would” have produced during the timeframe shown as applied to the referenced dataset. The backtested characteristics were created using investment models and/or data that were not necessarily available in its current form to AXA Investment Managers during the timeframe shown. The backtested characteristics were not verified by an independent calculation agent.
Backtested characteristics are not an indicator of characteristics or portfolio performance that would have been achieved, whether in the past or in the future, and should not be interpreted as an indication of such performance. Actual characteristics achieved for client accounts may be materially different than backtested characteristics because the latter is achieved through the retroactive application of a model designed with the benefit of hindsight. As a result, the model theoretically may be changed from time to time and the effect on characteristics could be either favorable or unfavorable. Backtested characteristics representing output from a research project may differ from actual portfolio characteristics because the investment strategy and/or models may be adjusted at any time, for any reason, and can continue to be changed until desired or better results are achieved.
The historical dataset used in the simulation is based upon sources believed to be correct, but no warranty is given as to its accuracy, timeliness or completeness. In addition, the historical dataset used in the simulation contains data (due to various reasons) for which AXA Investment Managers may not have had the benefit of if in real time during the simulation period, such as data errors that have been discovered and corrected and/or changes to the investment models or processes based on AXA Investment Managers’ research during the timeframe.
As with any investment strategy, there is the potential for profit as well as the possibility of loss. The firm does not guarantee any minimum level of investment performance or the success of any portfolio or investment strategy. All investments involve risk and investment recommendations will not always be profitable. Past performance does not guarantee future results. No representation is made that any investment will achieve characteristics similar to that shown herein, or that if the characteristics shown are achieved, that investment objectives and performance expectations will be achieved.
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