Engagement in 2024: Research thematics.

By Virginie Derue, AXA IM Head of RI Research

This year will be an extraordinary 12 months on the political front, as more than 60 countries are going to the polls, and this backdrop will undoubtedly impact the course of sustainable finance. Polarisation around key environmental, social and governance (ESG) issues is therefore set to increase globally, injecting uncertainty into climate policies. 

Meanwhile, transition should become the key area of focus, echoing COP28 in its call to support the whole ecosystem’s transformation. Green investments are important, but what needs to be financed is the transition to a greener economy and what actually supports the shift of companies towards more sustainable businesses.

There is still no precise framework defining what transition finance is, and this will clearly slow the transition of high emitting sectors. This is even more an issue as companies in some sectors will have to contend with increasingly stringent emissions reduction policies that will raise operating costs going forward through the European Union’s (EU) emissions trading scheme for instance. 

Transition focus on engagement

As such, the focus on transition will drive specific attention on engagement, echoing a broader request to prevent ‘engagement washing’. Asset managers will have to share more about their assessment of transition plans, what they focus on, and how they adjust their approach to the different sectors and different regulations. This year should accordingly mark a turning point in the field of climate assessment/engagement with the beginning of a second phase, moving from objectives setting, to deliverability and track record on first interim targets. No doubt it will trigger some shifts in assessments and investments, as investors will be scrutinised on how their engagements effectively bear fruit. 

Biodiversity loss in greater focus 

Beyond climate, ecosystem vulnerability and biodiversity loss are set to rise up investors’ agendas, supported by the release of the Taskforce on Nature-related Financial Disclosures (TNFD) framework and the coming into force of the EU deforestation regulation that will start to apply from the end of 2024. Deforestation, water, waste and pollution should accordingly be the key aspects tackled by investors and engagers, including as a potential risk for litigation. Sector wise, the food industry is likely to see increased scrutiny, driven by its contribution to environmental degradation and interplay with climate change, as echoed at COP28. It represents risks, but also opportunities for companies targeting specific activities in the field of regenerative agriculture for instance, but also various segments such as water consumption monitoring, waste avoidance and recycling.

Human and workers’ rights

Finally, social aspects and more specifically human and workers’ rights should continue to gain traction, driven by ramifications of transition plans, due diligence regulations and client demand over broader sustainability claims. Living wages, work conditions, unionisation and social dialogue are structural issues that have been to some extent overshadowed by climate concerns until recently, but now investors are starting to consider them more seriously. In the same vein, we believe the focus on human rights will keep on intensifying in 2024 in tandem with regulatory pressure. 

A qualitative review of controversies and of what is at stake is necessary, as at the end of the day, investors will have to take their own view around the severity of the cases, the red lines they have, and ultimately, the need to exclude or engage. Beyond any tick-box exercise on codes of conduct or existence of grievance mechanisms, what matters to us is concrete evidence of what is done on the ground by corporates to prevent, alleviate and remedy issues at stake. 

More broadly, responsible investment is likely to broaden its lens, shifting from a net zero focus to a more holistic perspective of sustainability, integrating the different environmental and social negative externalities driven by the transition. 

All this translates into a very busy 2024 agenda for the team in terms of research and engagements.

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