In this series, ESG Clarity takes a deep dive into an investment firm’s stewardship activities, discovering their key focuses and processes, and what’s in their engagement toolkit.

Here, Clemence Humeau, head of sustainability coordination & governance at AXA Investment Managers, discusses the impact of regulation and ‘greenhushing’ and clients’ increasing understanding on engagement.

What do you think will be the key trends in engagement and stewardship this year?

Climate will remain our top priority, and we will consider potential policy impacts from developments in 2023 including those related to the fossil fuels industry. Social considerations will also remain high on the agenda, especially considering the upcoming European Corporate Sustainability Due Diligence Directive.

With key elections to come including in the US and EU, climate lobbying of investee companies in high-impact sectors will be a reinforced area of focus during the voting season, acknowledging the need for real economy policies to further support the transition to a net-zero world, and the risk lobbying may represent in this perspective.

In this context, we will also continue to watch the potential impact of the ESG backlash in terms of ‘greenhushing’ by some asset managers more reluctant to participate in collaborative engagement initiatives or to actively use their voting rights.

What is your firm focused on achieving with investee holdings?

Responsible allocation and oversight of capital is a key pillar of our corporate purpose. By considering sustainability factors throughout the investment process, we aim to create sustainable investment outcomes for our clients, leading to broader societal and economic benefits over the long term.

An important way to achieve it involves investor engagement, which can help us better understand companies’ management of sustainability risks, contributing to a more comprehensive assessment of the company’s risk profile, hence to effective investment decision making.

We take an active engagement approach, emphasising dialogue on sustainability and governance issues that have a material impact on long-term financial performance. Beyond financial performance, using a double-materiality lens aligned with the principles of the European Union Sustainable Finance policy framework, we also conduct engagement to contribute to the achievement of selected societal targets and to the mitigation of potential adverse impacts of our investments.

For shareholder engagement to effectively support change within investee companies, ensuring robust stewardship policies and framework are in place is essential. We welcome an increasing understanding from clients and regulators of the importance of “quality” of dialogue as a lever of change beyond, or even before, “quantity”. We will carefully follow guidance to come thanks to the UK Asset Owner Roundtable focus on engagement and voting. We will also aim to have a say in the EU’s SRD II Impact Assessment study and ESMA-related work, and the revision of the UK Stewardship Code in 2024.

How is your engagement toolkit evolving?

In 2024, for listed assets, we will continue to roll-out the robust policy and processes we have developed over the past years for engagement with objectives and sustainability dialogue, leveraging our presence in many cases as an equity and a bond holder to use the different interactions with the investee companies and their ecosystem to maximise the impact of our engagement and likelihood it will effect change.

We welcome the introduction in the new French Label ISR framework of a rule incentivising asset managers to engage forcefully with investee companies lacking robust transition plans over a three-year period, should they want to remain invested –this rule largely mirrors AXA IM’s “three strikes and you’re out” policy introduced in 2021.

As an investor active in real assets, private markets and fund selection we will also aim to create sustainable value by encouraging the managers and partners we work with to adopt best practices when it comes to integrating sustainability in their strategy, looking at ways to leverage some of the best practices developed as part of our engagement in traditional asset classes for this purpose.