Institutions are expected to come under increased pressure to offer sustainable investment strategies as investors focus on impact investing.
According to AXA Investment Managers, firms would have pivot from environmental, social and governance (ESG) factors towards impact investing, where investments are selected based on their positive potential.
ESG was a popular choice for investors over the past ten years but AXA IM believes the market environment necessitates a different approach.
They would also need to explore the UN’s Sustainable Development Goals (SDGs) as way to identify meaningful investments. These 17 goals cover areas such as zero hunger, sustainable cities, affordable energy and gender equality.
AXA IM’s global head of responsible investment, Matt Christensen, said: “The enormity of the global challenges we face – from climate change to water shortage and poverty – cannot be understated and it is estimated that the world will need to invest trillions by 2030 to combat these.
“SDG will be the next evolution of responsible investment, following ESG integration. Over time, we are developing new tools as well as reporting methods that clearly illustrate the link between investments and UN SDG-aligned impact.”
Christensen said AXA IM was already testing a climate metric tool which would capture the ‘warming potential’ of investments.
His comments were echoed by Kathryn McDonald, head of sustainable equities at AXA IM Rosenberg Equities, who said the combination of factor-led investing and alignment with SDGs was a key building block of investment strategies.
“The combination of factor-led investing and SDG alignment are the keys to building strategies that can weather market storms while still maintaining positions in companies that will benefit from long-run market forces.”