Big Society Capital appoints AXA Investment Managers for ESG/social treasury mandate

Social investment institution advised by Cambridge Associates on ‘impact credit’

Big Society Capital, the UK’s £351m (€497.4m) social investment institution, has appointed AXA Investment Managers to run its treasury portfolio using a new approach integrating ESG and social impact objectives; in a move which Big Society Capital hopes could catalyse the social bond market.

The new approach, developed by investment advisers Cambridge Associates, will see AXA IM manage Big Society Capital’s portfolio on a ‘buy and maintain’ credit basis with integrated ESG factors, investing primarily in sterling issuers that address societal challenges.

All credit in the portfolio must pass an ESG screen and over time AXA IM has said it hopes ‘impact credit’, fixed income products with ESG credentials such as social bonds or green bonds, will constitute the majority of the portfolio.

To run the portfolio, AXA IM has identified five impact themes, including financial inclusion and environmental climate change mitigation; and it will analyse standard bonds on their positive impact along one or all of the themes. A standard bond must align with one of the five impact themes to be in the portfolio, and AXA IM will give each a rating on its level of social or environmental impact.

Speaking to RI about the mandate, Shade Duffy, head of corporate governance at AXA IM, said the approach included integrating ESG into how the portfolio was put together, and judging its performance not just on the preservation of capital, but on mitigating ESG risk and having ESG impact.“Having the three working together in tandem is unique,” she said. “It’s a very pioneering client in the UK and the idea has traction.”

Lionel Pernias, senior portfolio manager and the lead manager for the mandate, added that there was emerging interest in similar models from local authority pension funds.

Keith Starling, head of portfolio management at Big Society Capital, said he was excited its treasury portfolio would now be doing more to support its social mission. He added that he hoped it would encourage bond issuers to issue more social bonds to meet growing investor demand.

Social bonds or charity bonds, as they are sometimes described in the UK, are a burgeoning market. Most recently, the Charities Aid Foundation Retail Charity Bond raised £20m in one week through the Retail Charity Bonds platform, created by UK-based social investor consultancy Allia to enable charities to raise loan finance from mainstream investors through bonds listed on London Stock Exchange.

Since 1999, Allia has raised around £60m of investment through charitable bonds. Around £25m was recently commitment by the Scottish Government to the space.

Pernias said he believed there was a sizeable proportion of investible social bond products, noting that housing associations and universities often issued bonds.

Elsewhere, Big Society Capital has launched a survey asking for feedback on its progress over the last five years. It closes on April 20.