Domestic asset managers follow global counterparts in ESG integration
Launch of the Axis ESG Equity Fund follows year-long effort to gradually integrate ESG into the Indian fund manager’s strategies and portfolios
DOMESTIC asset managers have begun integrating environmental, social, and governance (ESG) factors into their asset allocation and investment strategies following the lead of their global counterparts.
The most recent example of a major domestic asset manager who has undertaken ESG integration of its portfolios and strategies is India’s Axis Asset Management (Axis AM) who launched an ESG-focused fund on January 21.
The launch of the Axis ESG Equity Fund follows a year-long effort to gradually integrate ESG into the Indian fund manager’s strategies and portfolios following the lead of Schroders, the London-based multinational asset manager who owns 25% equity in Axis AM.
As part of its own ESG integration programme, Schroders has the mandate to make all of the companies it invests in ESG integrated or ESG compliant by the end of 2020.
For its part, Axis AM has also realized ESG has an important role to play in the future of its business. Hence, about 12 months ago it teamed up with Schroders to begin and implement its own ESG integration programme.
“Initially a lot of our inputs came from Schroders because they have a dedicated sustainability platform based in London. We also had active interaction with the investment desks at Schroders, both the Asia investment desks in Singapore and Hong Kong as well as the global investment desk based in London, as to how they were actually implementing this,” says Ashwin Patni, head of products and alternatives at Axis AM.
During the exercise, the biggest lesson for Axis AM was that the traditional approach for ESG integration, which involves a box-ticking approach and a tie-up with a data service provider using ESG scores, does not add much value.
As an active manager, Axis AM built its own qualitative framework for ESG integration that enabled them to make their own ESG assessment of the companies that they invest in. At the backend, Axis AM used publicly available data and formulated about 25 to 30 questions across E, S, and G factors. The companies have to answer in terms of how strong, weak, or neutral the company’s exposure to a particular E, S, or G factor is.
Based on the responses to these questions each company gets an overall score on a scale of zero to 100.
“We want ESG to be fully integrated across the entire investment process. But it’s also important for us to showcase ESG in the local market where investors have not really discussed these issues in a big way,” Patni says.
To showcase it’s ESG capabilities, the fund manager launched the Axis ESG Equity Fund which is designed to invest in companies that would deliver growth, have strong financials, and rank well on the Axis AM’s ESG framework.
Through this proprietary ESG framework, investment managers will evaluate companies on the basis of whether a firm is heavily polluting or if its activities harm society. Axis AM will also evaluate companies on the basis of its shareholding pattern, board structure, capital allocation, and management quality.
“ESG is very complementary to our basic investment philosophy which looks at trying to find good quality, long term, fundamentally sound companies. So we felt it fit in very, very well with that,” Patni says.
Axis AM is the eighth biggest asset management company in India with US$1.8 billion assets under management as of December 2019.
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