March 2021
Responsible Investment

Green, Socialand Sustainability
Bonds
An update on our assessment framework

Climate change is one of the most critical issues
facing society – it brings damaging impacts for people,
communities and the natural world as well as disrupting
national economies. Immediate action is required
if the most catastrophic effects are to be avoided.
But while climate change and environmental challenges
pose a direct risk to businesses, they also represent anunprecedented opportunity to take action.
Green bonds have emerged as a unique asset classthat can help tackle climate change by financing
environmental solutions. Green bonds enable investors
like AXA IM to purchase debt securities earmarked
for projects which aim to support a low-carbon
economy. These bonds can help finance a myriadof different initiatives, including renewable energy,
pollution prevention, energy efficiency and biodiversity
preservation, among many others.
Through the debt capital market, investors can alsofind opportunities to address broader sustainability
challenges. Social bonds offer investment solutions

where proceeds are directed to projects that seek abroader positive societal impact. Social considerations
are at the core of economic development and merit
as much attention as climate change – we see the twoissues as interdependent. The social projects that lie
behind issuance may target an array of objectives,
such as social housing, microfinance, financing forsmall- and medium-sized enterprises, access to
education, improvements in gender equality, support
for employment in underserved regions and more.
Sustainability bonds can fund both environmental andsocial projects and assets.
The green, social and sustainability bond (GSSB)
market is constantly evolving, and AXA IM is seeking totake a leadership role in this field. Therefore, we regularly
update the way we evaluate GSSBs. We set out our
methodology below. We also explain how we map our
GSSB investments to the United Nations Sustainable
Development Goals (UN SDGs). This mapping allows us
to measure our contribution to the SDGs through theseinvestments.

The GSSB market’s evolution
The green bond market has rapidly
developed since its debut in 2007. Early
issuance was driven by development banks
and local authorities, and in 2013 private
players such as commercial banks and othercorporate entities delivered a transformative
boost. In 2016, sovereign issuance appeared– a trend which has been steadily growing,
and which we expect to continue.
The first social bond was issued by
the International Finance Facility for
Immunisation in 2006 (raising $1bn for a
vaccine programme in Africa), but it wasn’t
until 2015 that the first social bond wasissued according to what would become theInternational Capital Markets Association’s(ICMA) Social Bond Principles. Since then,the social bond market has grown year
after year, with a notable increase during
the coronavirus crisis1. In 2012, the firsttransaction aimed at financing both
environmental and social projects – in otherwords the first sustainability bond – came tothe market. As with green and social bonds,
the sustainability bond market has been
consistently growing since its inception.
Virtually all types of issuers – sovereign,supranational and agency (known
collectively as SSAs), financials andcorporates – have now entered the green

bond market. Since the sector launched inEurope, developing countries and especiallyChina have injected new impetus. In 2020,
global green bonds issuance reached$269.5bn, taking the total value of cumulative
green bond issuance over $1 trillion2.
When we look at the GSSB market as a whole,
we also saw a strong rise in the amountof social and sustainability bonds in 2020.
Social bond issuance reached $140bn, almost
10 times the level in 2019, while sustainability
bond issuance reached $65bn3.
That puts GSSB issuance in 2020 at close
to $475bn. Forecasts for GSSB issuance in
2021 range between $550bn and $700bn4.

Size of green bond issuance over time ($bn)
300
250
200
150
100
50
0

2013
Local Government

2014

2015

2016

Government-Backed Entity

2017

2018

Non-Financial Corporate

2019
ABS

Figure 1: Source Climate Bonds Initiative, as of December 2020

2020

Development Bank

That includes:
$310 - $360bn of green bondsn $180 - $240bn of social bondsn $60 - $100bn of sustainability bondsn

The market’s development has beenaccompanied by improved governancethanks to ICMA’s Green Bond Principles andthrough the work of international non-profit
organisation, the Climate Bonds Initiative,
which together have helped to monitor themarket and make it more credible. ICMA has
also published the Social Bond Principles
and the Sustainability Bond Guidelines.
These private initiatives provide issuerswith advice on the key elements needed forlaunching true GSSBs and help investors gain
insights into what is necessary to evaluate
the environmental and societal impact of
the investments. Importantly however, theseguidelines are only voluntary, and do not
impose any rules on issuers.
Presently many disparate green bondstandards coexist across different regionsof the world. But one of the key elements ofthe European Commission’s (EC) Action Planon Sustainable Finance is the establishmentof a taxonomy for green and sustainableassets and activities. It is the basis for the
introduction of a European green bondstandard. The EC’s Technical Expert Groupon sustainable finance published preliminary
proposals for such a standard. AXA IM
provided feedback on the consultation
around these proposals and we look forward
to the implementation of a European Union(EU) green bond standard.

https://www.axa-im.com/content/-/asset_publisher/alpeXKk1gk2N/content/insight-covid-19-how-a-new-breed-of-bonds-can-help-finance-the-fight/23818
Source: Climate Bonds Initiative
3
Source: Natixis
4
According to estimates from Crédit Agricole CIB, HSBC and Natixis
1
2

2

As there is no real consensus yet on what is a “true” green bondand what is not, AXA IM has developed a proprietary green bondassessment framework. We built on this to create new frameworks
for social and sustainability bonds. These are very similar in termsof structure, but some aspects differ due to the specificities of socialand sustainability bonds. This approach is stringent, but it is also
continuously evolving and aims to fulfil three main objectives:nEnsuring that GSSB issuers are committed to fight climatechange and to address sustainability challenges, and that thiscommitment is reflected in business practices and operations

Selectivity is key in ensuring that only the most relevant andimpactful green and social projects receive the necessaryfinancing. These frameworks have so far been used to review
more than 800 GSSBs, and we believe this has helped us to
avoid possible misuse of funds, risks of unethical practices andgreenwashing. Overall, since 2014, our green bond framework
has led us to exclude around one in five bonds presented to us asgreen, social or sustainable.

Driving investments towards authentic and impactful green
assets and social projects
n Raising the integrity and transparency standards of the GSSB
marketn

AXA IM’s commitment to the green bond market
As part of our commitment to fight climate change and tocontribute to the UN SDGs, AXA IM aims to be a leader in this fieldand seeks to play an important role in the growth and qualityof the GSSB market. Since 2017, we have been a member of theexecutive committee of the Green and Social Bond Principles
and participate actively in several working groups such as Green
Projects Eligibility, Impact Reporting and Social Bonds.

Investments in Green Bonds (€)
10 000 000 000
9 000 000 000
8 000 000 000
7 000 000 000
6 000 000 000
5 000 000 000
4 000 000 000
3 000 000 000
2 000 000 000
1 000 000 000
0AXA IM also became a Climate Bonds Partner in 2018. Throughthis collaboration, we benefit from broad research capabilities
and expert insights into the issuers of green bonds and can easily
work with our peers to share best practices, develop key learningsand drive collective progress on green and sustainable finance.
We received the French GreenFin Label for our green bond funds
in January 2017, guaranteeing transparency and quality of theenvironmental characteristics of these financial products. Our
green bond funds also received the Belgian Towards Sustainability
Quality Standard in 2019.

2015

2016

2017

2018

2019

2020

Investments in Sustainability Bonds (€)
800 000 000
700 000 000
600 000 000
500 000 000

As of the end of January 2021, AXA IM has invested almost€10.3bn in green bonds, €2.2bn in social bonds and €1bn insustainability bonds.

400 000 000
300 000 000
200 000 000
100 000 000
0

2017

2018

2019

2020

Investments in Social Bonds (€)
2 000 000 000
1 800 000 000
1 600 000 000
1 400 000 000
1 200 000 000
1 000 000 000
800 000 000
600 000 000
400 000 000
200 000 000
0

3

2017

2018

2019

2020

Our updated green bond framework,and our expectations for social and sustainability bonds
AXA IM’s GSSB assessment
framework is made up
of four pillars:

1. The environmental, social andgovernance (ESG) quality andstrategy of the issuer

2. The use of proceeds and theprocess for project selection

3. The management of proceeds
4. Impact reporting

For each pillar, our analysts review, assess and monitor several well-defined criteria, manyof which are mandatory. At the very least, the issuer has to surpass our exclusion criteria
and to comply with our “requirement” criteria in order to be investable. If a GSSB also
meets our “expectation” criteria, it would place the issuer among the GSSB leaders, in ourview. The factors outlined below are intended to be indicative and non-exhaustive. This is
primarily due to the fact that individual GSSBs can vary greatly and therefore their individual
assessment involves subjective criteria, as is always the case in qualitative analyses.
At AXA IM, we believe that the use of proceeds of a green bond should reflect the issuer’s
efforts towards improving its overall environmental strategy and its alignment with the Paris
Agreement on climate change. On the social side, the issuer should also make its ambition
to deliver positive societal outcomes clear. Full transparency about the projects financed
and on the tracking of the proceeds is therefore essential to our assessment. We pay
particular attention to impact reporting, where both qualitative and quantitative indicators
are expected.

Pillar 1: ESG quality and strategy of the issuer
Our first pillar is the one that makes
AXA IM’s approach different from theGreen Bond Principles. Within the
Principles, it is not considered as afully-fledged pillar. By consideringboth the ESG quality and strategy of
the issuer, our assessment aims to
avoid ‘greenwashing’ – what could beperceived as green bonds issued for
public relations reasons.
The ESG quality is considered according
to AXA IM’s proprietary ESG scoresas well as the issuer’s exposure tocontroversies. We want to ensure thatthe issuer demonstrates minimum ESG
commitments and properly manages
environmental and social risks.
The environmental strategy refers to
a forward-looking approach. The aim
here is to evaluate whether the green
bond fits into the issuer’s environmental
short- and long-term objectives. Greenbond issuers should clearly exhibit asenior management and board-levelcommitment to align wider commercial
strategy and activities with helping
meet the COP21 Paris Agreement
goals. We also expect green bondissuers to take action in order to aligntheir business models with a global
warming scenario below 2°C. An overall
coherence between the environmental
strategy and the green bond issuance isnecessary.

Requirement

Expectation

Exclusion criteria▶ Clear definition of the issuer’s
environmental strategy andcommitments▶ Quantified shortand long-term
environmental
targets▶ Weak ESG score▶ Alignment of the green bond with
its sustainability policies andprocesses▶ Severe controversy

Pillar 1
for social bonds:
The assessment process for social bonds is similar, except for expectations.
We want to ensure consistency between the social bond and the issuer’s social
strategy to avoid any opportunistic-only issuance that wouldn’t lead to a lastingchange. We also want to be assured the issuance is not only a public relation
exercise.

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Pillar 2: The use of proceeds
and the process for project
selection
Our second pillar focuses on how theproceeds of a green bond are used.
It merges the first two pillars of theGreen Bond Principles. Our aim here
is to control the quality of the eligible
projects by understanding the selection
process and the eligibility criteria. More
importantly, we focus on projects orassets delivering additionality andimpact. Our process rewards projects
that are innovative, impactful and going
beyond the issuer’s “business as usual”.

Requirement

Expectation

Exclusion criteria▶ Clear description of the eligible assets
and the category they belong to▶ Description of how environmental and social risks
and potential rebound effects related to the eligible
projects are taken into consideration▶ Any project related tofossil fuel or nuclear
energy production▶ Estimated share of financing new assets versus
refinancing existing assets, plus look-back period forexisting assets▶ Large new hydropower
projects▶ Compliance with AXA IM’s taxonomy▶ Disclosure of the eligibility criteria foreach category of eligible projects▶ (At least) indicative or expected
breakdown of the proceeds allocation to
the eligible projects▶ Disclosure of the process used to selectand evaluate the eligible projects▶ Establish a qualified and diversified internal
committee to select green projects▶ Description of how eligible projects bring
additionality (e.g. through financial incentives
applied to green assets)

Pillar 2

We nevertheless expect social bond issuers to apply relevant
and robust criteria to define the target populations and areasthat they aim to support through funded projects. This isvery important to ensure that we will finance impactful social
projects.

for social bonds:
There are no specific exclusion criteria for our social bonds
investments up to now. On the breakdown of the proceeds
per project, we can be more flexible as our experience shows
issuers are often not in a position to give any indicative split
before the first anniversary of the social bond issuance.
The additionality aspect is key but poorly reported in thesocial bond market. While this is not a requirement, issuers
who can justify the additionality of their social projects are
viewed more favourably.

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Pillar 3: The management ofproceeds
Our third pillar, similarly to the third of
the Green Bond Principles, relates to the
management of proceeds. It aims to verify
that the issuer has sufficient guarantees
in place to control the allocation ofproceeds to eligible projects. We arelooking to ensure that the green bondproceeds will effectively finance eligible
projects.

Requirement

Expectation▶ Description and transparencyof the internal process used to track
the proceeds▶ External/independent verificationof the proceeds allocation▶ Segregation of the green bond proceeds
in a separated account or portfolio

Pillar 3
for social bonds:
The assessment process for social bonds is the same.

Pillar 4: Impact reporting
Our fourth pillar, also similar to theGreen Bond Principles, focuses onreporting. While the principles only
encourage issuers to provide impact
indicators, it is a mandatory criterion
within our assessment process. It
allows us to measure our positive
impact and the environmental benefitsof our green bond investments.

Requirement

Expectation

Exclusion criteria▶ Allocation report to eligible
categories, and balance of
unallocated proceeds▶ Rely on an
independent
third party in thecalculation of theenvironmental
impact▶ No publicationof an impact report▶ Provide relevant qualitativeand quantitative key performanceindicators (KPIs), at least for eacheligible category▶ Disclose details on themethodology, assumptions
and baselines used to calculate
the impact▶ Provide KPIs on aline by line basis

Pillar 4
for social bonds:
The assessment process for social bonds is similar. We are particularly sensitive
to the quality and clarity of impact reporting, which we know is more challenging
in the social bond market.
As impact reporting in the green bond market matures and improves, we are also
encouraging green bond issuers to enrich their impact reporting with social KPIs
when doable (e.g. when green projects have a positive social impact on surrounding
communities).
Of note, we can downgrade our opinion if we notice a breach in comparison
to what was announced at the time of issuance.

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Mapping our GSSB investments with the SDGs
methodology and to map the SDGs against our GSSB taxonomy.
By doing this, we made a split between the green and social
activities that directly contribute to some of the SDGs, and thosethat only align with it.

At AXA IM, we pay particular attention to the way our investments
can help us contribute to the UN SDGs. The high level oftransparency that we expect from the GSSBs we invest in allows us
to know what type of green and social activities we fund.
Again, there is no consensus yet on the way to approach theSDGs in the GSSB market. We therefore decided to build our own

Environmental Projects / SDGs✓

Renewable Energies
Energy Efficiency

✓

✓

✓

✓

✓

✓

✓

✓

✓

✓

✓

✓

✓

✓

Green Buildings✓

Low-Carbon Transportation✓

Water Management✓

Waste Management✓✓

Biodiversity Conservation✓ Direct Impact

✓

✓

✓

✓

✓

✓

✓

✓

✓

✓

✓

Sustainable Land Use
Adaptation Infrastructure

✓

✓

✓

✓

✓

✓

✓

✓

✓ Alignment✓

Source: AXA IM and United Nations

Social Projects / SDGs✓

Employment Generation

Affordable Basic Infrastructure
Access to Financial Services✓

Access to Education✓

Access to Energy✓

Access to Healthcare✓

Access to Telecommunications✓

Affordable Housing✓

Microfinance

✓

✓

✓

✓

✓
✓

✓

✓
✓

✓
✓

✓

✓

✓

✓

Food Security/ Sustainable Farming
Socioeconomic Empowerment✓✓✓

SMEs Financing✓✓✓

Women Empowerment✓ Direct Impact✓✓ Alignment✓
Source: AXA IM and United Nations

To ensure that, we rely on the two first pillars of our assessment
framework – the ESG quality and sustainability strategy of theissuer, and the use of proceeds and process for project selection.

With this mapping, we aim to measure our contribution to the
SDGs through our GSSB investments. We also pay great attention
to doing “no harm” to some SDGs while helping achieve others.

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Looking forward: Our vision for the GSSB market
Forecasts for green bond issuance in 2021 range from $310bn
to $360bn. This would represent substantial growth of thegreen bond market, which we welcome. However, it pales incomparison to the estimated $6.9trn investments needed peryear in infrastructure to help limit the rise in global temperatures
within 2°C above pre-industrial levels as envisaged under theParis Agreement5. Still, this situation leaves the door open to great
innovation across the green bond universe.

We are also looking forward to the continuing growth of
the social bond market. With the EU coming to the market tofinance its €100bn SURE (Support to mitigate Unemployment
Risks in an Emergency) programme through social bonds by end2021, the importance of the social bond market is poised to grow,and its weighting will likely be revised upward. At AXA IM, we arecommitted to playing our part and to being a leading voicein the development of this asset class.

If quantity matters and is critical to meet the Paris Agreement
goals, the growth of the green bond market should not take placeat the expense of its quality. AXA IM’s green bond assessment
framework is built to ensure that our expectations for green bondissuers are met. Our analysts aim to select green bonds that are inline with our clients’ ambitious environmental strategies. AXA IM’scall for transition bonds reflects our view that the green bondmarket should keep its standards in terms of quality and integrity.

To help the GSSB market grow both in terms of quality andquantity, our analysts continuously engage with issuers. We
meet them before issuance to discuss their framework, share
our expectations and make clear what we consider to be goodpractice. This enables to set out our quality standards for green,social or sustainability bonds.
In addition, we monitor the GSSB market and perform ongoing
dialogue with issuers after issuance. The aim here is to help them
improve their GSSB offering. We therefore focus on GSSB issuers
which did not fully meet our expectations initially. Through thiscomprehensive process we try to promote the integrity and qualityof the market in the near future, which we hope will pave theway for even greater issuance, more take-up by investors, andultimately a beneficial impact on people and planet.

Since then, we have seen positive developments on this topic.
We co-chaired ICMA’s Climate Transition Finance working group,
which published the Climate Transition Finance Handbook in
December 2020. We have seen several transition bond issuances– in our view these transactions will be needed to help issuers
to align their business models with the objectives of the Paris
Agreement. We also welcome the development of sustainabilitylinked bonds6, which are innovative tools to finance the transition
to a more sustainable economy. As these products are different
from GSSBs, one of our key objectives for 2021 is to build andpublish a dedicated assessment framework for transition andsustainability-linked bonds.

5

6

OECD (2017), Investing in Climate, Investing in Growth, OECD Publishing, Paris,
http://dx.doi.org/10.1787/9789264273528-en
See more here: https://www.icmagroup.org/assets/documents/Regulatory/
Green-Bonds/June-2020/Sustainability-Linked-Bond-PrinciplesJune-2020-171120.pdf

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products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or apersonalized recommendation to buy or sell securities.
It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are theexpression of an opinion, based on available data at a specific date.
All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims
any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the
publication date of this document.
Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary usedor followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or inpart is, unless otherwise authorised by AXA IM, prohibited.
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