Biodiversity and investment
AXA is one of the world’s leading institutional investors. Worldwide, the Group manages more than €1.4 trillion in investments. Our conversation with Julien Foll and Shade Duffy from AXA Investment Managers – an active, long-term, global, multi-asset investor that is part of the AXA Group – examines AXA’s approach to investments.
Integrating biodiversity into investment decisions AXA has a long history of responsible investment built into the Group’s approach to investment management. Furthermore, AXA conducts extensive risk research into the companies in which it invests, covering environmental as well as social, governance and financial issues. Biodiversity is one of AXA’s key topics within AXA’s responsible investment approach, which translates into a strategic focus on policy, engagement and investment actions. Biodiversity is featured in the Group’s investment policies, along with coal, tar sands and forestry. AXA’s policy on palm oil, as an illustration, excludes investment in companies that do not have sustainability certification38.
In recent years, AXA has been a frontrunner in climate change. Now, it is stepping up its work on nature – much of which stems from the essential role biodiversity plays for certain sectors and their potential impacts on nature itself, particularly food and agriculture, pharmaceuticals, mining and hydropower. The Deepwater Horizon oil spill in 2010 polluted over 2,000 kilometers of the United States’ coastline, killing thousands of marine mammals, sea birds and sea turtles and contaminating their habitats39.
Likewise, incremental damage to biodiversity may occur over the longer term. In the food and retail sector for instance, this may extend to raw material shortages as fish populations decline or as access to freshwater becomes more difficult. For all sectors, clean-up costs, fines and a damaged reputation pose a clear risk to returns on investment.
However, alongside the risks, there are opportunities, particularly for companies that manage resources responsibly. With consumer preferences evolving towards nature-friendly products, more ‘certified’ products are filling shelves of shops through initiatives like the Roundtable on Sustainable Palm Oil (RSPO), the Forest Stewardship Council (FSC) and Rainforest Alliance: Nearly a fifth of the world’s palm oil is now RSPO-certified40. AXA has added biodiversity to its investment focus areas alongside health, gender and climate change. These focus areas guide AXA’s approach to shareholder engagement and voting. AXA has an active engagement programme, working with the companies in which it invests as a shareholder and bondholder. The agri- food industry is a priority for engagement. Through standard practices, such as pesticide use, the industry has the potential to negatively impact biodiversity.
What is more, international food companies tend to have long and complex supply chains, which are often a source of risk. Through engagement, companies will be able to identify their dependencies on biodiversity and set clear objectives to minimize any risk from these dependencies. For investors, there is a need for more data while, for companies, the need is to define metrics and performance targets to include in corporate reporting. This would not only make investment decisions clearer, but also facilitate comparisons between companies and sectors.
Senior Responsible Investment Analyst, AXA Investment Managers
“Among companies, there is a growing interest in the bio- diversity topic as it connects social and environmental issues, attracting a growing interest within society as a whole. A responsible investor must address this issue and show support for the SDGs. It is especially critical that companies take into account their supply chains. If you look at retail and food companies, this is where most risks and opportunities occur.”
Implementing the UN SDGs by 2030 will cost an estimated $5-7 trillion. At the same time, achieving the goals could create $12 trillion in market opportunities and 380 million new jobs.
Source: UN Conference on Trade & Development (UNCTAD) (2018)
“We really want to drive capital to the heart of the biodiversity challenge, in order to protect ecosystems and better promote biodiversity – this is what we are doing with the Climate and Biodiversity impact fund. Throughout the life of the fund, we will measure the impact we are having. Our expectation is that within the ten-year life cycle of the fund, we will have shown how the investments yielded profitable projects and generated proof of protecting natural capital at the same time – and at a scale that can be an example for other investors. This approach is about creating real-world outcomes. The social impact is just as important. If you do not also deliver better livelihoods for communities living close to natural capital sites, then that creates a risk. We want to align local communities’ interests with the conservation agenda – and the best way to do that is to improve livelihoods.”
Head of Environmental Insurance International at AXA XL
Investing for real-world impacts
As part of its approach, AXA also invests directly in natural ecosystems. In 2019, the Group announced the launch of a new ten-year ‘Climate and Biodiversity’ impact fund. The fund will invest up to €200 million and is a key part of the Group’s overall strategy for biodiversity. The investment approach will be directed to three areas: conservation of natural capital, resource efficiency and increasing the resilience of vulnerable communities. AXA will invest the money while the Group’s asset management business, AXA IM, will manage the investments. This is AXA’s third impact fund – the other funds hold investments in health, education, financial inclusion and climate change. AXA’s latest impact fund will use ‘alternative assets’, including private equity, private debt and project finance to invest in projects that will make a real-world difference.
These projects will have to deliver financial returns, as well as tangible social or environmental benefits, which is the basis of impact investing. Similar projects include the Cordillera Azul national park in Peru in which AXA AXA Research Guide - 2019 55 and other investors provide financing for conservation and restoration. In return, they receive carbon credits, which can then be sold. In such projects, local buy-in is crucial. Investors at Cordillera Azul also fund agroforestry development, improving livelihoods for local communities and discouraging encroachment into protected forest areas.
AXA’s new fund sets clear ‘impact’ goals: carbon emissions avoided, hectares of critical habitat protected, or the number of people whose ‘climate resilience’ has improved because of the fund’s investments. There is also a clear link to the SDGs in that performance measures will be tied directly to their underlying targets and indicators. Five of the seventeen SDGs have been included in the fund's objectives: renewable energy, responsible consumption, climate action, life under water and life on land.
AXA has commited €550 million in impact investments in climate and the environment, health, financial inclusion and education.
Source: AXA IM (2019)
More than 4 in 5 consumers feel strongly that companies should care for the environment – the figure rises to 85% among millennials.
Source: Nielsen Research (2018)
38 AXA Investment Managers’ exclusion covers companies that do not have, or have not committed to obtaining, certification from either the Roundtable on Sustainable Palm Oil (RSPO) or a similar interna- tionally-recognized form of certification. 39 The United States Department of Commerce (National Ocean Service). 40 RSPO – volume of RSPO-certified palm oil (14.5 million tonnes, equivalent to 19% of global output).