AXA trims portfolio's 'warming potential', as company warns of climate costs

AXA has today published its fourth annual Climate Report, detailing how its efforts to align its investments with the Paris Agreement have led to a reduction in the 'warming portfolio' of its portfolio over the past year.

The report reveals how at the end of 2019 the 'warming potential' of its investments stood at 2.8C - still well above the 'well below' 2C goal set out in the Paris Agreement, but a marked improvement on the 3C projection for the portfolio that was recorded at the end of 2018.

The company also highlighted how the 2.8C trajectory for its investments compares favourably with an industry average of 3.6C.

Thomas Buberl, CEO of AXA, said the report - which is in line with the French law on energy transition for green and ecological growth and the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) - provided "an essential tool for measuring the effectiveness" of the insurance giant's climate strategy.

The company has recently pledged to ensure its investments are in line with a 1.5C warming scenario by 2050, and to support the goal it has committed to mobilising €24bn of green investments by 2023 and ensuring it has no coal assets in its portfolio by 2040.

However, Buberl acknowledged that the report "shows that we must collectively pursue our efforts to achieve the objectives of the Paris Agreement, notably in the context of the post-Covid 19 economic recovery."

The report also reiterates AXA's previous warning that "a 4C world is not insurable" and highlights the scale of the risks the company and the wider investment sector faces as climate risks escalate.

Specifially, the report calculates projected climate-related costs in 2030 under a1.5C warming scenario for the companies AXA invests.

"Our exploratory analysis also shows that, on aggregate, when using a 1.5C scenario, the companies we invest in may lose 10.2 per cent of their total revenues in transition costs, and eight per cent of revenues to physical costs, but this is partly offset by green revenues equivalent to 7.8 per cent of total revenues, thanks to integration of current green revenues and the results derived from forward-looking green patent investments," the report states. "Ultimately, and according to this methodology, AXA's net "company cost of climate" appears to be equivalent to an average 10.5 per cent of the turnover of the companies we invest in."

The report calculates that the projected loss of revenues would translate into a 3.3 per cent reduction in AXA's investment value, but it also warns that "this averaged figure necessarily smoothes out heterogenous impacts amongst market players: some will likely be far more impacted than others".

It also notes that costs could be lower in 2030 under a 3C scenario, as businesses would face lower transition-related costs. But then physical climate risks would increase drastically later in the century under such a scenario as climate impacts escalate.

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