Impact Engagement Principles Delivering on the UN Sustainable Development Goals

Executive summary

• AXA IM believes that significant positive societal impact can be generated through listed assets investment strategies. This is the case for capital allocation into best-in-class companies, and for engagement with companies where there is scope for change.
• Engagement is an important route for investors in listed assets – public equities and corporate bonds in particular – to drive impact through their actions. When done right, intervention by investors can contribute to broader societal goals, such as those set out in the Paris climate agreement or in the United Nations’ Sustainable Development Goals (SDGs).
• However, there is a risk of characterising business-as-usual environmental, social and governance (ESG) engagement as ‘impact engagement’ simply because there may be overlaps with the SDGs. We believe that this is not sufficiently ambitious.
• We believe that ‘impact engagement’ is a specific and distinct approach to active ownership. It is differentiated from broader and well-established approaches to ESG-related engagement.
• In this paper, we propose an approach to ‘impact engagement’ which is strategic in nature and has objectives that, if successfully achieved, will lead to meaningfully positive outcomes. It will often focus on how capital can be allocated to drive the future ambitions of the company’s core activities, in line with the SDGs. It goes beyond gaining insights into a company’s operational performance, mitigating risks of negative externalities or improving sustainability reporting.

Impact investment has emerged as a distinct approach from sustainable investment in the past decade. It is defined as investments made with the intention to generate positive social and environmental impact alongside financial returns. This is often framed by the urgent need to deliver on the United Nations’ Sustainable Development Goals (SDGs) by 2030.

AXA IM established its framework for impact investment in listed assets in 2019 – for full details please refer to our report: “Driving impact in listed asset investments.”¹

We identified two ways of generating positive impact in listed assets. One approach involves identifying best-inclass companies (which we categorise as ‘Impact Leaders’), while the second focuses on engagement.

In the first approach, allocation of capital to Impact Leaders supports capital raisings and contributes to market price signals for securities. This encourages Impact Leaders to sustain positive strategies, while creating an incentive for other companies to replicate those strategies.

The second approach centres on the role of investor as the change-agent through engagement. This is the focus of this paper. We believe that investors can generate positive impact in listed assets through engaging with companies to drive significant change. Companies do not need to be identified as Impact Leaders to be engagement targets – rather, positive impact is derived from the change that is encouraged by investor engagement.