Sustainability – Shaping the Future of Investment
The COVID-19 pandemic has challenged several aspects of our social and economic organization. The pandemic, as well as the MV Wakashio oil spill crisis in 2020, have highlighted the importance of a correct assessment of risks associated with events such as natural disasters on the economy and social welfare.
When it comes to capital allocation, we strongly believe that investors should integrate a sustainability dimension to their investments. We believe that the unfortunate crisis that we faced recently triggered a historic turning point for Mauritian and African investors. This unique opportunity will enable us to create long-term sustainable returns for us and for future generations by reconciling environmental, social and governance issues with investment performance.
Europe – Sustainable Investment Maturity
For many years now, European investors have integrated the sustainability dimension into their investment decisions. Strict and comprehensive policies have been put in place at a regional level over the years. This has pushed Institutional Investors towards the allocation and disclosure of sustainable investments. Over the last ten years this has contributed to a significant Asset under Management (AuM) growth in Environmental, Social and Governance (ESG) products.
- Research shows that this boom can be attributed to:Growing interest from retail investors for Socially Responsible Investing (SRI) products as they feel more and more concerned about environmental, social and governance issues.
- Increasing regulations and political initiatives in Europe such as the inclusion of SRI funds as part of the employee-saving plans offered in France.
We believe that the increase in investors’ awareness about ESG risks observed over the recent years should continue and thus, should lead sustainable investing towards becoming the norm of investment. In such a context, we expect sustainable investment prices to inflate further, presenting a unique opportunity to investors.
The European Sustainability Premium
When we measure and compare the performance of the traditional European stock market index – MSCI Europe Index TR Index (EUR) against its SRI version – MSCI Europe SRI Index TR Index (EUR) over the last 14 years, we note that the Sustainable Index has outperformed the Standard Index over the last 14 years by more than 47% cumulatively.
Figure 3 : Cumulative Return (EUR) – MSCI Europe SRI Net TR Index vs MSCI Europe Net TR Index
We also note that European SRI stocks have a higher annualized return and are less volatile than other European stocks. The difference in annualized return is approximately 2%.
AXIOM Sustainability Premia
AXIOM Sustainability Premia aims to capture the risk premia of European sustainable stocks versus the market. The risk premia in this case refers to the amount by which European sustainable stocks are expected to outperform the EuroStoxx 50. The Fund’s strategy is designed to benefit from the ongoing ESG trend, while mitigating the impact of market crashes. The strategy benefits from long-term appreciation of ESG related equities while being hedged against the adverse effects of market events. Overall, the strategy aims to exploit market inefficiencies, providing investors with an uncorrelated product to navigate the stock market throughout different market cycles.