Sustainable, Responsible &/or ESG Policy:

The AXA ACT Green Short Duration Bond fund seeks to achieve its objective by investing at least 75% of its assets in “green bonds” issued by governments and companies anywhere in the world, with a bias towards corporate bonds. The fund used its proprietary Green Bonds Framework in order to identify eligible green bonds. Investments will largely be made in more developed markets but may also be made in emerging markets, where the portfolio managers see attractive opportunities. At least 75% of the fund will be invested in investment grade bonds and at least 70% in bonds of shorter maturities or duration.

PMs will aim to hedge any non-sterling denominated bonds back to sterling.

We automatically apply AXA IM RI sectoral policies to address ESG tail-risks, which include:

• Exclusion of controversial weapons,
• Exclusion of climate risks (i.e. food commodities)
• Exclusion of deforestation and ecosystem degradation
• Exclusion of soft commodity derivatives

In addition, we also apply the AXA IM ESG standards which are focused on:

• Tobacco - to avoid financing the tobacco industry and thus contribute to protecting public health;
• Defense - to avoid financing companies producing or distributing incendiary weapons with white phosphorus;
• UNGC principles - to avoid financing companies in violation of the United Nations Global Compact;
• Severe controversies – to avoid financing companies involved in incidents and events that pose a severe business or reputation risk due to the impact on stakeholders or the environment;
• ESG quality - to carefully monitor companies with the worst ESG practices;
• Countries with severe human right violations.

The AXA IM sector specific investment guidelines and the AXA IM ESG Standards policy are subject to change and the latest copies are available on the AXA IM Responsible Investing website.

The managers select bonds by carrying out comprehensive analysis of the global economic markets in order to:

• decide the asset allocation across different types of bonds, issuers, sectors and geographical location;
• to manage the risk of changes in yields on the price of the bonds in the Fund and
• identify “green bonds” by applying its proprietary Green Bonds Framework.

When applying its proprietary Green Bonds Framework, the managers evaluate the relevant bond and its issuer against the following four pillars:

• the quality of the issuer’s Environmental, Social and Governance (ESG) practices;
• whether the projects undertaken and financed by the issuer will generate an environmental benefit;
• the controls that the issuer has in place to manage and allocate proceeds of the bonds to eligible projects; and
• the reporting that the issuer provides on the impact of eligible projects.

The managers will deem a bond as generating an environmental benefit where such bond finances a project which:

• addresses an environmental theme, such as low carbon transport or smart energy, which either directly or indirectly contributes to one or more of the environmentally focussed UN Sustainable Development Goals (UN SDG), with a focus on UN SDG 11 (Sustainable cities and communities) and UN SDG 13 (Climate action);
• does not significantly harm any UN SDG and
• can demonstrate such contribution against the relevant environmental theme and UN SDG, by showing a positive impact of the project against relevant environmental key performance indicators.

In addition, the managers will consider the issuer’s ESG score as one factor within its broader analysis of the issuer in order to identify bonds which are expected to generate:

• both income and capital growth; and
• an environmental benefit.

ESG scores are produced by our selected external provider(s); the managers will not invest in bonds with the lowest ESG Scores.

To avoid investing in bonds which present excessive degrees of ESG risk, the managers apply AXA IM Group’s sector specific investment guidelines relating to responsible investment to the Fund. Such guidelines exclude investment in (or exposure to) certain companies based on their involvement in specific sectors, such as soft commodity derivatives, palm oil (including deforestation and natural ecosystems conversion), controversial weapons and climate risks.

The managers also apply the AXA Investment Managers’ ESG Standards policy. This policy excludes investment in companies based on: tobacco production; manufacture of white phosphorus weapons; human rights; anti-corruption and other environmental, social and governance (ESG) factors.

If the managers deem that an investment no longer meets the criteria set out in this investment policy or its expectations in terms of that investment’s prospects for achieving income and capital growth and/or generating an environmental benefit, the managers will disinvest as soon as practicable having regard to the best interests of the Fund’s investors and in accordance with its best execution policy.

In selecting the bonds for the Fund, the managers may reference the composition and risk profile of the ICE BofAML Green Bond 0-5Y. However, the fund is invested on a discretionary basis with a significant degree of freedom to take positions which are different from the index.

Portfolio reviews and disciplined risk management are core to our investment approach and fully embedded within our investment process. The monitoring of portfolio exposure is continuously operated by the managers to ensure the shape/balance of the portfolio and associated risks remain appropriate.

In 2023, AXA IM reinforced its stance with the following:

• Strengthening of our coal policy and reinforcing of our stance with new exclusions related to unconventional oil and gas,
• Reinforcing our RI fund offering with ESG-focused ETF (Euro Credit PAB, Biodiversity Equity & Climate Equity).
• Strengthening of our ESG standards policy by excluding all companies involved in the production of tobacco.

Process:

AXA IM’s fixed income philosophy is reflected in our investment process, which has been constructed in order to exploit the opportunities and sources of alpha derived from our core beliefs while mitigating downside risk. Our process undertakes a regular, rigorous assessment of the macroeconomic, financial market and regulatory environment.

The AXA WF ACT Green Bonds Short Duration fund follows the same investment process as any other fixed income strategy with the adds-on of our Green Bonds Framework. The global fixed income process is disciplined, repeatable and consistent, and comprises the five-steps described below and will integrate the eligible investment universe when building the portfolio.

Forecasting (Steps One and Two) takes place on a quarterly basis, whereas Steps Three to Five take place on a continuous basis.

 Step One: Defining the macroeconomic environment

In the first step of our process, AXA IM’s Macroeconomic Research team presents the Fixed Income team with their outlook. We also invite external speakers from investment banks, rating agencies, etc. to give us their macroeconomic or specialised views. This information is combined with insights from our portfolio managers, internal macro indicators and country scores. Together these various top-down inputs form the macroeconomic framework which is defined and formalised by the Fixed Income CIO prior to Step Two commencing.

Step Two: Defining market expectations and active strategy recommendations using MVST analysis

All fixed income portfolio managers contribute to defining the overall market expectations and active strategies by participating in specialised Alpha Groups. They start with the formal outlook set in Step One and move on to a more detailed analysis of the Macro, Valuation, Sentiment and Technical indicators (MVST) of their specific area of expertise. These results determine the directional views of their specific Alpha Group with a three-month and a one-year horizons. To conclude, all the Alpha Groups reconvene in order to share (and debate) their MVST conclusions in the Investment Committee. The amalgamation of these views forms the top-down strategy that will determine the direction and shape of the portfolios for the next three months. Each Alpha Group is then tasked with interpreting this global view and applying it through active strategies in the most appropriate way possible within their portfolios

Step Three: Investment strategy and portfolio construction

Once the active strategies have been selected, the portfolio engineers use a proprietary optimisation system in order to determine how best to implement our views across all fixed income portfolios globally. During the portfolio construction step, portfolio engineers work alongside portfolio managers to determine how to most efficiently use their risk (considering the performance objective and client, internal and regulatory guidelines) and to apply the relevant active strategies to their individual portfolios.

The RI integration is implemented at several levels:

•  First by defining the eligible universe by excluding issuers which are not in line with our RI minimum standards (such as having poor ESG scores, being involved in severe controversial activities or carrying high reputational risks).
• At the issuer level, our fundamental credit research assesses the materiality of ESG risks on financial metrics.
• At the security selection level, by identifying the most transparent and impactful Green Bonds with our Green Bonds framework analysis
• At the portfolio construction level, as portfolio managers have access to all KPIs and ESG scores in their front office tools in order to make investment decisions.

Part 1: Top-Down - ESG Exclusions - “cleaning” the eligible universe

As an impact strategy, the strategy’s eligible universe excludes companies with the following criteria:

• Climate issue: companies whose energy mix and revenues are significantly impacted by coal, as well as companies whose revenues are significantly impacted by tar sands.
• Violation of the United Nations Global Compact principles: companies involved in severe controversies, as classified by Sustainalytics.
• Sector view: Companies involved in the tobacco sector or generating most of their revenues from defence activities are systematically excluded.
• ESG Quality: we exclude issuers with poor ESG scores and/or a negative ESG recommendation according to our RI fundamental analysts.

The RI experts review the portfolio’s eligible universe on a regular basis.

Part 2: Bottom-up - Engaging and Investing - Filtering the eligible investment universe

 Our internal RI analysts defines the Green eligible universe mainly based on the Green Bond Principles (GBP) and the “Climate Bonds Initiative” (CBI) guidelines. In filtering the eligible Green Bonds universe, we have defined a Green Bonds qualitative framework based on four pillars developed and maintained by our team of dedicated Green Bonds analysts:

1st pillar: Issuer’s Sustainability strategy

• Overall strategy’s alignment with Green Bonds projects
• Environmental track record and targets
• Meetings with the management
• ESG Quality

2nd pillar: Type of projects: the goal is to define the “greenness” of the projects financed by the bond

• Breakdown of projects mainly based on the Green Bond Principles (GBP) and the Climate Bond Initiative (CBI) categories: renewable energies, energy efficiency, green buildings, low-carbon transportation, water, waste management, sustainable land-use, adaptation structure, biodiversity protection and others such as social themes.
• Environmental benefits: determination of how the underlying project(s) contribute to environmental objectives such as climate change mitigation, biodiversity conservation or natural resource conservation.
• Some projects are systematically excluded, for instance:
  • Exploration, production and exploitation of fossil fuels
  • All nuclear subsidiaries: uranium extraction, concentration, refining, uranium enrichment, manufacturing fuel assembly, construction and exploitation of nuclear reactor, treatment of fuel assembly waste, nuclear decommissioning and radioactive waste management.
  • Large hydropower construction projects: construction of water dams with a capacity exceeding 20MW.

3rd pillar: Management of proceeds. In order to ensure the proceeds will fund the eligible projects, analysts answer several questions:

• Are the proceeds used to refinance existing projects vs. finance new projects and assets?
• Does the company disclose its management of proceeds?
• Are the proceeds deposited in a segregated account?
• Is there an internal process to track the proceeds?
• Is there any external verification? (external auditors)

4th pillar: Environmental Impact – Ongoing monitoring and reporting

• We look for companies that are able and committed to report on the environmental impacts that the green projects achieve, at least on an annual basis.
• We look for specific KPIs on individual project basis or on an aggregated basis in order to measure the impact generated by our investments.

We have recently strengthened our scoring methodology to reward companies and sovereigns that participate in the transition to a low-carbon economy through green bonds issuance. If a company or a sovereign is a green bond issuer and if we have a neutral or positive opinion on this issuance, using our proprietary green bond framework, the company will benefit from a bonus on the E pillar of our ESG scoring methodology. The AXA IM ESG fundamental research aims at helping fund managers and analysts to assess how companies are mitigating ESG risks and taking advantage of these criteria to improve their competitive position in their own sectors. The analysis is based on the most material ESG risks and opportunities previously identified for each sector and company.

Step Four: Risk monitoring

After the implementation of the appropriate active strategies within portfolios, both portfolio managers and portfolio engineers actively monitor investment risk. They use both proprietary and third-party systems in order to monitor each strategy in terms of its risk contribution (e.g. volatility, tracking error) to the overall portfolio. Weekly risk meetings, led by the portfolio engineers, are an opportunity for the latter to review the consistency of the portfolio exposure to various risk factors (e.g. yield curve, credit spreads) and monitor the various risk metrics alongside portfolio managers.

Step Five: Continuous strategy review

In addition to on-going interaction with the RI analysts, portfolio managers interact on a regular basis through investment committees, team meetings and formal weekly Alpha Group calls, as well as on an ad hoc basis with analysts, portfolio engineers and macroeconomists, allowing the best ideas to flow from the research process into the security selection process. Ensuring that the strategies implemented are still current and are yielding results is key. When necessary, portfolio reallocation and tactical trades can be implemented. Continuous MVST factors analysis and performance reviews guarantee the best results in our portfolios.

On a monthly basis, the RI experts meet with the portfolio managers of the Social Bonds strategy as well as other fixed income investment teams managing Responsible Investment funds. The goal of this meeting is to ensure that the RI commitments and ambitions are respected and also to empower fixed income investment teams with ESG and Impact knowledge. This is achieved by:

• Tracking the level of the portfolio’s ESG Impact,

Monitoring ESG performance for all the issuers (Impact and ESG) and assessing related ESG indicators (such as allegations, environmental footprint, social issues, governance updates, etc.).

Dialshifter

This fund is helping to ‘shift the dial from brown to green’ by...

The fund’s philosophy is underpinned by AXA IM’s belief that investing in sustainable assets can create long-term value and attractive returns, both financially and environmentally. The green bonds market therefore offers a tangible route to investing in the low-carbon economy.

Portfolio managers invest only in short dated green bonds belonging to the eligible universe provided by AXA IM’s RI experts, who use a proprietary framework to ensure the bonds align with the fund’s environmental objective.

Transparent and measurable impact metrics are central in monitoring the fund’s overall contribution towards environmental and societal issues.

Our organisation is helping to support the Paris Climate Agreement and the Race to Net Zero by...

The road to net zero is challenging to navigate and requires a collective effort. We want to be one of the leaders on this journey: in our investment choices, the products we offer, the way we engage and vote, and manage our business.

This includes our commitment to manage 65% of our total 2022 AUM in line with net zero by 2050 and to aim to exit all coal investments in OECD countries by 2030. Furthermore, we use of a carbon transition framework to track the progress of companies towards net zero targets and helping us to engage accordingly.

SDR Labelling:

Sustainability Impact label

SDR Literature:

• Consumer Facing Disclosure link