Volta Finance | ESG

AXA IM has once again received the highest score (A+) following a full review from UN PRI in 2020. AXA IM is also classified as best-in-class (“Avant-Gardist rank”) by H&K Responsible Investment Brand (2020) recognizing that both our commitments and the architecture that is in place are amongst the best.

The first step has been to systematically ask CLO managers we invested with in the primary market to exclude some areas of investment in line with the exclusion policy determined internally (and applied to all our direct investments). Typically we asked for inclusion of the following wording in our CLO documentation: “will not invest in companies whose principal business is directly derived from the production or marketing of controversial weapons (including antipersonnel landmines, cluster weapons, chemical, and biological weapons); development of nuclear weapon programs or production of nuclear weapons and thermal coal production”.

As of the end of January 2021, slightly more than 17% of our investments in CLO tranches including a wording regarding the exclusion of some businesses in line with our demand.

AXA IM through being a direct investor in loans and managing its own CLOs, has been producing ESG scoring on most of the European and USD loans we purchased in the primary market over the last two years. The effort has been amplified in 2020 so that almost 60% of the loans in AXA IM CLOs have an ESG scoring. We are not yet at a stage at which we can pursue a minimum score or specific target when building a CLO loan pool, but it is something that we have on our radar for 2021/2022.

Our ambition for 2021 is to continue exercising pressure on external CLO managers. In December 2020, we sent questionnaires relative to ESG practices to CLO managers. We are currently in the process of fact-checking how the CLO managers answered so that we will be able (in the near future) to exclude CLO managers which, are not aligned to our principles and standard in considering ESG and responsible Investments.

Regarding the rest of the portfolio (non-CLO), considerations of both financial and non-financial criteria in our investment decisions have always been integrated regarding sourcing of Bank Balance sheet transactions. Non-financial criteria include sustainability risks as well as environmental, that may have a material impact on investment performance as well as economic, social and governance (ESG) factors. Both the Originating Bank, as a corporate and as the underwriter, as well as the underlying portfolio are assessed through ESG questionnaires through internal and external data providers. It has also been mentioned that the main investment of Volta in a loan fund (representing slightly more than 1% NAV) is managed by a manager (Crescent) that has for years put responsible investment at the core of its investment processes.

There is not yet any significant research to demonstrate that for credit/loan investments being a responsible investor provides superior returns. It will however be surprising if credit investments do not demonstrate the same type of positive returns evidenced by common equities.

Despite the complexities involved, AXA IM is at the forefront of the promotion of ESG considerations into structured finance and is actively supporting the transformation of the industry.