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An audience with Marco Morelli. “What we are trying to achieve is a shared philosophy”

AXA IM’s executive chair explains why common rules are needed for ESG – and why he is introducing a ‘three strikes and you’re out' rule. Interview by David Ricketts

“How are you with heights?” comes a question during my meeting with AXA Investment Managers’ executive chair Marco Morelli.
It is the first time Morelli has visited AXA IM’s new base in 22 Bishopsgate, the City of London’s newest skyscraper. Like most people who have recently moved into a new home, the 59-year-old Italian is keen to show off some of its unique features.
The 62-storey building has many impressive characteristics, including a curated art walk and London’s highest free public viewing gallery. The vast reception area also has its own signature scent.
But the AXA IM boss is keen that at some point I visit the in-house gym on the 25th floor, which boasts the City’s first sky wall climbing window, some 125m above ground level.
Morelli, who became executive chair of the €879bn asset manager last September, has more reason than most to be proud of the City’s latest addition.
The building, which was completed in December 2020, was developed by AXA IM’s Real Assets business on behalf of an international consortium of investors.
Despite predictions that Covid would lead to companies drastically cutting back their office space, when completed last year, the building was 60% pre-let to 14 firms.
AXA IM’s new neighbours include insurance firms Hiscox and Beazley. Meanwhile, tech giant Apple has leased space in the building while it waits for its permanent home within Battersea Power Station to be completed.
Given the current buzz around sustainable investing, AXA IM could not have chosen a better home.
The Bishopsgate building is one of the most sustainable office blocks in London, running off renewable energy and with space for around 1,700 bicycles. Even the staff responsible for running the building day-to-day wear sustainably sourced uniforms.
Just days earlier, Morelli, who is visiting London after attending COP26 in Glasgow, issued a stark warning to companies that are failing to take climate change risk and sustainability seriously: change your approach or AXA IM will pull its money.
“Simply saying you’ll be net zero by 2050 is not enough,” Morelli says.
AXA IM says it will adopt a “three strikes and you’re out” policy from the start of next year. The plan is to work with firms to help them define clear goals and objectives to meet net-zero, while those failing to move quickly enough can expect AXA IM to use its voting power at annual shareholder meetings to try to force change.
“The message is we’ll give you three years. We’ll engage with you proactively, but if after three years there are no consequential plans or evidence, we will divest,” Morelli says bluntly.
AXA IM, which plans to reduce its own carbon emissions by 25% over the next four years, will stop short of naming and shaming companies that continue to flout its demands over their net-zero transition plans.
“It is up to companies when they present half-year or full-year numbers to be explicit about what they are doing,” he says. “This is not an exercise where the teacher is giving marks.”
The focus on sustainability is a message AXA IM is keen to project. However, unlike most of its rivals, the asset manager does not have a dedicated head of ESG. Matt Christensen, who had been its global head of impact and responsible investment since 2011, was not replaced when he left last year to join Allianz Global Investors.
Instead, AXA IM chose to roll out mandatory sustainable investment training to all its staff in an attempt to embed ESG across all parts of the business.
“What we are trying to achieve is a shared philosophy and that everything we do will be geared towards this approach,” says Morelli. “Each of us talks about ESG. Portfolio managers are responsible for sharing the message, so is senior management. It is a unique approach.”
Asset managers are experiencing record flows into their sustainable investment products. But they continue to grapple with the EU’s recent Sustainable Finance Disclosure Regulation, which forces them to categorise investment funds based on their approach to ESG. Many are worried about potential greenwashing claims from investors or that regulators will take enforcement action if they have miscategorised funds under SFDR.
Morelli wants regulators and policymakers to come up with a more common approach to help global asset managers navigate the complex ESG landscape.
“So far we have not got to a level playing field,” he says. “Europe is looking at it one way and even within Europe, local regulators are engaging with asset managers without a common approach. Then you have the US and Asia.”
He adds: “The faster we get to a common set of rules, the lower the risk of getting embroiled in a discussion around greenwashing. As an organisation you need to be careful how you craft and market your products.”
Covid may have thwarted Morelli’s plans to visit his colleagues in London much sooner, but he acknowledges less travel is likely in future. AXA IM has put in place a hybrid-working model following the pandemic, allowing its 450 staff in London to work from home two or three days a week.
Morelli spent many hours during his first few months getting to know his colleagues remotely.
While there are some benefits of remote working that Morelli wants to keep, he is keen to foster a culture where senior management communicate with employees at all levels across the business.
“I’ll be travelling less but will engage with people more,” says Morelli.
“When you run a complex organisation, the risk you run is you only talk to your boss or direct reports and those in the office next to you. I’m very much against this.”