Yo Takatsuki, head of ESG research and active ownership at AXA Investment Managers, explains the most effective ways to achieve tangible outcomes.
Active ownership is not a new trend but one that has gained traction during Covid-19 as companies with the highest environmental, social and governance (ESG) ratings have tended to outperform those with the lowest scores at the start of the pandemic. However, the aim should not just be about generating strong risk-adjusted returns, but also making a positive impact on society and the environment.
“There is definitely a greater focus because of the pandemic, and everyone is talking about ESG and active ownership,” says Yo Takatsuki, head of ESG research and active ownership at AXA Investment Managers.
“However, the question that should be asked is what are the tangible outcomes and whether they can evidence that they are adding value through the engagement process. “
He adds, ”For us, active ownership is about making the most of our rights as a shareholder and provider of capital as bondholders to add value and to engage investee companies in productive dialogue that makes a tangible difference.”
The French-based fund manager, that has been actively engaging with companies for over 20 years, embarked on its current programme in 2018 when Takatsuki joined.
It has sharpened its emphasis on ESG themes, which it considers to be the most strategically and financially material for long-term investors.
About 40% are climate-related, while corporate governance issues account for 20%. Biodiversity, human capital, gender diversity, public health and data privacy comprise the rest.
A voting policy for meaningful outcomes
The past six months have also seen AXA IM enhance its voting policy on board gender diversity, time commitment of directors, auditor rotation, and the integration of non-financial ESG metrics into executive compensation.
Although it has been a challenging time, AXA IM has never been busier, despite the fact that lockdown occurred in late March when corporates’ annual general meeting season was kicking off. Takatsuki divides the first half of 2020 into two distinct parts – before lockdown, when engagement was focused on its key thematic areas, and then afterwards, when people had to work from home for several months.
However, thanks to technology and video conferencing, disruption was minimal, and attendance was high at the virtual AGMs. “We had more engagement with companies than ever before, “says Takatsuki. “They were keen to put a good foot forward and tell us about the good work they are doing. However, they also wanted to hear from investors in terms of what expectations were and how they should be reacting to the pandemic.”
This is borne out in AXA IM’s H1 2020 Stewardship report, which showed that it “doubled down” on its conversations surrounding public health, human capital and shareholder rights. This translated into engagement with 181 issuers – the highest-ever number, and well up on the figure of 77 during the same period in 2019 – and voting in 4,300 shareholder meetings.
Breaking it down, AXA IM voted against management on at least one resolution at 64% of company meetings, a notable increase on last year, and supported 72% of the 39 climate change-related shareholder resolutions proposed at 32 company general meetings.
Behind AXA IM’s engagement programme is a clear, well-defined process that first seeks to identify material ESG factors within their main thematic categories before they appear and become detrimental to investors. It aims to create the biggest impact by encouraging companies to change the way they behave and conduct business. “Once engagement starts, you need to have a goal and clarity in terms of what you want to achieve,” says Takatsuki. “It needs to have real-life meaning and we define this by the United Nations Sustainable Development Goals.”
These goals, known as SDGs for short, were launched in 2015. They cover a wide range of objectives, including climate change, responsible business, employment and accountable institutions, as well as poverty, education and equality.
AXA IM will draw up a list of target companies for engagement based on insights derived from its in-depth research and analysis of corporates, as well as the broader macroeconomic backdrop and how ESG factors can shape investment outcomes. Each initiative typically runs for 18-24 months and covers 20-40 companies.
A bold stance
Although experience and having a robust framework is important, Takatsuki also believes that AXA IM is well placed to engage effectively with companies because of its position as an industry leader. It is not afraid to take a bold stance on issues and commit resources to delivering the requisite long-term outcomes, but it is also a proponent of working collaboratively with other investors to achieve shared objectives.
For example, AXA IM is an active participant in leading industry engagement initiatives such as Climate Action 100+, the Workforce Disclosure Initiative and the Access to Medicine Index. It is also a co-chair of the newly established Climate Transition Finance Working Group, set up by the International Capital Markets Association last year to encourage the concept of transition financing, whereby companies in carbon-intensive sectors raise funds in capital markets to decarbonise.
Just as AXA IM holds the companies it invests in to account, it also ensures clients are kept fully informed through regular reporting of progress being made on its active ownership. This is framed by the expectations set in the UK Stewardship Code, the United Nations-supported Principles for Responsible Investment (PRI), the Taskforce for Climate-related Financial Disclosure and many other industry initiatives.
“We believe it is very important that we provide transparency around their investments, so that clients can ensure their holdings align with their own values,” says Takatsuki.
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