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To measure climate alignment, AXA has chosen the framework developed by the 2 Degrees Investing Initiative3 (2°ii) as the most relevant approach because of their unique methodology examining the underlying assets and technologies of portfolios in relation to the 2° Scenario outlined by the IEA. Focusing uniquely on sec... |
Consequently, climate alignment assessments are provided for the utilities, oil and gas, and automotive sectors. For example: • In the utilities sector, each company is matched with both the current owned and formally planned generation assets by generation type, and then plotted against the energy mix outlined under t... |
2 Energy Transition scenarios are economic models that forecast potential changes in production, assets, and investments under various decarbonization constraints 3 http://www.2degrees-investing.org |
Page 20 sur 49 • For the oil & gas sector, investee companies are matched with their current and forecasted production levels, based on a ratio of their current production to future proven reserves, to estimate their future production, and then plotted against the production curve under the IEA 2° Scenario. • Companies... |
Information used to match companies with their owned assets and production levels was gathered by 2°ii from industry data providers for all these sectors. |
As climate alignment tests are limited to only the aforementioned sectors under this current approach, we try to maximize climate alignment through analyzing the “green share” of entire portfolio. By assessing the type and nature of the business activities of the companies in which we invest, we aim to maximize our con... |
To do this, AXA employs a tool and methodology developed by FTSE Russell, which analyzes the products, goods, or services of companies to determine if they work to either mitigate or adapt to climate change or facilitate an energy transition. Based on this qualitative climate-related assessment of company activities, F... |
TRANSLATING ASSESSMENTS INTO INVESTMENT DECISIONS. |
The results of the tests performed on our two portfolio may be used to inform future investment decisions and engagement with companies on these issues in the sectors. AXA has explored three options for integrating climate assessments into decisions: • examining transitions risks of companies, • back-testing portfolios... |
The Responsible Investment team has developed a framework aimed at assessing the transition risks facing fossil fuel assets in the long-run. This methodology combines a top-down assessment of the likely transition paths at the country level with a bottom-up analysis at the company level of the portfolio of the fossil f... |
This analysis aims to identify the fossil fuel assets that are the most exposed to transition risks within a company’s portfolio and to identify which companies within a sector are the most exposed to transition risks. This methodology, described in more length in section 2.3.5, is used to inform investment decisions a... |
AXA also explored the possibility of using a back-testing methodology to improve intra-sector stock allocation to meet the 2°C benchmark. This approach examines the underlying assets, maturity of fixed income assets, and weight of each company in the portfolio to identify the exposure to which companies should be reduc... |
Page 21 sur 49 heavily weighted to meet the 2°C benchmark. This technique uses the data of the underlying assess provided by 2°ii. |
Additionally, AXA has explored the approach using portfolios’ assessments of green shares to inform investment decisions to maximize impact on the energy and ecological transition by selecting stocks with higher green shares. |
Criteria 2.2.2. Assessment of the portfolio’s consistency with chosen indicative targets |
2°C Alignment Test. |
AXA applied the methodology for testing portfolios’ alignment with the 2°C scenario to two asset classes - fixed income (FI) and equity - for which we tested one FI (called “AXA Bond Portfolio”) and one equity portfolio (called “AXA MAI”). These two asset classes are the most relevant for AXA, with fixed income and equ... |
The methodology used for assessing 2°C alignments differs between the two asset classes: • For the FI, the weight of each bond in the portfolio measures the exposure to different companies. In other words, if a bond represents 1% of the portfolio value, the underlying assets of that company will be weighted as 1% of th... |
CORPORATE FIXED INCOME. |
Using the 2°ii methodology, AXA assessed the 2°C degree scenario consistency of one of its corporate fixed income portfolios5, which represents 4.68Bn€ of assets. While only roughly 30% of the business segments were assessed, covering power production6, fossil fuel extraction and the automotive sectors, this approach c... |
4 As of July 2016. 5 The portfolio has no sovereign debt. 6 Assessments of power production were performed for utilities and for self-consuming power producers, such as industrials. |
Page 22 sur 49. |
Power generation. |
The results of the power sector analysis suggest that over the next 5 years, the share of renewable power financed by the bond portfolio increases roughly in line with the 2°C trajectory needed by the economy (IEA 2°C target normalized to portfolio starting point). Additionally, only around 43.5% is still invested in h... |
Page 23 sur 49. |
Oil & gas. |
The results of the oil and gas sector analysis suggest a significant estimated increase in oil and gas production through 2020, above the 2°C target benchmark. While the 2°C target benchmark requires for oil & gas companies to maintain production levels without increasing through 2020, the companies held in the portfol... |
Automotive sector. |
The results of the automotive sector analysis shows the relative weight of electric and hybrid vehicle production in portfolio lag the relative 2°C benchmark. While the 2°C target benchmark portfolios to maximize automotive companies with increasing electric and hybrids production levels through 2020, the companies hel... |
7 Given that gas and oil prices are set at the region or global level, production levels (and production costs) are the only variables companies can alter to increase value. |
0% 5% 10% 15% 20% 25% 30% 2015 2016 2017 2018 2019 2020. |
Change in annual oil production 0% 10% 20% 30% 2015 2016 2017 2018 2019 2020. |
Change in annual gas production. |
Ptf weight apporach 2°C benchmark |
Page 24 sur 49. |
EQUITY. |
Using again the 2°ii methodology, AXA assessed the 2°C degree scenario consistency of an equity portfolio, a global portfolio (“AXA MAI”) with a value of 519M€. |
For the AXA MAI portfolio, roughly 20% of the AXA portfolio is exposed to business segments that are currently assessed in 2°ii energy transition scenarios, including power production, fossil fuel extraction and the automotive sector, representing an estimated 70-80% of the GHG emissions of the portfolio. While analysi... |
Power generation. |
The results of the power sector analysis suggest that over the next 5 years, the share of renewable power capacity will lag behind the 2°C trajectory needed within the OECD by 6.4%, a more stringent standard for comparison.8 Roughly 71.1% is still invested in fossil-fuel assets, compared to a 46.7% share of fossil fuel... |
8 IEA 2°C target normalized to portfolio starting point |
Page 25 sur 49. |
Oil & gas. |
The results of the oil and gas sector analysis suggest a significant estimated increase in oil and gas production over the covered period through 2020, above the 2°C target benchmark. While the 2°C target benchmark requires for oil & gas companies to maintain production levels without increasing through 2020, the compa... |
Automotive sector 9 Given that gas and oil prices are set at the region or global level, production levels (and production costs) are the only variables companies can alter to increase value. |
0% 10% 20% 30% 2015 2016 2017 2018 2019 2020. |
Change in annual gas production. |
Ptf weight apporach 2°C benchmark |
Page 26 sur 49. |
The results of the automobile sector analysis suggest that the relative weight of electric and hybrid vehicle production in portfolio lag the relative 2°C benchmark. While the 2°C benchmark requires portfolios to maximize automotive companies with increasing electric and hybrids production levels through 2020, the comp... |
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