The Advisors' Blog

In a study earlier this year, Willis Towers Watson found that 77% of large companies in Europe & North America are now including ESG metrics in executive compensation plans. Last week, global asset manager AXA IM reinforced its commitment to “net zero as a business & investor by 2050” – by announcing new decarbonization metrics for 400 senior executives. Here’s more detail:

– The weighted average carbon intensity (WACI) to reach the target of 25% reduction in carbon intensity for corporate portfolio by 2025: for the ESG part of the deferred compensation, this metric accounts for 75% for AXA IM Core and 37.5% for transversal functions employees in scope.

– An assets under management (AUM) target for 50% of the real estate portfolio to be aligned to the CRREM1 trajectories by 2025: for the ESG part of the deferred compensation, this metric accounts for 75% for AXA IM Alts and 37.5% of transversal functions employees in scope.

– The reduction of the corporate operational CO2 footprint, to reach the interim target to reduce it by 26% by 2025: for the ESG part of the deferred compensation, this metric accounts for 25% for all AXA IM Core, AXA IM Alts and transversal functions employees in scope.

AXA is a “responsible” asset manager that invests for the long-term – and has a “3 strikes & your out” escalation policy for climate laggards in its investment portfolios. So, this step makes sense for their business. AXA announced the new metrics at the same time it unveiled a new “AXA IM for Progress Monitor” that will show the firm’s progress on certain ESG targets.

The thing that caught my eye here is that AXA’s metrics are tied to specific portfolio company reductions and will be measurable in only two years. This could provide a roadmap for other investors – as well as companies – to integrate emission reduction goals into executive incentive plans. If it becomes more common for asset manager executives to tie their own pay to portfolio company emissions reductions in a meaningful way, they could eventually lose patience with portfolio companies who don’t do the same.

For now, though, it seems like most organizations are still carefully evaluating details – before making sudden moves towards specific, quantifiable metrics – and that’s probably how it should be, to avoid unintended consequences. It’s also worth noting that this type of plan would be much more difficult for index investors like BlackRock or Vanguard, who aren’t able to freely divest “climate laggards” & who are walking a fine line in US politics with climate-related policies.

– Liz Dunshee