How do we choose the most virtuous companies at AXA IM?

  • 10 February 2023 (5 min read)

Key points: 

  • Identifying optimal sustainable opportunities consists of considering the financial and extra-financial criteria of companies that integrate environmental, social and governance (ESG) criteria.
  • The job of fund analysts and managers is to invest in companies that both have impeccable financial characteristics but are also capable of having a measurable positive environmental or social impact on society.
  • Some investors may find it difficult to navigate complex regulations and technical characteristics in this area; we wish, for educational purposes, to share some elements of analysis and to illustrate the output of this activity with examples.
  • At AXA IM, extra-financial analysis can focus on two areas: solutions and operations.

Solutions

We seek to identify companies that offer products or services that will address particular issues via a range of activities; for example, we monitor companies operating in the fields of water, renewable energies, health, education, or the circular economy. Often, innovation and technology are at the root of the proposed solution.

In the green energy sector, the French company Néoen produces green energy with solar, wind, and also offers solutions in storage capacity. It operates in France as well as in other under-served areas of the world, such as Africa and El Salvador. In this sense, Néoen accompanies these countries on the path of sustainable development while remaining profitable.

In the field of healthcare, BioMérieux is a specialist in in vitro diagnostics, which is particularly active in the search for bacterial resistance to antibiotics. A global public health issue, antibiotic resistance claims the life of one person worldwide every 45 seconds1 . BioMérieux allocates 75% of its research and development budget2 to this research theme on antibiotic resistance. In our view, this factor represents a real commitment to responsibility.

In the field of water, the American company Xylem specialises in water supply and sanitation solutions, a commodity that will become increasingly scarce and is not accessible to all. In 2021, Xylem provided safe drinking water to 4 million3 people worldwide.

Operations

An operations focus involves selecting companies that will monitor the sustainability of their value chain, such as companies capable of questioning themselves and seeking to improve their manufacturing processes in order to reduce, for example, their carbon footprint or the waste from their activities.

Changing a business model is not a simple process for a large group. Reviewing its practices to be capable of producing in a more sustainable way is a real challenge that some companies have decided to take up.

An example of this is L'Oréal, which has begun its serious and ambitious shift towards green and sustainable activities with one motto: operational excellence. Thus, with an extremely large and extensive production chain, L'Oréal has implemented a very strict policy on its CO2 consumption and waste management.  The results are apparent. Between 2005 and 2019, the company reduced its carbon intensity at its production sites by 81%4 .

On the waste reduction front, while L'Oréal's activity was growing strongly between 2005 and 2019, the group still managed to reduce its waste quantity by 37%.

Interestingly, the company has set up a partnership with Carbios, a French company specialising in plastic recycling via enzymes that destroy plastic very efficiently, such as the C-ZYME enzyme technology that processes plastic 10,000 times faster than other biological recycling processes5 .

Measuring impact

Calculating measurable impact is not easy because the quality of the disclosure of extra-financial data provided by companies remains variable and disparate, hence the essential role of our analysts and the discussions they have with the said companies.  In addition, at AXA IM, we act through our voting and engagement actions to push companies to improve their practices.

We also use external data providers to quantify this positive impact to ensure the sincerity of the approach of companies that currently have the obligation to report. This is complemented and enriched by our in-house dedicated impact analysts to appreciate this qualitative dimension.

Conclusion

When we talk about responsible investment, we must adopt a long-term perspective; we are aware that the solution will not come overnight.

At AXA IM, we are convinced that a more sustainable world will require innovation.

Data plays a key role in measuring impact. Without data, responsible investing doesn't work.

Reporting has become strategic for asset managers. It serves as proof to investors and gives credibility to their investments that go beyond the simple financial dimension or motivation.

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I'm trying to look 10 or 20 years ahead, and I think in 2030 or 2040, we'll probably think back to the times we live in today, and say that even in turbulent markets, it was a great time to invest.

Marie Walbaum

Responsible Investment Specialist


Companies shown are for illustrative purposes only as of 03/02/2023. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute 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 personalised recommendation to buy or sell securities.

Risks

No assurance can be given that our equity strategies will be successful. Investors can lose some or all of their capital invested. Our strategies are subject to risks including, but not limited to: equity; emerging markets; global investments; investments in small and micro capitalisation universe; investments in specific sectors or asset classes specific risks, liquidity risk, credit risk, counterparty risk, legal risk, valuation risk, operational risk and risks related to the underlying assets.

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