Transparency Code for SRI funds open to the public

Transcription

1 This document has been completed by AXA Investment Managers Paris in accordance with the Transparency Code. The French Asset Management Association and the Forum for Responsible Investment assume no responsibility for the information contained in this document. Statement of commitment Socially Responsible Investment is integral to the strategic positioning and management of the AXA Génération Euro Obligations fund. We have been engaged in SRI since 1997, and we welcome the implementation of the code. We are a six-time signatory to the Code, most recently for the period. Our full response to the SRI Transparency Code can be found below and is available in the annual report of each of our SRI funds open to the public as well as on our website. Compliance with the Transparency Code The AXA Investment Managers management company is committed to transparency and we believe we are as transparent as possible, given the regulatory and competitive environment in the country in which we operate. The fund complies with all the recommendations of the Code. 9/30/

2 1. General Information The management company 1a- Give the name of the management company in charge of the fund(s) to which the Code applies. The management company of the fund presented is AXA Investment Managers Paris, located at Cœur Défense Tour B - La Défense Esplanade du Général de Gaulle Paris La Défense Cedex. Website: 1b- Describe the management company's general approach to factoring in environmental, social and governance (ESG) criteria. For more information relating to the SRI policy: AXA Investment Managers (AXA IM) aims to set the standard for Responsible Investment. The world is currently facing huge challenges, including climate change and social inequality. AXA IM firmly believes that, against this backdrop, developing sound Responsible Investment expertise is no longer an option but a necessity. It has therefore defined a Responsible Investment strategy, known as RI Inside. The objective is to gradually incorporate ESG (E Environment; S Social; G Governance) criteria into each area of management expertise and to develop pure and innovative Responsible Investment (RI) products. We believe that combining fundamental extra-financial factors with traditional financial criteria will help us build more stable portfolios that perform better over the long term. The extra-financial approach has become a necessity in more ways than one: 1) It is instrumental in eliminating companies that expose portfolios to high ESG risks risks that would ultimately affect financial performance and our clients' reputation. 2) It focuses the portfolio on companies that have implemented best practices to manage their environmental impacts, governance and social practices and whose responsible practices leave them better prepared, in our view, to meet the major challenges of the future. Since 1997, AXA IM has played a key role in SRI and has participated in many international initiatives. These include: Principles for Responsible Investment (PRI) - since 2007 Eurosif (European Sustainable Investment Forum) UK Social Investment Forum (UKSIF) ICGN (International Corporate Governance Network) Association Française de Gestion (AFG) the French Asset Management Association Association of British Insurers (ABI) Carbon Disclosure Project (CDP) Forest Footprint Disclosure (FFD) Forum pour l Investissement Responsible (FIR) the French Forum for Responsible Investment Asian Corporate Governance Association Council of Institutional Investors AXA IM's voting and engagement policy can be found at: 2

3 1c- Provide a list of the SRI funds and the specific resources dedicated to the SRI business. AXA IM's family of SRI funds is presented in the following table: Table of AXA IM's SRI fund assets and mandates at 12/31/2013 Assets ( millions) Open-ended funds 1,800 SRI Approach AXA Trésor Court Terme 585 Best in Class Label Euro Obligations 292 Best in Class AXA Euro Valeurs Responsables 245 Best in Class AXA WF Framlington Euro zone RI 174 Best in Class Label Europe Actions 108 Best in Class AXA WF Framlington Human Capital 246 Thematic AXA Ethical Distribution Fund 149 Ethical Segregated Mandates 1,337 Best in Class/Ethical Employee Savings and Retirement Savings 1,736 Best in Class/Thematic Total 4,873 RI Search is the SRI analytics platform developed by AXA IM. It is for internal use only. This tool consolidates all internal and external SRI research and offers managers from all management platforms a broad range of ESG scoring and filtering tools for their portfolio. AXA IM's Responsible Investment (RI) team is made up of 11 people, including 9 RI analysts. This global multidisciplinary team, specializing in Responsible Investment, supports all AXA IM management experts in extrafinancial analysis and in the exercise of voting and engagement rights. We use the research provided by the Vigeo, Sustainalytics, GMI, Oekom, EIRIS and Trucost rating agencies. We also use Ethix for its research on controversial weapons, including anti-personnel mines, cluster bombs and depleted uranium weapons, to establish an exclusion list. Our first task is to carefully review the analyses provided by the rating agencies and brokers, in order to identify the strengths and weaknesses of the companies surveyed. We supplement this initial approach with other sources, in order to analyze, where necessary, controversies that may affect certain companies: The sites of Non-Governmental Organizations Research from specialist brokers Reports from the Carbon Disclosure Project on carbon emissions transparency (E aspect) Top employer rankings (S aspect) Advice from consultants on the resolutions proposed for a vote at the most recent general meeting (G aspect). The different management platforms each have their own SRI fund managers (2 Equity RI managers, 3 Bond RI managers, 2 fund of funds managers). 3

4 1d- Describe the content, frequency and resources used by the management company to inform investors about the ESG criteria taken into account. Information is available in the following formats: Monthly: portfolio manager s comments, monthly financial reporting, Semi-annually: extra-financial reporting and statement of investments with line-by-line ESG scores, Annually: annual report, Half-yearly legal report, Documentation: fact sheets (key features of the fund, principles behind the fund), prospectus (full and simplified versions), book inventory, Transparency Code, voting report. Once or twice a year, we also hold a training session for all AXA IM employees (lasting about 1.5 hours) on ESG actions and initiatives. These sessions give us an opportunity to present the ESG team, our methodology, our voting policy, etc. All AXA IM management experts (equities, fixed income, etc.) are trained on the features of RI Search and on the tool's new applications. In addition, AXA IM has implemented a number of initiatives around its Corporate Social Responsibility policy: - Active support to local communities through AXA Hearts in Action, a program that allows our employees to engage in community initiatives with financial and logistical support from AXA IM - A discussion of the theme of "diversity and inclusion" in early 2012, with all our employees All the above information is available on the website The SRI fund or family of funds 1e- Give the name of the fund or funds to which the Code applies, as well as its/their principal characteristics. This code covers the fund. is a Responsible Investment bond fund. The objective of this fund is to seek long-term performance through a selection of securities that blends financial profitability with the implementation of a sustainable development policy. The investment philosophy is founded on an active and fundamental approach that combines the selection of issuers companies or governments based on financial and economic criteria with an in-depth analysis of these same issuers' socially responsible behavior. For more information about this UCI, please refer to the KIID available on our website. And from customer service: clientservice@axa-im.com. 4

5 1f- What is the fund(s) trying to achieve by taking ESG criteria into account? AXA IM firmly believes that, in order to optimize long-term value creation, extra-financial risk and opportunity factors should be taken into account, in addition to traditional methods of financial analysis. The SRI approach consists of integrating these extra-financial considerations into the investment process. is managed according to an active and fundamental approach focusing on top-tier issuers that comply with the basic rules of sustainable development. As such, the fund invests in corporate issuers that: demonstrate that they are aware of their social and environmental responsibilities through their behavior toward their employees, clients, suppliers, shareholders, competitors, and civil society as well as toward the environment; have satisfactory social and environmental policies, management systems and results; have a form of governance that is aligned with our voting and engagement policy. The fund invests in government issuers by fully integrating: their environmental impact and, in particular, their impact on climate change as measured by CO2 emissions; human development (education, health, standard of living); best governance practices (democracy, rule of law, corruption, etc.) and countries' behavior with respect to major international conventions (human rights, labor rights, biodiversity, controversial weapons). 5

6 2. ESG evaluation methodology used for issuers 2a- What fundamental principles underlie the ESG analysis methodology? The ESG criteria are determined by AXA IM s RI team. For companies, the selection of ESG criteria is based on fundamental principles such as the Global Compact and GRI criteria. The final ESG score also incorporates the concept of industry-dependent factors and deliberately differentiates between sectors by assigning a weighting to each ESG sub-criterion, which varies by industry. 2b- What internal and external resources are used to perform this analysis? The RI team is made up of nine fundamental and quantitative analysts based in Paris and London. The team has extensive experience in both SRI and traditional financial analysis. The team's extra-financial expertise covers human capital, climate change and the major principles of corporate governance. The fundamental RI analysts are assigned to different sectors and monitor the various ESG criteria through visits, company contacts and annual reports. The internal research conducted by the RI team is combined with external research through the proprietary RI Search platform. This platform is available to all AXA IM managers. RI Search provides them with an ESG rating scale based on the scores attributed by external agencies and rebased on a scale of 0 to 10 for over 4,000 companies across the world. RI Search draws on the research conducted by the following rating agencies: - Sustainalytics - Vigeo - Oekom - Trucost - GMI - Ethix - EIRIS We also collect raw quantitative data (percentage of women on the board, percentage of renewable energy, training budget as a percentage of payroll, employment trends, etc.) through our brokers, Factset, Datastream Thomson-Reuters and Bloomberg, and through our direct contacts with companies. 6

7 2c- Which ESG analysis criteria are used? For private issuers and their equivalents 1, the ESG analysis criteria for companies considered by the RI analysts are: ENVIRONMENT Environmental Risks Environmental Management Environmental Opportunities SOCIAL Human Rights and Employment Law Human Capital Freedom of Association GOVERNANCE Traditional Governance Business Ethics A combination of factors making it possible to better understand the consequences of climate change and environmental risks in the widest sense. Display of performance indicators (energy, water, emissions, etc.). Resource management policy throughout the business chain (suppliers). The changes implemented promote the development of green products and services and have an impact on employment levels (employment opportunities). Respect for non-discrimination; fight against child labor and forced labor. Consideration of HR issues in business strategy; encouraging employee participation; career development; quality of compensation systems; management of restructuring operations; working conditions. Respect for freedom of association and union rights; promotion of labor relations. Independence of the Board of Directors; existence of independent internal control mechanisms (audit committees); executive pay; the rights of shareholders; financial transparency. Respect for ethical rules (anti-competitive practices and prevention of corruption); consumer information; supply chain. Government or quasi-governmental issuers 2 : AXA IM relies on Environmental, Social and Governance indicators published by recognized international sources. For the Environment: CO2 emissions; for Social: the UN's HDI (Human Development Index); and for Governance: the World Bank's indicators. 2d- What is the ESG analysis and evaluation methodology (structure, rating scale, etc.)? For private issuers and their equivalents, we use the concept of ESG consensus. This involves cross-checking our various partners' extra-financial research against our own ESG rating scale as described in point 2c. The ESG score is calculated on a scale of 0 to 10 (0 being the worst score and 10 being the best) based on a variety of E, S and G sub-criteria and using a predefined sector weighting. For example, the environment criterion is given a 50% weighting in the energy sector but only a 25% weighting in the technology services sector. 1 Private, public or semi-public (government guaranteed) undertakings, agencies, supranationals 2 Governments and local authorities, sovereign supranationals (ESM, EFSF, European Union) 7

8 For government and quasi-governmental issuers, we rely on Environmental, Social and Governance indicators published by recognized international sources. For the Environment: CO2 emissions; for Social: the UN's HDI (Human Development Index); and for Governance: the World Bank's indicators. An ESG score is therefore calculated by taking into account not only the indicator's current level but also how it has changed over a five-year cycle compared with five years ago. The ESG score is supplemented by a political commitment score, which measures countries' commitment to a number of key international conventions (human rights, labor rights, arms, the environment). 2e- How frequently is the ESG evaluation reviewed? The fund's eligible universe is updated every six months. The list of criteria and the sector weighting matrix to be applied to the various E, S and G sub-criteria are reviewed at least once a year. 3. Management process 3a- How are ESG criteria taken into account when defining the universe of eligible investments? The first step in the process is for the RI team to define an eligible universe for the manager. This is done every six months. by calculating an ESG score internally for all the companies in the fund's investment universe (see part 2 for the ESG evaluation methodology). The eligible universe consists of those companies with the highest ESG scores within their respective sectors (scoring in the top two quartiles of their sector on ESG criteria). This is known as the Best-in-Class approach. The eligible universe is also expanded to companies in the third quartile if they have significantly improved their ESG score over the last two years (the Best Effort approach) and/or, if applicable, those on which the RI team has a strongly positive opinion. The team also systematically screens each company added to the eligible universe for controversies. For government or quasi-governmental issuers, no country is excluded, but countries with lower ESG ratings (bottom quartile) cannot in combination exceed 20% of the portfolio. The ESG score is calculated by taking into account not only the indicator's current level (see question 2d for details on the indicators used for the E, S and G pillars) but also how it has changed over a five-year cycle compared with five years ago. The ESG score is supplemented by a political commitment score, which measures countries' commitment to a number of key international conventions (human rights, labor rights, arms, biodiversity). An overall score, based 90% on the ESG score and 10% on the political commitment score, is calculated for each country and an ESG rating is assigned. This score is used to establish a ranking of OECD countries. The RI analysts at AXA IM regularly meet with the companies in the eligible universe in order to refine the analysis of their ESG profile. Analyses of companies with which individual meetings have been held are published internally and communicated on a regular basis to the fund manager. The eligible universe may be modified between two updates. The RI team can approve the addition of companies in the third quartile to the eligible universe. It can also send ESG alerts to the fund manager to warn of any event, major controversy or change that could adversely affect the profile of a company or government and cause the corresponding issuer to be excluded from the eligible universe. 3b- How are ESG criteria taken into account when building the portfolio? The second step involves selecting the issuers within the eligible universe that will serve as a basis for building the portfolio. This approach to selecting issuers is based on an in-depth analysis of both financial and ESG aspects. The 8

9 manager is assisted in this process by the RI team so as to analyze issuers' ESG profiles in greater depth. The third step is for the manager to build the portfolio. The fund manager must invest at least 90% of the portfolio in eligible universe securities as defined by the RI team. The remaining 10% are consequently issuers that are not covered. ESG criteria continue to be considered when changes are made to the eligible universe. The manager must disinvest if the issuer moves from the eligible to ineligible category, i.e., if its ESG score deteriorates and falls below the sector median, or if the RI analysts believe the corresponding company's ESG risks are too high. The manager may also have to disinvest if the RI team issues an alert after conducting a more in-depth fundamental review of the company on ESG criteria or if the company experiences a major event. The manager must then disinvest within one month. Once the portfolio has been built, it is subject to regular monitoring by the management team and the RI team. The value-weighted average scores for the Environmental, Social and Governance dimensions are calculated for the portfolio and its benchmark, for private issuers and their equivalents and for government and quasigovernmental issuers, when the semi-annual reports are prepared. Alerts are sent to the fund manager for issuers that are at the greatest risk on these three dimensions. The RI team then subjects them, as applicable, to a more specific analysis. In that case, the issuer's eligibility may be challenged. The RI team then issues an alert or even recommends selling the issuer. The RI team and the fund manager hold monthly meetings to discuss specific companies, themes or sectors. Once every quarter, they review the ESG and financial performances of the portfolio at these meetings. Defense and tobacco companies are excluded. 3c- Does the fund(s) have a specific ESG engagement policy? No, this fund does not have a specific ESG engagement policy. However, we have met with a number of companies and have interviewed and established a dialogue with senior management regarding key ESG indicators. 3d- Does the fund(s) have a specific voting policy that incorporates ESG criteria? No 3e- Does the fund(s) engage in securities lending activities? Yes 3f- Does the fund(s) use derivative instruments? The manager may use derivatives (swaps, futures) for hedging purposes. The futures used are interest-rate futures. They may be used on a daily, weekly or monthly basis. 3g- Is a percentage of the assets of the fund(s) invested in unlisted entities pursuing strong social goals? Not for the fund. 9

10 4. Controls and ESG reporting 4a- What internal/external control procedures are in place to ensure the portfolio's compliance with the ESG rules defined in section 3 of the Code? The first check is performed by an internal AXA IM department ( Investment Guidelines ). Pre- and post-trade constraints, which prohibit investments in issuers who are ineligible for SRI reasons, are implemented using an internal tool called Sentinel. The lists of eligible issuers are encoded into our tool. If an alert appears (positions outside the eligible universe), the RI team is informed by so that it can confirm whether or not there has been a breach. If a breach has indeed occurred, the manager is notified and must sell the securities within one month. The fund's process has been audited externally by an independent firm since 2013; this audit will continue in b- Which media are used to communicate on the SRI management of the fund(s)? As explained in part 2, the RI team provides managers with a proprietary tool called RI Search, which gives a detailed ESG analysis of a universe of over 4,000 companies (E, S and G scores, key factors by sector, ESG filtering and analysis tool for portfolios). This tool also provides all the internal RI analyses published on the companies, along with their recommendations. This tool is available to all managers at Information about the fund is available in the following formats: Monthly: portfolio manager s comments, monthly financial reporting Semi-annually: extra-financial reporting Annually: Transparency Code All this information is available on the AXA IM website under Fundraising: 10

11 This document is for informational purposes only. It does not constitute a contractual document or investment advice. The information contained in this document is subject to change without notice. AXA Investment Managers Paris assumes no liability for the consequences of any decision based on this information. Depending on the investment strategy of the UCITS, this information may be different from the information included in the prospectus. The information does not constitute a contractual commitment on the part of the management company; it may be subjective and is likely to change without prior notice within the limits of the prospectus. Prior to any subscription, the investor is advised to familiarize himself or herself with the prospectus available upon request. Any full or partial reproduction of the information or the document is subject to the express prior authorization of the Company. Author: AXA Investment Managers Paris 11