Responsible investment is now a ‘must-have’ with impact becoming the key trend

Matt Christensen, Head of Responsible Investment at AXA Investment Managers (AXA IM), discusses impact investing and how it will move from a niche area to a key trend for all investors.

“2015 was undoubtedly the ‘big bang’ equivalent for responsible investment culminating in COP21 where we saw climate change being used as the lever to push RI boldly into the mainstream of asset management. We have seen a positive response to this from clients demonstrated by the increasing popularity of innovative products in this space such as green bonds and the growing interest in impact investing.

“We believe many investors are approaching the subject of RI as a ‘must-have’ now with impact becoming the key trend within this area as investors begin to truly grasp and harness the potential of finance to help tackle various social and environmental issues.

“We’ve seen RI develop in investors’ minds from a traditional model of negative screening to an active desire to contribute to the greater good of the society, which is why impact is becoming so prominent now. The millennial generation is seeking more than just financial returns from their investments and we are seeing this increasingly apply to investors across the spectrum from institutions to private banks and the retail segment. The challenge for the industry will be how to make impact investment more accessible to the person on the street as the impact market continues to grow and mature.”

Impact measurement is a key issue for investors

“Within impact, we see measurement as a topic of increasing importance particularly as client demand grows for tailored impact investment options and investors want to see clear and tangible outcomes from their investments.

“We believe that measurement is a core part of impact investment because the rationale behind this type of investment approach is built on the ability to generate not only financial returns but also tangible societal outcomes. The type of impact that investors wish to be able to generate tends to vary and can often depend on personal or business interests. For example, a healthcare company may be particularly interested in making healthcare more accessible to all whereas an investor active in the food and drink sector may wish to improve access to food or water.”

2016 and beyond

“Looking ahead, we see impact investment becoming the ‘natural extension’ of RI and a valuable complement to ESG (environmental, social and governance) integration. Whereas impact investment was once a discussion only taking place in alternative asset classes, it is now becoming increasingly prominent across fixed income, listed equity and other areas. In the same way that ESG risk factors have helped  RI become a mainstream trend in investment, we see the positive outcomes from impact further contribute to growing the interest in RI more widely.”

The volume of ESG-integrated and impact investments managed by AXA IM grew substantially in 2015 to reach €333 billion. The RI team voted at 4,911 annual general meetings and engaged with 230 companies on a broad range of issues from board diversity through to remuneration and health and safety. AXA IM’s proprietary platform, RI Search©, evaluated more than 5,000 companies and AXA IM has created a proprietary due diligence system to measure more than 50 green bonds (source: AXA IM, 31 December 2015).