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Gas 32%
Oil
27% Coal 5%
Nuclear
30% REN 24%
Gas 17%
Oil 20% Coal 9%
Nuclear
30% REN 24%
Gas 17%
Oil 20% Coal 9%
Nuclear
70% REN 12% Gas 3%
Oil 10%
Coal 4%
Nuclear.
Sources: AXA IM, Shift Project, IEA World Energy Outlook 2019, IPCC1.5, 2020.
Companies face planning challenges from the complexity and uncertainties of climate change. Addressing these challenges requires forwarding-looking planning processes and tools eff ective under conditions of uncertainty. Scenario analysis can be an eff ective tool for dealing with this uncertainty. It can inform strate...
IEA ETP - B2DS (<2°C)
Shell - Sky scenario (<2°C) IPCC - LED "Low Energy Demand" 1.5°C 2017
16 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets.
Climate change IAMs bring together diff erent types of information in a coherent framework that is usable by researchers and decision makers to answer questions such as “how can the world meet the 1.5°C or 2°C targets?”, and not just “how much emissions decrease is required and where?”.
IAMs can thus inform judgments about the relative value of options for dealing with climate change. The links between the various climate and non-climate modules that are inherently built into complex IAMs allow them to explore cascading eff ects, and how decisions in one area of the economy can aff ect other areas.
This allows, for example, to see how population and GDP growth could impact the demand for electricity and how that demand could be met in an optimal way by either maximizing the social impact or by minimizing costs.
By using models developed by our partner Carbon Delta (see section “Warming potential”), AXA leverages three specific IAMs (1) (3°C, 2°C and 1.5°C variants) and tested their respective impacts on investment value.
(1) These scenarios use a model developed by the Japanese National Institute for Environmental Studies which features detailed data regarding technology factors, a key component of Carbon Delta’s work. These are close to the IPCC “Shared Socio-Economic Pathways» (SSPs) scenarios.
IAM 1.5°C (MtCO2e)
IAM 2°C (MtCO2e) IAM 3°C (MtCO2e) 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 -10,000 0
10,000 20,000 30,000 40,000 50,000 60,000.
Indicators such as population, economic growth, low carbon technology use, energy system information, and land cover are used in the IAM scenarios and modify the outputs of these models. In particular: ❯ Demographics – In the 2°C and 1.5°C scenarios, population growth assumptions are still signifi cant but are lower th...
The resulting greenhouse gas emissions are modelled in the diagram below.
Integrated Assessment Models (IAMs): going beyond energy supply mix.
Integrated assessment model: 3 scenarios.
Source: Carbon Delta 2020.
The 2018 IPCC “Special 1.5°C Report” develops four scenarios achieving 1.5°C. They notably require the share of nuclear energy to increase by up to 501% by 2050 vs 2010. +501%
17 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets.
A diversity of climate-related metrics.
How are “transition” and “physical” climate risks defi ned?
According to the TCFD, companies and investors may face “transition” and “physical” risks: ❯ “Transitioning to a lower-carbon economy may entail extensive policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change. Depending on the nature, speed, and focus ...
These definitions are used by numerous organizations, and frequently referred to in this report.
Context Box.
Building on this approach to scenario analysis, AXA has tested different approaches to analyzing the “climate dynamics” of its investments since 2016. Building on previous eff orts, and as described in the table below, AXA has deepened its work by asset class, based on methodologies provided by external climate risk ex...
Contribution to global warming, expressed in temperature.
SOVEREIGN DEBT Warming Potential.
Carbon intensity Carbon Footprint, expressed in T eq.CO2/GDP.
METRIC WHAT DO WE MEASURE? ASSET CLASS DATA PARTNER.
REAL ASSETS Physical risks costs Building-level impacts of extreme weather events, expressed in €m.
Group Risk Management.
CORPORATE BONDS & EQUITY Transition risks costs.
Physical risks costs.
Impact of CO2 emissions reduction, expressed in % of revenues affected.
Green revenues Future green revenues, expressed in % of revenues.
Contribution to global warming, expressed in temperature. Warming Potential.
Impact of extreme weather events (asset damages and business interruption), expressed in % of revenues affected.
CORPORATE BONDS, EQUITY, SOVEREIGN DEBT, REAL ASSETS.
Carbon intensity Carbon Footprint of AXA’s portfolio, expressed in T eq.CO2/m$ of revenues.
Source: AXA.
18 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets.
Climate-related impact assessment: “portfolio alignment” & warming potential.
AXA’s commitment to achieve climate investment neutrality by 2050 and how to monitor progress using new “temperature” metrics.
As highlighted in this report’s introduction and “Scenario Analysis” section, the Paris Agreement’s goal to contain global warming below 2°C invites all market participants to reorient “fi nance fl ows” in line with this target. The TCFD guidelines expect “asset owners to describe how they consider the positioning of t...
This is why more and more investors are turning towards new types of analyses and corresponding metrics that seek to complement these efforts, while also presenting a more insightful response into what it means to be a “Paris-aligned” investor – and notably factoring the COPrelated NDCs. AXA investigates the concept of...
The concept is relevant, but methodology challenges remain signifi cant.
As explained above, the concept of “portfolio alignment” with the Paris Agreement requires testing innovative forward-looking metrics. Since 2018, AXA leverages a “transition risk” model developed by Swiss environmental fintech Carbon Delta (recently acquired by MSCI) which produces the “Warming Potential” (WP) metric ...
Indeed the WP methodology relies on a top down approach based on: ❯ countr y-level “Paris Agreement” commitments projecting carbon intensities to 2030 (the horizon of the NDCs presented to the COP21); ❯ gaps between NDCs and carbon emissions budget associated to various temperature scenarios (according to the UNEP Gap ...
One of the key features of Carbon Delta’s approach is to correlate macro level “carbon budgets” (describing carbon emissions and sinks at the global level) with companies (as individual carbon emitters) depending on their geographic footprint and sector, as well as business mix. This “temperature” concept provides a me...
By working with Carbon Delta, AXA developed a more balanced Warming Potential approach considering both companies’ absolute and sector-relative contributions to global warming. This combines a so-called “sector-specific” approach (which takes into account regulatory perspectives of a given country on its economic secto...
(1) This limitation is caused by data coverage regarding Scope 2 and 3 data. However, on a large portfolio level, this also reduces emissions overlap issues.
institutional investors disclosing “temperaturebased” portfolio alignment metrics in 2019 18 “Warming Potential” methodology
19 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets.
AXA’s Corporate Investments’ Warming Potential Sector Breakdown.
Equities Warming Potential ● MSCI ACWI's Temperature in °C AXA's Investments Temperature in °C ●
Basic Materials.
Utilities.
Energy.
Diversified.
Industrial.
Financial.
Consumer Cyclical.
Consumer Non-cyclical.
Technology.
Communications.
Others 0
1 2
3 4
5 6.
Warming Potential (°C)
Corporate Bonds Warming Potential ● BofAML Global Aggregate – Corporate's Temperature in °C AXA's Investments Temperature in °C ●
Energy.
Utilities.
Diversified.