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24 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets. |
A call for methodology convergence. |
Rather than disproving the concept of investment temperature, AXA believes that this situation calls for rapid methodology convergence. This is why AXA coordinates the AOA’s “methodology” sub-group and, together with our AOA peers, we launched a “Call for Comments” designed to encourage methodology convergence around a... |
These include 1.5°C portfolio alignment, forward-looking approaches, a use of GHG footprinting Scopes 1, 2 and 3, considerations regarding back-testing, open data, sector biases, climate scenarios, coverage, targetsetting & reporting capability, replicability, stability, “pluggability” into existing fi nancial data sys... |
(1) https://www.unepfi .org/wordpress/wp-content/uploads/2020/04/AO-Alliance_Request-For-Comment-on-Methodological-Principles_FINAL.pdf. |
A bridge with the TCFD and COP26. |
In addition to this work, AXA supports similar work within the Task Force on Climate-related Financial Disclosures. The TCFD, in its eff orts to make recommendations for more eff ective climate-related reporting, is considering metrics asset owners and managers could disclose to convey the climate-related risks and opp... |
25 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets. |
Climate-related risk assessment: AXA’s “Cost of climate” |
Here as well, AXA leverages a model developed by Carbon Delta based on the following three pillars: ❯ Transition (or “regulation”) risk costs: The low carbon transition, both via market and regulated evolutions, may signifi cantly impact business models. This will likely create economic losses in the form of “regulatio... |
Costs and opportunities are then combined and translated into a “Company cost of climate” indicator. As detailed in the aggregate table below, our exploratory analysis also shows that, on aggregate, when using a 1.5°C scenario, the companies we invest in may lose 10.2% of their total revenues in transition costs, and 8... |
Ultimately, and according to this methodology, AXA’s net “company cost of climate” appears to be equivalent to an average 10.5% of the turnover of the companies we invest in. This would translate into a 3.3% reduction in AXA’s investment value, which could be described as a “portfolio cost of climate”(1). However, this... |
Although currently AXA does not leverage this complex and evolving KPI in its day to day investment decisions, this metric provides an insightful of the possible climate-related financial risks that may be incurred by investors should its underlying assumptions be suddenly realized. |
Some companies will likely be far more impacted by climate change than others. Using a 3°C scenario (vs 1.5°C) roughly halves the final Cost of climate, as this scenario is less demanding in terms of corporate eff orts. |
10.5% |
AXA's “Company cost of climate” 3.3% |
AXA's “Portfolio cost of climate” (1) These fi gures may not be compared with those disclosed in our 2019 Climate report. Here also, methodology changes have occurred, and the 1.5°C scenario used this year (in line with our AOA commitment) is more demanding than the 2°C scenario used in 2019. |
In addition to the warming potential approach, which embodies the impact that our investments may have on the climate, climate risk analysis can also be undertaken from a business/investment risk perspective to assess how climate change may impact investment returns. |
26 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets. |
Investment carbon footprinting – a 2014-2019 trend analysis. |
In addition to the forward-looking metrics explored above, AXA also conducts a more static snapshot year on year of its investments’ carbon footprint since 2014, as part of its commitment towards the “Montreal Carbon Pledge(1)”. The December 2019 analysis spans our equities, corporate debt and sovereign investments, wi... |
Historical trend – AXA’s CO2 Footprint ● Corp Bonds + Equities + Sovereign Corp Bonds + Equities ● |
CO2 intensity in tons of CO2 / mns $ revenues or GDP 0 |
50 100 150 200 250 300 350 400. |
Dec 2014 Dec 2015 Dec 2016 Dec 2017 June 2018 Dec 2019 Dec 2018 380 337 302 264 247 277 281 264 229 212 205 217 190 235. |
Sources: Trucost S&P, AXA IM. |
Since 2014, the carbon footprint of AXA’s investments (equities, corporate and sovereign debt) has gradually decreased. Considering an exhaustive scope (Corporate + Sovereign Investments), it has decreased by 30.6% between December 2014 and December 2019. Focusing on our Corporate investments, the carbon footprint has ... |
However, using this metric as a direct decision-making tool would push investors away from sectors that may be developing adequate solutions for the energy transition; instead it is best to avoid this pitfall and view carbon footprinting as a raw data metric for the more relevant indicators explored in the previous sec... |
Investment-related climate metrics: green share. |
The contribution to the energy transition, which is separate from but related to the warming potential, can be measured via an analysis of the proportion of activities that comply with a given green taxonomy. The green share for listed investments is the value-weighted average share of revenues of issuers in portfolio.... |
For corporate investments, we rely on Trucost S&P’s methodology, which decomposes the revenue mix of companies according to a proprietary taxonomy closed to the French Label “TEEC(2). We use an extended version of this taxonomy which combines “deep green” activities and “green candidates”, which will evolve over time. ... |
In December 2019, the green share of AXA’s corporate investments (equities and debt) was 4.9%, slightly below a benchmark of 5.4%. This reflects a higher green share vs benchmark for equities, that is more than off set by a lower green share vs benchmark for corporate debt (with larger exposure). Indeed our fixed incom... |
(1) https://montrealpledge.org/ (2) The French SRI label "Transition Énergétique et Écologique pour le Climat". |
However, our sovereign “green share” stands at 21.5% vs a benchmark of 14.5%. A weighted average of these three asset classes produces a 14.3% green share, which is significantly lower than our benchmark of 10.6%. Here also, our exposure to French treasury debt, inheriting France’s uniquely low carbon energy mix, playe... |
-31% |
AXA's 2014-2019 investment carbon footprint 4.9% |
Green share of AXA's corporate investments |
27 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets. |
Investment-related climate metrics: full dashboard. |
The table below summarizes the main KPIs analyzed in the sections above, namely AXA’s warming potential, transition costs/physical risks costs/green revenues leading to a computation of our ‘Company cost of climate’ and ‘Portfolio cost of climate’ as well as carbon footprint and green share. The conclusions of our anal... |
Measuring the carbon footprint of our insured clients. |
AXA supports a pioneering project undertaken by the Chief Risks Off icers’ Forum attempting to evaluate the carbon footprint of their underwriting portfolios, namely our insured clients. Methodology principles were published in May 2020(1), summarizing a range of options and obstacles, such as, similarly to investment ... |
(1) See https://www.thecroforum.org/2020/05/01/carbon-footprinting-methodology-for-underwriting-portfolios. |
Climate metrics: full dashboard. |
Metric. |
Warming potential (°C) 2018 3.26 3.08 2.93 3.05 2.96 3.05 3 4.01 2.98 3.53 2019 3.21 3.03 2.79 3.07 2.83 3.07 2.8 4.04 2.81 3.62. |
Evolution -0.05 -0.05 -0.15 0.02 -0.12 0.01 -0.2 0.03 -0.16 0.08. |
Physical Risks cost (% of total revenues) Average Scenario 2019 -9.33 -9.61 -7.84 -10.15 -8 -10.09 n.a n.a -8 -10.09. |
Transition cost (% of total revenues) Scenario 1.5°C 2019 -8.67 -12.38 -10.37 -16.84 -10.18 -16.35 n.a n.a -10.18 -16.35. |
Green revenues (% of total revenues) Scenario 1.5°C 2019 10.91 10.04 7.34 7.48 7.74 7.76 n.a n.a 7.74 7.76. |
Company cost and opportunity of climate (% of revenues) Scenario 1.5°C 2019 -7.09 -11.96 -10.86 -19.51 -10.45 -18.67 n.a n.a -10.45 -18.67. |
Physical Risks cost (CVaR) Average Scenario 2019 -3.76 -4.17 -0.06 -0.19 -0.47 -0.63 n.a n.a -0.47 -0.63. |
Transition cost (CVaR) Scenario 1.5°C 2019 -5.49 -9.47 -3.5 -3.8 -3.72 -4.43 n.a n.a -3.72 -4.43. |
Green revenues (CVaR) Scenario 1.5°C 2019 7.47 7.29 0.04 0.15 0.86 0.94 n.a n.a 0.86 0.94. |
Portfolio cost and opportunity of climate (% of investment value) Scenario 1.5°C 2019 -1.79 -6.35 -3.52 -3.84 -3.33 -4.12 n.a n.a -3.33 -4.12. |
Carbon footprint 2018 209 278 282 314 277 311 178 238 217 275 2019 196 251 240 305 235 299 170 239 190 265. |
Evolution -13 -27 -42 -9 -42 -12 -8 1 -27 -10. |
Green share (%) 2019 9.1 7.9 4.4 5.1 4.9 5.4 21.5 14.5 14.3 10.6. |
Timeframe. |
AXA equities. |
Benchmark equities. |
AXA Corp debt. |
Benchmark corp debt. |
AXA aggregate corporate securities. |
Benchmark corporate securities. |
AXA sovereign debt. |
Benchmark sovereign debt. |
AXA aggregate. |
Benchmark aggregate |
28 AXA GROUP 2020 Climate Report June 2020 4. TCFD guidance: Strategy, Metrics & Targets. |
Flood AAL (left ) and Windstorm AAL (right) split by country. |
Factoring the “physical risks” of Climate Change into Real Assets investments. |
In addition to the above climate impact assessment conducted for corporate and sovereign assets, climate change, and in particular extreme weather events (“NatCats” in Insurance jargon), may impact “Real Assets”, such as real estate and infrastructures(1), which are primarily subject to so called “physical risks” in TC... |
Since our fi rst Climate report (2016), AXA conducts an analysis on a selection of property assets. In 2020, this analysis covers a scope of more than €35 billion of Direct Property. AXA’s Investments and Risk Management teams evaluated the financial impact of floods and windstorms on the properties that they manage in... |
Compared to last year’s exercise, the model used for risk assessment has evolved. The scope of European Flood has been extended to Switzerland and European Wind modelling has been updated. For next year, it is planned to include impact of hail in Europe. |
Consistent with our previous studies, both annual average losses (AAL), as well as losses generated by one in a hundred years flood and storm events, remain limited compared to the total asset value. Results of our assessment based on the average annual loss are detailed on a country-level in the fi gures below. |
Natural hazard risk is driven by three components: the hazard (defi ned by its severity and frequency), the exposure (characterized by the building’s physical properties) and the vulnerability (defi ned by destruction rates, function of the hazard and the exposure). |
(1) Insurance-related physical risks/natural catastrophes are described in “Risk Management” section. |
AXA’s real estate portfolio split by country on the left panel, contribution of Wind and Flood perils to the annual average loss €4.3m €6.2m. |
AXA’s Real Estate Annual Average Loss to Floods AXA’s Real Estate Annual Average Loss to Windstorms 6% |
Belgium 5% |
Australia 7% |
United Kingdom |
28% France 23% Switzerland 4% |
Spain |
3% Italy |
3% USA |
2% |
The Netherlands 12% |
Germany 5% United Kingdom 13% USA 18% |
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