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Basic Materials.
Industrial.
Consumer Non-cyclical.
Consumer Cyclical.
Communications.
Others.
Technology.
Financial.
Warming Potential (°C) 0
1 2
3 4
5 6.
Source: Carbon Delta / AXA IM.
According to this work, the equity diagram reveals that AXA’s investments tend to have a lower temperature than the benchmark on carbon-intensive sectors: Basic materials, Utilities, Diversified and Energy. This is particularly significant on Energy sector where AXA’s investments have a lower Warming Potential by more ...
How can a large asset owner like AXA influence its corporate warming potential, bearing in mind the numerous regulatory and fiduciary constraints to which an insurer’s investments are subject? We believe that there is still room for action for investors, and AXA has acted. For example, our analysis shows that AXA’s cli...
However, coal divestment and green investments only slightly reduced AXA’s warming potential. Indeed they concern only.
AXA’s Warming Potential: 2019 corporate results.
Based on the methodology described above, AXA updated its analysis of the “warming potential” (WP) of its investments, both for Corporate securities (debt and equities, using Carbon Delta)(1) and sovereign debt issuers (using Beyond Ratings). A brief analysis provides the following insights.
Corporates: a wide sector diversity.
AXA’s equity warming potential slightly decreased from 3.26°C to 3.21°C between 2018 and 2019, our corporate debt WP decreased from 2.93°C to 2.79°C and our aggregate corporate equity & debt WP decreased from 2.96°C to 2.83°C – while a broad benchmark(2) on the same universe increased from 3.05°C to 3.07°C. This shows ...
A sector-level analysis comparing AXA’s warming potential vs benchmark provides further insights.
(1) These fi gures should not be compared to AXA’s 2018 fi gures (2019 Climate report) because of methodology evolutions which occurred at Carbon Delta. However, the 2018-2019 comparisons in this report are based on the same methodology.
(2) Benchmarks used in this report: MSCI World ACWI (equities), BofAML Global Aggregate Corporate (corporate debt), JPM GBI Global (sovereign debt).
3.2°C.
AXA’s 2019 equity assets warming potential 2.8°C.
AXA’s corporate debt assets warming potential
20 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets a small fraction of AXA’s overall corporate investments, and divestment has a gradual impact as coal and oil sands debt assets are run off over the course of several years. This is why this decision alone is insuff icient to bring ...
As analysed by the IPCC(1), the current climate pledges (NDCs) are broadly consistent with a warming of 3.2°C by 2100, and CO2 emissions show no sign of stabilizing yet. To achieve a “1.5°C world” two conditions must be met.
1) Shifting the energy mix. In the power sector, low-carbon energy sources (nuclear and renewables) will need to supply 70% to 85% of power by 2050. There is still room for fossil fuel generation combined with technology to capture and store CO2, but it will be limited: around 8% for gas and close to zero for coal by 2...
2) Shifting energy demand. Industry will need to reduce CO2 emissions by 75-90% by 2050 compared to 2010. Clean electrification, alternative lowcarbon fuel sources and CCS will be needed, as energy and process efficiency in industry by themselves are insufficient. Buildings and transport will need to shift heavily towa...
Context Box (1) Special report on Global Warming of 1.5°C.
AXA evaluates the warming potential of its Sovereign Debt assets using a different climate data partner (Beyond Ratings, recently acquired by the London Stock Exchange). Beyond Ratings follows an approach which is similar to that of Carbon Delta: it compares the future carbon abatement commitments that Governments made...
8%
The likely share of gas in the 2050 energy mix needed to achieve 1.5°C by 2100 0%
The share for coal-based power in 1.5°C scenarios by 2100.
Sovereign debt warming potential methodology.
GHG Emissions.
Population Population.
GHG Emissions.
Energy Energy.
GDP.
Population Population GDP.
Energy.
GDP.
NDCs that have been expressed in the Pari s Agreement are used to build a homogeneous allocation of CO2 emissions reduction commitments by countries by 2030. Countrylevel carbon intensities are then compared to 2°C compliant carbon intensities.
More generally, using the theoretical linear relationship between carbon emissions and temperature rise, Beyond Ratings defines a corresponding temperature based on country-level 2030 carbon commitment intensities.
4.6°C.
AXA’s divested coal assets warming potential
21 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets.
Yearly GhG emissions in a 2°C scenario by 2030.
Emissions Reduction Needed, higher than average effort Emissions Reduction Needed, lower than average effort Increasing Emissions Allowance No historical data.
Source: WoldwideClimatePolicy.eu.
Sovereign debt warming potential 2019 results.
Based on this model, the warming potential of AXA’s sovereign debt in 2019 reaches 2.8°C. Here also AXA’s warming potential has slightly decreased (3.0°C in 2018) while our benchmark slightly increased. This fi gure is significantly lower than the widely used market reference (4.04°C) thanks in part to our investment s...
Again, a closer analysis reveals wide disparities in terms of warming potential amongst sovereign issuers, according to this approach.
Sovereign allocation breakdown and Warming Potential 2019.
AXA Sovereign debt Benchmark.
Weight [%] Warming Potential [°C] Weight [%] Warming Potential [°C]
Australia 0.5 6.2 1.5 6.2 United States 4.3 5.5 42.4 5.5 Canada 0.3 5.0 1.3 5.0 Japan 14.2 3.5 20.2 3.5 Netherlands 2.4 3.3 1.4 3.3 Belgium 8.0 3.1 1.8 3.1 Denmark 0.0 3.0 0.4 3.0 Germany 6.3 3.0 4.9 3.0 Other countries 17.4 2.6 n.a n.a Spain 5.8 2.5 4.4 2.5 Italy 8.9 2.5 6.9 2.5 United Kingdom 2.3 2.2 6.8 2.2 France 2...
Sweden 0.0 -0.1 0.2 -0.1 Unmapped 6.0 n.a n.a n.a.
Total 100.0 2.8 100.0 4.0 2.8°C.
AXA's Sovereign debt assets warming potential 4°C.
AXA's sovereign debt benchmark warming potential
22 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets.
What situation does this aggregate figure reveal? As of 2019, 23% of AXA’s sovereign securities are invested in an issuer that has a WP below 2°C – i.e. France – significantly contributing to lowering our aggregated warming potential, while the benchmark is much less exposed to this issuer. France’s low WP is largely d...
According to the evolving methodologies explored in this report, AXA’s corporate investments (equities and debt) display a warming potential which is slightly below benchmark, and decreasing, while our benchmark is rising slightly. Our Sovereign debt investments, which are more concentrated, display a more pronounced g...
(1) UNEP Gap report 2018: “Implementing the unconditional NDCs would lead to a mean global temperature of around 3.2°C”.
Paris Agreement ideal goal / Net-Zero Asset Owner Alliance target.
Reference scenarios / BAU AXA benchmark 2019 Unconditional NDCs 2030.
Paris Agreement minimum goal 4.0°C 3.6°C 3.2°C 2.8°C 2.0°C 1.5°C.
AXA Aggregate portfolio 2019.
The main objective of the warming potential metric, which still requires getting certainty that tested methodologies are robust enough, is to provide a “sciencebased” reference point showing the extent to which today’s markets refl ect a course that is not on track to reach the goals set under the Paris Agreement.
Prudence must be exerted when analyzing these fi gures, as the underlying methodologies are still evolving (see work on this matter in following section “NetZero Asset Owner Alliance”). Yet, according to these metrics, given AXA’s current asset allocation and issuer selection, our investments support a rise in global t...
Five years aft er the inception of the Paris Agreement, and a few months ahead of COP26, this work confi rms that the world’s economies are not yet “Paris-aligned” and implementing the 2015 NDCs would not even be sufficient to achieve this target. Even the Covid crisis, which has pushed the world’s economy to an unprec...
In this context, while investors can reorient some capital flows, for example via divestments and sector reallocations, they remain largely dependent on a broader investment universe which evidences how economies are “trapped” into carbon intensive pathways. In a nutshell, the concept of “investment portfolio alignment...
2.8°C.
AXA's corporate and sovereign assets warming potential 3.6°C.
AXA's corporate and sovereign benchmark warming potential natural gas, leading to a significant “brown share”. In short, AXA has chosen to overweight France (1.9°) and underweight US (5.5°) and Japanese debt (3.5°), with a positive eff ect on its sovereign debt WP.
This analysis can serve as proxy indicators for transition risk & opportunities. Indeed, countries with a “cooler” WP are in principle on the way to successfully decoupling carbon emissions from economic activities, reducing the emissions of downstream sectors, and thus minimizing general exposure to regulatory costs r...
Considering AXA’s sovereign geographic exposure to the EU, a reduction in AXA’s sovereign WP will need to rely heavily on the phase out of coal in Europe and a corresponding rise in renewables and nuclear (e.g. France, UK). This is particularly relevant to AXA’s lending to Germany and Italy given their share of AXA’s a...
23 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets.
Net-Zero Asset Owner Alliance and TCFD “Implied Temperature Rise”
Despite the caveats outlined above, AXA believes that the warming potential (and other “investment temperature” variants), which is a forward-looking and dynamic concept, is a relevant answer to the need for portfolio alignment. It is akin to a “projected carbon footprint” but avoids the pitfalls of traditional carbon ...
This is why, following extensive methodology testing since 2017 and described in this report’s previous section, in November 2019 AXA decided to align its investments with the Paris Agreement, thereby committing to achieve a 1.5°C “Warming Potential” by 2050. This target can also be described as “carbon neutrality” sin...
Our conviction is that tackling climate change requires a broad transition eff ort that investors alone cannot achieve.
All sectors and companies have a responsibility to evolve while factoring social and business impacts, and it is the responsibility of investors to identify and support, for example through engagement, relevant transition strategies while factoring the risk of fi nancial losses.
We thus undertake this commitment in the expectation that governments will implement their own NDC commitments, and have joined and support the “Net Zero Asset Owner Alliance” (AOA), which is precisely designed for this agenda.
The AOA is an international group of institutional investors with a commitment to transitioning their investment portfolios to net-zero GHG emissions by 2050 consistent with a maximum temperature rise of 1.5°C above pre-industrial temperatures, taking into account the best available scientific knowledge, and regularly ...
In order for us to monitor progress and report against this 1.5°C target, the members of the AOA express a need to develop robust measurement methodologies. While various solutions, such as the warming potential work explored in this report, already exist, more convergence is needed. Indeed, AXA tested four different “...
$4.7tn.
Temperature comparison of various securities.
Company GICS Industry Group Name Country Provider 1 Provider 2 Provider 3 Provider 4 1 Consumer Discretionary USA NC 2° 3.1° 4° 2 Technology Hardware & Equipment United States >5°C 2° 1.5° 4° 3 Materials Luxembourg >2.7° >6° 6° 6° 4 Insurance France 1.5-2°C 2° 3.6° 4° 5 Pharmaceuticals Germany <1.5°C 2° 4.5° 2° 6 Mater...