What is responsible investing?

At AXA IM, we define responsible investing (RI) as an investment process that incorporates environmental, social and governance (ESG) factors into its approach. RI enables clients to align their investments with global megatrends that are changing the investment landscape. Issues such as increasing regulation, the growing need for risk mitigation and a heightened social conscience can be more effectively addressed by integrating ESG factors into the investment process.

Why is responsible investing important?

ESG can allow firms to foster a meaningful change in the global economy, and in the communities in which we live and work. We believe that ESG analysis leads to more effective investment solutions that address global challenges and create sustainable value for our clients.

The integration of ESG factors is used to enhance traditional financial analysis by identifying potential risks and opportunities beyond technical valuations, providing data on issues such as potential reputational risk or identifying firms which are adapting to meet new market challenges. It is important to note that the main objective of ESG integration remains financial performance.

Is there a difference between socially responsible investing and ESG integration?

Socially responsible investing (SRI) and ESG are often treated as one in the same, however, there are some key differences between the two and the impact they have on the investment process.

Environmental, social and governance (ESG)

ESG refers to the practices of an investment that may have a material impact on the performance of that investment. The integration of ESG factors is used to enhance traditional financial analysis by identifying potential risks and opportunities beyond technical valuations. The main objective of ESG integration remains financial performance.

Socially responsible investing (SRI)

SRI goes one step further than ESG by actively eliminating or selecting investments according to specific social/sustainable guidelines. The underlying motive could be religion, personal values or political beliefs. SRI strategies use ESG factors to shape the objectives of the strategy and/or apply negative or positive screens on the investment universe.

Responsible investment is a young industry that lacks widely-acknowledged and precise norms, guidelines and definitions. So far, there is an understanding that responsible investment is a generic term that refers to a wide range of approaches that integrate environmental, social and governance (ESG) criteria in the investment process. Responsible investment can take on a variety of forms and should help to identify and to mitigate investment risks.