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09 AXA GROUP 2020 Climate Report June 2020 3. TCFD guidance: Governance. |
Investments. |
In 2010, AXA created a Group-level Responsible Investment Committee (RIC), chaired by the Group Chief Investment Officer, and including representatives from AXA Asset Management entities, Corporate Responsibility, Risk Management and Communications. The RIC reports to the Group Investment Committee, co-chaired by the G... |
AXA’s RI policy is supported by the RI Center of Expertise, a transversal working group from AXA’s local investment teams interacting with the CR network and the Group’s Asset Management entities. AXA IM has also developed a dedicated RI Governance involving all its central management teams and investment platforms. |
Insurance underwriting. |
Insurance-related ESG risks also benefit from a specific governance, notably the Group Underwriting Committee, which defines underwriting restrictions, including CR-related. The Group CR team provides a bridge with the RI-related governance. Within local AXA entities, Chief Executive Officers are required to actively e... |
In addition, a dedicated team within Group Risk Management analyses Emerging Risks (oft en related to long term ESG issues) via a specifi c framework, tools and local network in order to monitor their materiality and manage their potential impact on the AXA Group in the next 5 to 10 years. Regular reviews and in-depth ... |
Corporate Responsibility. |
AXA has established a robust governance framework to develop and implement its CR Strategy, including its climate, ESG, investment, and insurance underwriting dimensions. Every year, the Board of Directors’ Compensation and Governance Committee examines the Group’s CR strategy and reports to the Board of Directors on t... |
Between 2014 and 2020, AXA also leveraged its Stakeholder Advisory Panel(1) to advance the Company’s role as an insurer in building a stronger, safer and more sustainable society. |
As required by the EU “Non-Financial Directive”, AXA conducts an annual internal risk assessment to identify its main sustainability risks, grouped into the following main categories: social risks, human rights risks, environmental risks and risks related to business conduct. This process is further described in our An... |
More generally, AXA has developed a culture of stakeholder dialogue by working closely with a number of civil society partners, with a view to strengthening its understanding of evolving sustainability issues. |
Audit Risk & Compliance Committee. |
See “Risk Management” section. |
(1) www.axa.com/en/about-us/stakeholder-advisory-panel. |
10 AXA GROUP 2020 Climate Report June 2020 ● Responsible Investment Strategy. |
ESG integration ● Climate-related portfolio alignment ● Exclusions and sensitive ESG investments ● A green investment target and transition financing ● Impact investments ● Active stewardship 4. TCFD guidance: Strategy, Metrics & Targets(1) |
Responsible Investment strategy (1) AXA’s new (11/2019) phase in its climate strategy is based on several quantitative targets as well as signifi cant developments around innovative metrics. As a result, in 2020, AXA has chosen to combine the TCFD “Strategy” and “Metrics & Targets” sections for improved readability. |
AXA defines Responsible Investment as the integration of Environmental, Social and Governance (ESG) considerations into investment processes, including ownership practices. AXA’s conviction is that ESG integration may impact long-term investment performance by offering an enhanced understanding of risk drivers. This co... |
AXA’s RI strategy is based on the six main pillars below, which are developed in more detail in the following pages. |
ESG integration. |
ESG-integrated internal credit rating as the foundation of our Responsible Investment strategy. |
AXA Group has made ESG a cornerstone of its investment strategy thanks to a complete integration of ESG considerations into its qualitative credit assessment and investment processes since 2015 (see below). In 2019, AXA IM’s credit research team adopted a similar approach. |
AXA Group Credit Research Team assigns internal credit ratings (“ICRs”) and manages issuer eligibility for Fixed Income investments. ICRs cover more than 85% of AXA Group’s credit portfolio. For the remaining part, no ICRs are assigned. Ratings from external Credit Rating agencies are taken into consideration and a rev... |
Non-Financial Corporates. |
FINANCIAL FACTORS ❯ Profitability ❯ Cash flow coverage ❯ Leverage. |
BUSINESS FACTORS ❯ Industry ❯ Market position ❯ Strategy ❯ ESG & transparency. |
Financial Corporates. |
FINANCIAL FACTORS ❯ Solvency & leverage ❯ Asset quality ❯ Profitability ❯ Liquidity & funding. |
BUSINESS FACTORS ❯ Operating environment ❯ Market position ❯ Strategy & risk appetite ❯ Support ❯ ESG & transparency |
11 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets. |
The ESG & transparency factor is a key factor but not markedly different from the other credit factors considered when forming a credit opinion and assigning an internal rating. In some cases, it can be an overriding factor. It should be noted that the AXA Group Credit Research Team assesses the materiality of ESG cons... |
However, the ESG & transparency factor diff er from other factors in a number of ways. First, when material, it generally impacts other factors (e.g. strategy, market position, financial factors). It also often differs from other factors in terms of time horizon. It can be material within our usual rating horizon (arou... |
ICR may not fully incorporate ESG-related risks/opportunities but the AXA Group Credit Research Team can still take other actions such as proposing to stop investing or imposing maturity constraints. Those decisions are then implemented by asset managers investing on behalf of AXA Group in fully controlled mandates. |
The AXA Group, through its Group Credit Research Team, is a member of the UN PRI’s Advisory Committee on Credit Ratings (“ESG integration in credit”), aiming to enhance the transparent and systematic integration of ES G factors in credit risk analysis. |
Quantitative ESG-specifi c tools adapted for each asset class. |
This process includes alerts on ESG “minimum standards” rules based on KPIs, ESG scores and controversy scores to review and potentially exclude underperforming issuers from AXA’s portfolios. |
AXA tracks its investments’ ESG performance in detail by leveraging AXA IM’s tools. AXA IM launched a proprietary ESG scoring tool in 2007 which now provides access to a wide range of quantitative extra-financial data and analysis on issuers’ ESG factors across asset classes. It is used both for AXA’s General Accounts ... |
This tool, which provides ESG scores and key performance indicators (such as carbon footprint, water intensity) based on the ESG framework per asset class described below, is fed by information collected from the major expert sources in ESG analysis. The tool covers more than 8,000+ companies and provides ESG data on 1... |
The ESG methodology is adapted to diff erent asset classes by applying a diff erent framework on corporate issuers, sovereign issuers and real assets, as described in the following page. |
In addition to the full integration performed by the AXA Group Credit Research Team and AXA IM’s credit research team, AXA also uses KPIs and quantitative research across most of our assets. |
companies covered by AXA's ESG research 8,000+ |
EXAMPLE Assessment of the credit impact from ESG factors on Integrated Oil & Gas companies. Our analysis is based on six core dimensions: ❯ Emissions Management. Companies’ inherent environmental exposure can increase operational risks. Emissions management can help avoiding high legal and settlements costs and limitin... |
of the Group's Credit Portfolio covered by an internal credit rating85% |
12 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets. |
AXA IM’s RI Front Off ice Tool. |
AXA IM’s RI Front Office Tool has a complete range of functionalities, enabling portfolio managers to utilize it during the different phases of the investment decision-making process. |
AXA IM’s ESG tool emphasizes impact and materiality. It draws on fundamental principles, such as the United Nations Global Compact, the OECD Guidelines, the International Labour Organisation conventions, and other international principles and conventions that guide companies’ activities in the field of sustainable deve... |
ESG score also incorporates the concept of industry-dependent factors and deliberately diff erentiates between sectors, to overweight the most material factors for each industry. Materiality is not limited to impacts relating to a company’s operations, it also includes the impacts of its stakeholders and the underlying... |
ESG-related controversies are also analysed, with the most material controversies (for example resulting in fines) automatically resulting in a lower ESG score. Companies’ ESG evaluations are updated every six months. The list of criteria and sectorial weighting matrix that apply to the various ESG sub-criteria are reg... |
Corporates issuers (equity and debt) |
13 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets. |
Sovereign issuers. |
AXA’s ESG scoring framework for countries is based on public data sources such as the World Bank, the OECD, and the UN. It currently covers more than 100 countries, consisting of a spectrum of mature and emerging economies. This approach places the notion of sustainable development at the heart of ESG country assessmen... |
Real Assets. |
AXA has developed specific tools to assess the ESG performance of our Real Assets (Real Estate, Commercial Real Estate Debt and Infrastructure Debt, as well as, more recently, Infrastructure Equity): ❯ ESG scoring: Real Assets uses proprietary methodologies for calculating an ESG score for each asset or loan across our... |
We use a questionnaire to identify the risks, performance and opportunities of each asset, while taking sector-specifi c ESG issues into account. A detailed written explanation is required to be provided by the investment team for any new investment proposal which scores below 2/10, and a remediation plan is required t... |
Climate scenario analysis & stress-testing. |
Assessing the risks and opportunities related to climate change through scenario analysis is a rising priority across the fi nancial services industry. There is an increased interest and attention from insurance supervisors and industry bodies to start developing scenario analysis and stress testing, which can enrich o... |
While the section below focuses solely on climate scenario analysis from an investment perspective, it is worth noting that AXA closely monitors regulatory developments and participates in various regulatory and industry working groups related to the assessment. |
A rising regulatory concern of climate change risks for insurers, both in terms of assets and liabilities: ❯ EIOPA is pursuing its work to assess key fi nancial risks embedded in insurers’ asset portfolios in relation to the transition to a low-carbon economy. A secondary objective is to assess additional risks related... |
❯ ESG Data Management Platform: AXA IM Real Assets has a dedicated web-based platform to monitor key ESG performance indicators and the measurement of an asset’s environmental and social impact. We use this tool to calculate the annual ESG footprint for our real estate assets (energy consumption, CO2 emissions, water c... |
85% 95% 99% 74% corporate equities corporate debt sovereign debt. |
Real Estate. |
ESG analysis coverage |
14 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets. |
Achieving Carbon neutrality or “net zero” emissions requires striking a balance between anthropogenic emissions by sources and removals by sinks. To reach this target, the world will have phased out most CO2 emissions and will be employing methods that capture and store the remaining low levels of emissions (“offsettin... |
The 2018 “UNEP Emissions Gap” report(1) estimates that implementing the unconditional NDCs would lead to a mean global temperature of around 3.2°C, and analysts estimate that a “BAU world” (NDCs not implemented) would produce at least +4°C by 2100. |
(1) https://www.unenvironment.org/resources/emissions-gap-report-2018. |
While countries need to raise the bar of their current carbon pledges, the IPCC 1.5°C report published in 2018 also highlighted nations would have to target a 1.5°C scenario rather than a 2°C scenario to avoid unprecedented damages for biodiversity, human beings and the economy. This requires reducing carbon emissions ... |
2100 Warming Projections Emissions and expected warming based on pledges and current policies. |
Source: Carbon Tracker. |
Sources: IPCC 1.5°C report, AXA IM 2019. |
3.0°/3.2°C scenario (current countries' pledges) |
TO KEEP OUR WORLD WELL BELOW 2°C, WE NEED TO SAVE… 2°C scenario 1.5°C scenario …20 GtCO2 emissions by 2030 …35 GtCO2 emissions by 2030. |
The TCFD recommendations specifi cally state that organizations consider a set of scenarios, including a “2°C or lower” scenario, in reference to the 2015 Paris Agreement. The starting point for the analysis is to identify which scenarios will be used to assess potential implications of climate change on investments. |
Investment-related scenario analysis: the role of COP21 commitments 3.2°C. |
Mean global temperature increase by 2100 if COP21 national pledges are implemented |
15 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets. |
What is a climate scenario? |
A climate scenario is a forecast of the future based on projecting several variables, such as greenhouse gas emissions, cost and assimilation of technology, economic growth, demographics, use of “carbon sinks” (e.g. Carbon Capture & Storage). They lead to outcomes such as how much temperatures will rise and what this l... |
Scenarios often used by investors and companies are developed by the IPCC and the International Energy Agency (IEA). There are other scenarios developed by non-governmental organisations such as Greenpeace, academics such as Potsdam Institute, commercial data providers such as Bloomberg and energy players such as BP, R... |
Scenarios are a necessary simplification of real life which only focus on key variables and cannot integrate adequately changes which can be surprising, unexpected or disruptive. Most climate scenarios assume a future world in which the main economic parameters – GDP growth rates, demographics, political control – are ... |
Most “below 2°C” scenarios however require a rapid and radical shift in the energy supply and demand, such as a sharp decrease in fossil fuels, with coal and oil being squeezed out while gas remains in use. Renewable energy (wind, solar and biomass) increase signifi cantly, and nuclear usually remains a key part of the... |
Primary Energy mix by 2040 in below 2°C scenarios 14% REN 22% |
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