Environmental, social and governance strategies are set to grow over the next 10 years due their applicability to a broader set of asset classes, the rise of impact investing, and an increased focus on board diversity, according to AXA Investment Managers.
ESG has been firmly on the investment agenda for the past decade and is one of the fastest growing global investment trends, Paris-based Matt Christensen, global head of responsible Investment for AXA IM said.
"We feel it’s time to forecast the next ten years to ensure we have the right tools in place to support demand for ‘ESG 2020’," he said.
Christensen was in Australia this week addressing the Australian Superannuation Investment conference on the future of ESG.
AXA IM predicts a focus on board diversity will grow rapidly in coming years. Despite some of the largest European and Australian corporations being truly international enterprises, the impacts of globalisation remain to be fully seen at the board level, he said.
“Up to the present time, diversity has largely been focused on gender balance… However we believe, and research now shows, that other aspects such as nationality can also increasingly be seen as a means to bring a broader range of views and experiences to bear within the leadership of companies across the globe.
"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,” he said.
Impact investing is also starting to catch the attention of sizeable funds both globally and in Australia, helping to expand the use of ESG analysis. AXA IM believes this is only set to increase with the impact investing market predicted to grow to US$500 billion by 2019 or 1 per cent of global assets.
Supporting another growing trend, AXA IM 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. This attention to ESG has only been amplified by the euro zone crisis," he said.
AXA IM manages more than 3 billion euros in responsible investment products and mandates as at the end of December 2011. The fund manager has signed the Principles for Responsible Investment and is a member of Eurosif