Investment Institute
Sustainability

ESG analysis: From ‘in transition’ to ‘leader’ status


It is our long-held belief that high-quality fundamental stock analysis provides a potential opportunity to deliver favorable investment outcomes.

We are often asked whether it would be easier to rely solely on third-party providers’ ESG scores. Indeed, it would, but we believe that would also mean missing out on the many insights we gain from performing our own proprietary analysis, in tandem with third-party analysis. 

ESG homework

Conducting our own ESG analyses allows us to emphasize the key ESG risks and opportunities we feel are important to a particular company. Experience has shown that this can result in a departure from third-party providers’ analyses.

As long-term shareholders of our clients’ capital, every company’s ESG analysis matters to us. We seek to engage management teams after conducting our own analysis to fully understand and identify any gaps in our knowledge and encourage further progress. It is a methodical, bespoke, and collaborative process, which we undertake with the mindset of a partnership embarking on a journey together.

We realize that change does not happen overnight, but we know that it must happen, and companies must take steps in the right direction. This is why identifying management teams that understand the significance of both their environmental and social obligations is key; it is not always about where they are on that journey but the direction they are headed.

Fundamental analysis

By engaging with businesses, we can understand their trajectory early on in the process, sometimes earlier than third-party agencies themselves. We can see where the shifts are coming before they are documented in the next annual report or reflected in an ESG score.

It is for all these reasons that we invest in firms we believe are either ESG ”leaders” or those we deem as ”in transition” to leader status. The analysis gives us confidence that our holdings should be on an improving score trajectory. Indeed, in our latest score refresh, five companies in our strategy graduated from ”in transition” to “leader” status, as their scores all exceeded the median threshold of the investable universe.

It may or may not be that this ESG momentum leads to greater share price performance in the short term, but it does give us confidence that the growth opportunity afforded to a company should be less impacted by a lack of focus on their ESG obligations.

Changing times

This is not just an academic exercise. It is with significant pride that we can see corporate change is coming. Companies are working furiously to understand their carbon emissions, direct capital to “greener” products, services and packaging, understand the human and environmental impact of their supply chain as well as improve the welfare of their employees and communities in which they operate. This is real change and genuine progress that will help move us all closer to the world that we need it to become.

We hope that by investing in companies aligned with society and the environment, we may be able to generate attractive returns for clients over the medium to long term.

    Disclaimer

    This page is for informational purposes only and does not 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 a solicitation or as investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    Issued in the UK by AXA Investment Managers UK Limited, which is authorized 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.

    © 2022 AXA Investment Managers. All rights reserved

    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.