Warning: members of the public are being contacted by people claiming to work for AXA Investment Managers UK Limited.  Find out more information and what to do by clicking here.

How ESG can help build resilience in Buy and Maintain credit strategies

  • 25 September 2020 (5 min read)

Responsible investment has always been about the long term. Equity investors want to know a company isn’t vulnerable to global shifts around environmental or social issues and fixed income investors, looking to more distant horizons, might need to ensure a business can be part of a resilient strategy for the next 20 years.

For asset managers seeking to build such strategies, it’s all about culture. At AXA IM, we believe our Buy & Maintain business benefits from credit analysis that puts environmental, social and governance (ESG) factors at its heart. It’s not for show – the integration of ESG decisively shapes allocations. We believe this can help deliver long-term performance enhancement for institutional investors.

The reason is simple. Companies that can’t adapt to new realities have never made for great investments, and as the world responds to climate and social change, this is becoming more important. So how do we make sure our strategies are prepared?

Scores and more

ESG scores are a very useful part of our process, but they are the starting point, not the destination. Our proprietary system1 uses raw data covering more than 7,200 companies and 100 countries to deliver a simple score from 0-10. This is the first hurdle. We will not buy a bond from a company that scores below a 2, or which falls foul of baseline exclusions.

An ESG score, however, only reveals its true value when combined with a full qualitative assessment. It is, for example, hugely important to track scores through time. Where we see a company heading up or down the scale, the real investment driver is knowing what lies behind the trajectory.

Companies with an ESG score above 2 still face detailed scrutiny from our credit analysts who take care to factor in ESG risks, working closely with our equity analysts. The goal is sustainability and resilience – and the results are tangible, not aspirational.

Exclusions based on ESG quality have allowed us to avoid exposure to ratings downgrades and bankruptcy and we expect the effects of such examples will be seen in performance over time. We believe the impact of ESG can be magnified as downgrades and defaults emerge over the years. We want to lend to companies that will be thriving, and delivering cashflows, 15 years from now.

Changing markets

This isn’t only about strategic allocations, it’s also about staying relevant in changing fixed income markets. Our view is that asset managers who take ESG seriously have better prospects for allocations when debt comes to market.

At AXA IM we have seen more and more evidence that allocations are affected by responsible investment characteristics. Our experience is that banks will allocate more to what they see as real, active, long-term money – to asset managers who are “seen as green”. A reputation as a major player in this space can therefore offer a hard-earned edge and influence the nature of issuance. The market is also moving towards standardisation of how ESG is reflected (most obviously in Green and Social bonds) and those with strong systems have a potential advantage.


Once we secure an allocation from a company, there is more value to be gained from active engagement with management. In 2019, alongside intense activity in equity markets, we engaged with close to 40 debt-only issuers2 . A nuanced understanding of a company’s ESG progress allows us to build a strategy that is sustainable from all angles.

Our pension fund and insurance clients need to see how we are addressing ESG concerns with companies and so we have enhanced reporting of milestones and results. Clients can receive a line-by-line report, with a timeline of engagement steps and themes where we are seeking improvement. Our team is always on hand to give deeper insights, and our twice-yearly Stewardship report gives details of every engagement we make.

One example has been to push oil companies to make ‘net-zero’ commitments on emissions as we seek to protect the long-term interests of clients by influencing the future of the energy industry.

AXA IM lends to one oil major on the basis of a 2050 net-zero commitment. Deviation from that path could prompt a refusal to participate in new issuance. Among carmakers, we favour those trying to transition ahead of the regulatory imperative. One global name gained an allocation, not simply because it issued a Green Bond, but because it specifically earmarked funds for sales leasing on hybrids. This kind of verifiable data encourages us to invest.

Growing markets

New markets have amplified the role of responsible investment. We have sought a leading role in the growth of Green and Social3  bonds – debt designed to directly address ESG issues, and which is often anchored in the UN Sustainable Development Goals (SDGs).

The SDGs give issuers a useful way to pitch debt to responsible investors. But they do not remove the need for scrutiny – in fact, engagement can be more intense to meet technical and disclosure requirements. It is crucial to avoid ‘greenwashing’, where companies pay lip service to targets, and as a proud active investor our focus is on tracking how money is actually used.

Again, reputation matters. AXA IM’s leadership in Green bonds4 helps shape the sector. This includes membership of the Green Bonds Principles Executive Committee where we have helped provide industry guidelines to improve transparency.

Our role in the development of Transition bonds highlights our thirst for practical innovation. Our own guidelines5 allowed for a €100m issue of this new type of debt, which allows carbon-intensive companies to finance decarbonisation projects. We are now leading industry efforts to ramp up this asset class.6 We also have more than £2bn of exposure to social housing where we selectively lend to Housing Associations with clear social development strategies.

When you take ESG seriously in fixed income, opportunities can emerge. As the market adapts to the realities of climate change and other ESG challenges, we believe it pays for asset managers to embed true responsible investment techniques in their allocation process. Just as we seek out companies that stay ahead of the curve, so asset managers have a duty to be at the leading edge as the investment industry evolves.

  • QVhBIElNOiBPdXIgU2NvcmluZyBNZXRob2RvbG9neQ==
  • QVhBIElNIDIwMTkgU3Rld2FyZHNoaXAgcmVwb3J0
  • UmlzZSBpbiBDb3ZpZC0xOSBib25kIGlzc3VhbmNlIGZhbnMgZmVhcnMgb3ZlciDigJhzb2NpYWwgd2FzaGluZ+KAmSBGaW5hbmNpYWwgVGltZXMsIDMwIEp1bmUsIDIwMjA=
  • QVhBIElNOiBPdXIgR3JlZW4gQm9uZCBmcmFtZXdvcms=
  • SVBFLCAxMiBKdW5lIDIwMTk6IEFYQSBJTSBjYWxscyBmb3Ig4oCYdHJhbnNpdGlvbiBib25kc+KAmSB0byBoZWxwIGNvbXBhbmllcyBnbyBncmVlbg==
  • SUNNQSBXb3JraW5nIEdyb3VwIG9uIENsaW1hdGUgVHJhbnNpdGlvbiBGaW5hbmNl

Have our latest insights delivered straight to your inbox

Subscribe to updates.

    Not for Retail distribution

    This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly.

    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.
    All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document. Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.

    Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales, No: 01431068. Registered Office: 22 Bishopsgate, London, EC2N 4BQ. In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries. 

    Risk Warning

    The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. 

    Are you an IFA or other Professional Investor ?

    Are you a financial advisor, institutional, or other professional investor?

    This section is for professional investors only. You need to confirm that you have the required investment knowledge and experience to view this content. This includes understanding the risks associated with investment products, and any other required qualifications according to the rules of your jurisdiction.