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01 AXA GROUP 2019 Climate Report June 2019. |
Editorial “Paris-alignment” requires robust metrics and broad collective action. |
Ulrike Decoene. |
Group Head of Communication, Brand and Corporate Responsibility. |
Pascal Christory Group Chief Investment Officer. |
While a thriving economy has brought wealth and opportunity to an increasing proportion of the world’s population, the carbon intensive nature of development is a key factor driving climate change. |
The COP21 “Paris Agreement” binds governments to contain global warming “well below” 2°C, and explicitly calls investors to support this objective. More recently, the European Commission also emphasized the key role that investors are expected to play on several sustainabilityrelated issues. |
The challenge is humbling, but rather than to suffer from “paralysis by analysis”, we decided to act early by ending both business and investment ties with the coal and oil sands industries, setting ourselves an ambitious green investment target of 12Bn€ by 2020, and supporting the relevant industry coalitions such as ... |
However, the Paris Agreement’s call for “making finance flows consistent” with a low carbon economy also requires understanding the “climate dynamics” of our investments. This concept - striving to align investments with the “2°C” trajectory that science and the Paris Agreement are calling for - forms the core of the T... |
This “TCFD / art. 173” report, building on our first two Climate reports since 2016, presents our most advanced efforts in this area. It seeks to model both the impact that climate-related risks may have on our investments (what we have termed the “cost of climate”, expressed in financial terms) and conversely the impa... |
Translating international climate objectives into quantitative investment metrics is a new and complex risk modelling exercise; some experimental tools and metrics are available and will require improvements over time. Nevertheless, despite its evolving nature, we believe the “Warming Potential” to be a relevant contri... |
Our current modelling, developed in collaboration with an external expert, reveals that AXA’s investments, on an aggregate level encompassing both Corporate and Sovereign assets, has a “Warming Potential” below a widely used market reference of 3.7°C and various “BAU” projections in excess of 4°C. AXA’s pioneering clim... |
This means that most investors operate in a business environment which is not fully “Paris-aligned”, and where conventional (“mainstream”) investment strategies can only lead to a world which is far above 2°C. Even though “climate-conscious” investors can proactively reorient some capital flows to improve marginally th... |
Indeed, we believe that AXA’s experience both with climate-related asset reallocation (divestments and green investments) and with forward-looking risk metrics explored since 2016 provides us with a legitimate voice in the climate finance debate. Our conviction is that tackling climate change requires a broad transitio... |
In short, financial stability that delivers sustainability is an opportunity for all market participants, including policy-makers, to rise to a challenge that is worthy of our best efforts. The transition to a low-carbon economy requires “transition-minded” investors and businesses working together on new solutions to ... |
02 AXA GROUP 2019 Climate Report June 2019. |
Executive Summary. |
Executive Summary. |
Governments gathered during COP21 to sign the “Paris Agreement”, urging to reduce carbon emissions below unsafe levels, and called all investors to support this objective. Simultaneously, the French Government and the Financial Stability Board launched two risk analyses and reporting frameworks (“article 173” and “Task... |
1. Responsible Investment & Insurance Governance. |
AXA has developed a multifaceted governance mechanism covering ESG & Climate issues: the Responsible Investment Committee, chaired by the Group Chief Investment Officer; the Group Underwriting Committee which defines insurance underwriting restrictions; the Group Corporate Responsibility team which establishes AXA’s CR... |
2. Responsible Investment & Insurance Strategy. |
AXA tracks its investments’ ESG performance in detail by leveraging proprietary tools combining fundamental and quantitative analysis with specialist external research, focusing on our main asset classes: corporate issuers (equity and debt), sovereign issuers and Real Assets (direct property, commercial real estate loa... |
For our corporate assets, AXA uses Carbon Delta(1)’s “Warming Potential”, combining top-down data derived from the Paris Agreement and bottom-up economic, sector and company data to establish a forwardlooking climate-related set of metrics, as described in section 2. In addition to Carbon Delta, AXA also leverages a me... |
(1) A Swiss environmental “fintech”, www.carbon-delta.com/ |
AXA's “Warming Potential” is below the widely used market indices of 3.7°C, which shows that today's markets are not aligned with the Paris Agreement companies covered by ESG analysis 7,200 |
03 AXA GROUP 2019 Climate Report June 2019. |
Executive Summary. |
This insightful “temperature” approach, despite methodology caveats, helps to raise awareness on the need to factor “transition” pathways into climate risk analyses. Indeed, AXA's combined corporates & sovereign estimated “Warming Potential”, based on these methodologies, is below the widely used market indices (3.7°C)... |
Climate risk analysis is also undertaken from a business/investment risk perspective, leveraging three factors for corporate assets: transition risk costs (business impacts from the energy transition), physical costs (impacts of future extreme weather events), and Green revenues. Combining these three factors has enabl... |
AXA has set a target to reach €12 billion in “Green” investments by 2020 (green bonds, infrastructure debt & equity, impact investments, real estate, and Commercial Real Estate loans), and is also a proactive player in the field of “Impact Investing”. The Group has recently launched its third Impact Fund, focused on cl... |
3. Responsible Investment & Insurance Risk Management. |
AXA’s management of sustainability risks is integrated within a broader risk management framework, and climate risks are modelled using a significant amount of exposure and claims data, combined with advanced climate science, then matched with our “risk appetite”. |
AXA’s shareholder engagement & voting activity is conducted either directly with companies or as part of a coalition of investors, such as Climate Action 100+. We also actively support numerous initiatives related to climate change, ESG and sustainability more generally, such as the UN PRI, the UN PSI, the Climate Fina... |
AXA offers products that promote environmentally-friendly behavior, in our asset management business via thematic funds (savings and retail business), as well as in our P&C Commercial lines. We protect our customers against natural catastrophes, for example by developing “parametric insurance” products dedicated to cli... |
4. Metrics & Targets. |
AXA discloses its investments’ carbon footprint since 2014, showing a constant decrease. We have also implemented environmental impact reduction targets for our “direct” perimeter, here also reporting a constant decrease. AXA’s ESG performance is rated by specialized rating agencies; AXA ranks amongst the top performer... |
€12bn Green investment target by 2020 climate-related reduction of the turnover of the companies we invest in. 4.8% Average |
04 AXA GROUP 2019 Climate Report June 2019. |
Context. |
This report describes AXA’s responsible investment and insurance initiatives, in line with two different but partly overlapping and complementary frameworks: ❯ the mandatory disclosure requirements related to the framework provided for by the French decree(1) implementing Article 173 VI of the law n° 2015-992 of August... |
Each framework requires disclosure on separate yet complementary aspects of sustainability and how these are integrated into our investment and insurance processes where relevant. To satisfy both, this report answers regulatory requirements derived from Art. 173, while following the TCFD structure (Governance, Strategy... |
The two “correspondence tables” below provide further clarity into how this twin framework is articulated within this report. |
(1) Article D. 533-16-1 of the French Monetary and Financial Code. (2) www.fsb-tcfd.org. |
TCFD Corresponding sections 1. Governance 1. Describe the Board’s oversight of climate-related risks and opportunities. 1. Governance 2. Describe management’s role in assessing and managing climate-related risks. 1. Governance 2. Strategy 1. Describe the climate-related risks and opportunities the organization has iden... |
Box – How are “transition” and “physical” climate risks defined? 2. Warming Potential 2. Cost of climate 2. Climate-related analysis: sovereign debt 2. Describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy and financial planning. |
3. Describe the resilience of the organization’s strategy, taking into consideration different future climate scenarios, including a 2°C or lower scenario. |
3. Risk Management 1. Describe the organization’s process for identifying and assessing climate-related risks. 3. Internal Control & Risk Management 3. Climate risk modelling 2. Describe the organization’s process for managing climate-related risks. |
3. Describe how processes for identifying, assessing and integrated into the organization’s overall risk management. 3. Internal Control and Risk Management 4. Metrics and Targets 1. Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk manage... |
4. Metrics and Targets. |
Source: www.fsb-tcfd.org: |
Context. |
A report at the crossroads of investments & insurance, mandatory and voluntary frameworks, and ESG & Climate |
05 AXA GROUP 2019 Climate Report June 2019. |
Core Elements of Recommended Climate-Related Financial Disclosures ❯ Governance. |
The organization's governance around climate-related risks and opportunities ❯ Strategy. |
The actual and potential impacts of climate-related risks and opportunities on the organization's businesses, strategy and financial planning ❯ Risk Management The processes used by the organization to identify, assess and manage climate-related risks ❯ Metrics and Targets. |
The metrics and targets used to assess and manage relevant climate-related risks and opportunities. |
Metrics and Targets. |
Risk Management. |
Strategy. |
Governance. |
Source: www.fsb-tcfd.org. |
Context. |
Article 173 Corresponding sections. |
Integration of ESG criteria 1. Consideration of ESG issues in investment policy and risk management 1. AXA’s approach to Responsible Investment (RI) 1. Governance 3. Internal control & Risk Management 2. List and percentage share of funds that integrate ESG criteria 2. Responsible Investment Strategy 2. ESG integration... |
Integration of climate-change related risks 1. Physical and transition risks 2. Responsible Investment Strategy Box – “Transition” and “physical” climate risks 2. Climate-related analysis: corporates 2. Climate-related analysis: sovereign 2. Portfolio alignment 2. “Cost of climate” 2. Real Assets: factoring the “Physic... |
Statutory Audit. |
PwC auditors reviewed our processes and procedures for 2018 and verified a selected subset of the information published in this report. PwC has expressed a limited assurance that this selected information is, in all material respects, fairly presented. To AXA's knowledge, this may be the first TCFD report to be audited... |
06 AXA GROUP 2019 Climate Report June 2019. |
COP21 & the Paris Agreement. |
Science is clear: the IPCC (Intergovernmental Panel on Climate Change) Fifth “Assessment Report”(1) presented evidence from the global scientific community that the Earth is warming at an unprecedented rate and that anthropogenic Greenhouse Gas (GHG) emissions are the main cause, in particular carbon dioxide (CO2). The... |
(1) https://www.ipcc.ch/report/ar5/syr/. |
The IPCC predicts that effects will include further melting ice and rising seas, resulting in flooding and erosion of coastal and low-lying areas. Some developing countries will be most affected, as local populations depend significantly on their natural environment and have less resources to cope with a degraded clima... |
Therefore, in December 2015, 195 countries gathered in Paris to negotiate and adopt the Paris Agreement(2). Countries that ratified the agreement legally bound themselves to collectively hold warming to “well below 2°C compared to pre-industrial levels” (period before 1750) and pursue best efforts to limit warming to 1... |
(2) https://treaties.un.org/pages/ViewDetails.aspx?src=TREATY&mtdsg_no=XXVII-7-d&chapter=27&clang=_en. (3) The IPCC 2018 report revealed for example that by 2100, sea level rise would be 10 cm lower in a “1.5°C world” compared with 2°C. Extreme heatwaves will be experienced by 14% of the world’s population at least onc... |
(4) UNEP, 2018. |
COP21 Paris Agreement Article 2: the Key Role of Investors “This Agreement (…) aims to strengthen the global response to the threat of climate change (…) by: (a) Holding the increase in the global average temperature to well below 2°C above pre-industrial levels (…); (b) Increasing the ability to adapt to the adverse i... |
Methodology Box. |
COP21 & the Paris Agreement 3.1°C – 3.7°C. |
Mean global temperature increase by 2100 if today's national pledges are implemented. |
In order to reach the global goal set out in the Paris Agreement, each country set out a Nationally Determined Contribution (NDCs, see Box) which outlines a carbon emissions reduction target and country-specific actions towards it. As these are voluntary and independently determined, whether the world achieves “below 2... |
Global warming scenarios or temperature goals can be translated into a global carbon budget. However, to be on track for the 2°C trajectory, global emissions should be significantly lower in just a few years than they are today. Indeed, the UNEP “Emissions Gap” report(4) shows that the current global emissions pledges ... |
“Well below 2°C” |
The commitment to contain global warming to safe levels taken by 195 countries during COP21 in 2015 |
07 AXA GROUP 2019 Climate Report June 2019. |
The NDC Dynamics: Time Horizon of Climate Action. |
CURRENT WARMING TREND. |
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