The demand will be fuelled by impact investing, an increased focus on board diversity strategies and the use of ESG factors across a broader range of asset classes such as sovereign debt, AXA IM stated.
Global Head of Responsible Investment for AXA IM, Matt Christensen, said ESG has already been firmly on the investment agenda for a decade but it is time to forecast the next ten years to ensure we have the right tools in place.
Impact investing, which refers to investments that generate a financial return as well as having a positive ESG impact, is increasingly being used by large investors with the market set to grow to US$500 billion by 2019 or 1 per cent of global assets, AXA IM stated.
AXA IM said it recently developed a strategy that applies ESG metrics to assess countries’ creditworthiness, risks and opportunities in sovereign debt portfolios.
“Until a few years ago it was rare for investors to consider ESG factors for asset classes beyond equity and corporate fixed income. We’re seeing increasing interest in ESG analysis being applied to asset classes such as sovereign debt,” Mr Christensen said.
“This attention to ESG has only been amplified by the euro zone crisis, which brought the evaluation of sovereign issuers’ creditworthiness to the fore. We are already using this ESG country framework in our core RI funds but we also see an opportunity to expand this to mainstream funds over the coming years.”
AXA IM also predicted board diversity to grow with not just gender diversity but diversity of national representation to become a bigger factor.
Nationality can be seen as a means to bring a broader range of views and experiences to bear within the leadership of companies across the globe, AXA IM stated.
“We recently analysed board diversity among the largest 50 European companies by market cap. The results suggest companies need to bolster senior management boards by shaping their composition in a way that better improves their readiness for success in emerging markets – I imagine this would have a similar outcome among ASX listed companies,” Mr Christensen said.
AXA IM also said it planned to strengthen its responsible investment (RI) research capabilities over the next ten years.
“Through the ongoing expansion of our global RI research and initiatives, we aim to offer Australian institutional investors – and their individual members and investors – a wider opportunity to invest in strategies incorporating ESG principles,” said Craig Hurt, director of AXA Investment Managers in Australia and New Zealand.
