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Total loss 100-yr OEP 4.7 M€ 10.5 M€ |
Based on these results, it can be concluded that if a severe 100-year storm were to happen this year, the cumulated loss experienced by the two portfolios would be roughly 15M€. In terms of average annual loss, the two portfolios together have an average annual destruction loss of 0.8M€. If we consider that these inves... |
13 Calculated as 0.8M€ of total annual losses over 30 years. |
Page 35 sur 49. |
Criteria 2.3.5. ET risks: comprehensiveness of the risks analyzed. |
AXA IM has developed an approach for assessing transition risks in high carbon exposed sectors that is twotiered, combining top-down country-level and bottom-up asset-based analysis. We first assess energy policies and carbon regulation at country or regional level and then look at companies’ asset base for sectors in ... |
The second phase of the analysis involves evaluating the transition risks faced by the fossil fuel assets and the quality of the assets (risk/reward balance) of each company. Typically, the assets with the highest production costs and the highest environmental impacts are those likely to face the highest transition ris... |
Aside transition risks faced by high carbon sectors and fossil fuel assets, we also evaluate downgrade risks and potential material impacts for our fixed income portfolio using our internal limits modulation guidelines. |
Downgrade risks of Utilities and Oil & Gas issuers To assess the credit impact of environmental issues, we have used a Moody's approach, which examines:1) direct environmental hazards, such as pollution, drought and severe natural and man-made disasters; and 2) consequences of regulatory or policy initiatives that seek... |
To quantify downgrade risks for our portfolio, we use our internal concentration limits modulation rules. They define limits on exposure by issuers as a function of debt rating, maturity and seniority. This framework restricts the exposure allowed on an issuer’s debt: the longer the maturity, the lower the rating, and ... |
Page 36 sur 49 more junior in the capital structure, the less exposure is allowed. Any name in any sector will thus see its concentration limit decrease in cases of downgrades. Criteria 2.3.6. ET Risks: granularity of the financial analysis. |
Part 1 : Analysis of energy policy and carbon regulation at country / region level. |
Our qualitative approach first assesses the country’s energy mix, energy policy and carbon regulation in order to form a view on the direction of travel and the underlying transition risks. In particular, we seek to determine the likely evolution of the energy mix and to what extent and at what speed coal generation wi... |
Country-level analysis: The relevant indicators examined. |
Climate change commitment Energy policy. |
Key topics GHG reduction commitment. |
Implementation Current energy mix Energy policy. |
Example of key indicators/ issues. |
National Defined Contributions. |
Carbon tax, etc % coal, criticality coal power plants. |
Coal shut down? Coal phase-out? |
Sector specific targets. |
Emission standards (incl. toxic emissions) % renewables Ambitions in renewables (strategy, incentives…) |
Country-level analysis: example of sample results produced by this analysis. |
Climate change commitment Energy Mix Expected speed of transition. |
Transition risk for coal. |
Country A Strong Low carbon - Nuclear focused Medium Low. |
Country B Medium High carbon - coal based Medium Medium. |
Country C High Diversified - strong focus on renewables Fast High. |
Country D Medium Diversified - shift from coal to gas Fast High |
Page 37 sur 49. |
Part 2: Analysis of assets’ quality and location. |
The second part of our approach involves a qualitative assessment of each company’s assets. This is done differently for the coal extraction, oil extraction, coal-fired generation utilities, and automobile sectors, as seen in the following sections. |
Coal-fired generation utilities. |
Our methodology reviews companies’ portfolios of coal-fired power plants with the country level analysis of the geography (“transition risk for coal in this geography”) in which the asset is located in order to determine the level of exposure to transition risk. Then the specific transition risks faced by coal power pl... |
This cross-analysis enables us to assess which companies face the highest transition risk linked to their coalfired power plants and which of these assets face the highest risk of being stranded. The following table is an example of sample results produced by this analysis. |
Results for coal-fired generation utilities analysis. |
Coal extraction. |
All types of coal are not the same and won’t probably face the same transition risk. In our approach, we first differentiate between thermal coal and metallurgical coal and focus on thermal coal (i.e. coal used for power and heat generation) as the main contributor to GHG emissions. Metallurgical coal at the moment has... |
Within the thermal coal category, the quality of a coal deposit will impact greatly its ability to be sold domestically or exported. This quality depends on various factors such as energy content, volatile gases, sulphur, moisture, ash and trace elements, which then will determine the level of CO2 and polluting emissio... |
Power plant Capacity (MW) Type Country Polluting emissions Transition risk for coal in this geography Exposure to transition risk. |
PP1&2 2035 Subcritical Country A Medium Low Medium PP3 445 Supercritical Country B Low High High PP3 1080 UltrasupercriticalCountry C Low Medium Low |
Page 38 sur 49 • Energy content • Pollution: ash content, sulphur content, volatile matter (note that these numbers are very hard to find at project level currently, so we have made assumptions based on regional averages) • Cash costs or breakeven. |
This information is crossed with our analysis of transition risk at country level in order to assess the asset’s exposure to transition risk. Assets that are positioned high on the cost curve and have poor environmental characteristics are more likely to be stranded in case of oversupply and fall in coal price. For exa... |
Results for coal extraction analysis. |
Oil extraction. |
Not all oil projects face the same level of transition risks. We believe that projects with high breakeven and facing high risks and high environmental impacts will be the one most exposed to transition risks, in this case, the risk of being stranded. We also have greater scrutiny for new projects and/or projects with ... |
Our analysis of carbon risks for oil companies starts with the assessment of the reserve profile. Typically, companies with a higher share of oil reserves (v. gas) and a higher share of unconventional oil will be considered higher risk. The following table is an example of sample results produced by this analysis. |
Results for primarily oil extraction analysis. |
Company A. |
Oil reserves 52% |
Conventional 91% |
Unconventional 9% |
CO2 emissions from oil reserves 4220 million t. |
Gas reserves 48% Conventional 72% |
Projects. |
Volume of reserves (Mt) |
Type of coal Country Energy content (kcal/kg) |
Ash content Sulfur content Volatile Matter. |
C1 Cash costs ($/t) Impact/cost type. |
Transition risks for coal in this geography. |
Exposure to transition risk. |
Project A, Project B, Project C 75 domestic - lignite Country A 3,200 3.0% 1.2% 40% 15 high env. impacts - low costs High High. |
Project D, Project E 105 domestic - subbituminous Country B 4,100 5.0% 0.8% 22% 22 low heat content - medium env. impacts - low costs Low Medium. |
Project F, Project G 120 seaborne - bituminous Country C 6,500 10% 0.6% 5.0% 50. |
High heat content - medium env. impacts - medium costs Medium Medium. |
Project H 60 seaborne - bituminous Country C 5,800 20% 0.9% 12.0% 44. |
Medium heat content - high env. impacts - medium costs Medium High |
Page 39 sur 49. |
Unconventional 28% |
CO2 emissions from gas reserves 1900 million t. |
Secondly, our methodology then examines the details of the oil portfolio. In order to assess the risk/reward balance of oil the projects and the ability to monetize the oil assets throughout the life of the project we look at: • Size: reserves, production • Cost: capex, breakeven • Environmental risks: heavy oil (high ... |
The following table is an example of sample results from our qualitative analysis of the top 10 assets within an oil extraction company’s portfolio. |
Results of asset portfolio of top 10 oil projects. |
AUTOMOTIVE SECTOR. |
To manage transition risks for the automotive sector, our methodology evaluate automobile manufacturers in our portfolios to assess their relative exposure to current and potential future regulatory constraints. Pollution and fuel efficiency regulation is a primary driver of change in the automobile sector, forcing com... |
Top 10 oil projects. |
Oper ators hip. |
Type of project Country Oil reserves (mnboe) |
Peak production (kboe/d) |
Duratio n. |
Capex (incl infra) (US$mn) |
Productio n cost (US$/bl) |
Commercial breakeven from project start. |
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