1/ Understanding ESG challenges
We have witnessed a rapid growth in environmental, social and governance (ESG) integration over the past few years, but challenges remain. Defining standards, terminology, ratings and the quality and disclosure of data remains a difficult issue and with no global standard in place, investors can find it difficult to compare ESG offerings across different firms.
How do we approach these challenges at AXA Investment Managers?
At AXA Investment Managers we focus on three dimensions to the data: correct, forward looking and standardised (the latter so that it can easily be aggregated and communicated to all stakeholders).
We ensure that ESG data frameworks are validated by investment experts as well as our risk management organisation. We believe to achieve systemic change, ESG indicators should be integrated into core indices and accounting standards, making reporting more standardised and therefore comparable. Regulatory bodies, must play a role in incentivising the companies to report on ESG issues. Making ESG data more quantifiable as well as educating the general population on the importance of ESG considerations when making investment decisions.
2/ Our ESG quantitative framework
AXA IM is committed to reinforcing ESG integration by continuously increasing the coverage in terms of asset classes, developing ESG research and data solutions available to investment teams and reinforcing its own internal research capabilities.
We believe an ESG scoring system is a necessary step to synthetize all material ESG information to further discriminate between thousands of issuers. It is also the starting point to assess the ESG quality of an issuer or of a portfolio relative to its benchmark or peers.
Therefore we have developed proprietary scoring methodologies, including for corporate and sovereign issuers relying on a common framework built around the three pillars: Environment (E), Social (S) and Governance (G). We also have proprietary methodologies for real estate issuers.
Key dimensions of our ESG assessment of corporations and countries
3/ Our scoring methodology
What are our scoring methodologies?
The corporate scoring methodology at AXA IM is developed and maintained by the responsible investing (RI) team. We use raw ESG company/country data from ESG research providers and cover more than 8,800 companies and 190 countries with our quantitative scoring system*, ultimately providing each company/country with a score scaling from 0-10.
This is conducted via a five-step approach:
1/ Framework foundation
This is built around three ESG pillars, with two factors identified for each pillar
2/ Data providers
We conduct a thorough review of ESG data providers to select the most relevant information to address each of the key issues identified in the framework.
3/ Sub and factors score
We then aggregate the scores from the first two steps and assess the severity of the controversies and how this could impact a company/country score.
4/ Pillar scores
The investment universe is broken down into 16 RI sectors to better address the specificities of each issuer among peers. Specific factor weights are calibrated to compute pillar scores for each issuer.
5/ ESG score
Investment universe is categorised into four geographical zones (North America / Asia Pacific developed / Europe developed / emerging). ESG scores are normalised by region to allow proper comparison and ensure enough discrimination.
Further to this, an analytical tool is also available to help investment professionals see the score of an issuer and its history.
For sovereign issuers, we rely on ESG indicators published by recognised international sources. We distinguish two groups of countries, mature and progressing countries. For these two groups, we use the ESG pillars, but can rely on specifics indicators, considering the level of socio-economic development of these countries.
In addition, proprietary scoring methodologies are in place for certain alternative asset classes such as commercial real estate loans, infrastructure and leveraged loans.