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.

Key dimensions of our ESG assessment of corporations and countries

 

What does ESG mean at AXA Investment Managers?

As a responsible investor we want to manage ESG risks and opportunities when investing on behalf of our clients, and we have identified certain sectors we will not invest in above a specified threshold. Consequently, sectorial exclusions on controversial weapons, palm oil, soft commodities and coal are applied across all assets.

Going beyond this, we apply our ESG standards to our responsible investing (RI) and ESG integrated open ended funds, which will also be available to institutional clients on an opt-in basis.

These standards help us to manage ESG risks and focus on material issues such as climate change, health and social capital, while also considering severe controversies as well as low ESG quality.

As a result of these ESG standards, the following sectors and areas are excluded from our RI and ESG integrated funds:

• Coal and tar sands producers
• Tobacco
• Defense
• Severe breaches of United Nations Global Compact (UNGC) principles
• Low ESG quality companies

The AXA IM ESG standards form one dimension of our ESG integration approach, which also include ESG corporate analysis and scoring, and common views on thematic engagement and voting.