AXA & Climate Change

Climate Change threatens society

The science is clear : the IPCC (Intergovernmental Panel on Climate Change) Fifth “Assessment Report” presented evidence from the global scientific community that the Earth is warming at an unprecedented rate and that anthropogenic Greenhouse Gas (GHG) emissions are the main cause, in particular CO2. The likely impacts of climate change are well documented, and indeed some of the effects that had been predicted by science in the past are now occurring: for example, loss of sea ice, accelerated sea level rise and longer, more intense heat waves. The IPCC predicts that effects will include further melting ice and rising seas, resulting in flooding and erosion of coastal and low-lying areas. Some developing countries will be most affected, as local populations depend significantly on their natural environment and have less resources to cope with a degraded climate. Heat-related deaths and water-borne illnesses may increase. Many plants and terrestrial, freshwater and marine species are struggling to cope with a fast-changing climate and face an increased risk of extinction. Finally, local economies may suffer from increased damage to property and infrastructure and certain industries which rely most on environmental factors, such as agriculture, forestry, energy and tourism, may face decreasing revenues.

The Paris Agreement is the most relevant science-based roadmap for action

In December 2015, 195 countries gathered in Paris to negotiate and adopt the Paris Agreement. Countries that ratified the agreement legally bound themselves to collectively hold warming to “well below 2°C compared to pre-industrial levels” (period before 1750) and pursue best efforts to limit warming to 1.5°C by 2100. These thresholds were chosen based on the “level of destruction” they entail. Indeed, the risks associated with warming are substantially lower at 1.5˚C than 2˚C. The Paris Agreement also highlighted the role of investors.

In order to reach the global goal set out in the Paris Agreement, each country set out a Nationally Determined Contribution which outlines a carbon emissions reduction target and country-specific actions towards it. As these are voluntary and independently determined, whether the world achieves “below 2°C” will depend on the countries’ ambition to set and deliver the necessary GHG emissions reduction targets. Global warming scenarios or temperature goals can be translated into a global carbon budget. However, to be on track for the 2°C trajectory, global emissions should be significantly lower in just a few years than they are today. Indeed, the UNEP “Emissions Gap” report shows that the current global emissions pledges leave the world on a warming pathway of 3°C by 2100.

AXA’s position on climate change

The science and political ambition show there is a need for strong collective action to fight climate change. Climate change is a medium to long-term risk, with a complex quantification of impacts on our activities. AXA’s strategy is not only to adapt, but also to take advantage of our expertise to provide solutions. Indeed, insurers are well equipped to contribute to the understanding of climate change through their risk management expertise, the vast number of claims data they collect, and the research they can fund to address climate-related risks. They also have a duty to disseminate knowledge about new risks. Through their underwriting decisions, they can also show the risks society is taking and foster prevention actions to mitigate them. Finally, through their significant investments, they are also well positioned to send the right signals to the investment community and to the specific companies they invest in, for example by leveraging the framework developed by the TaskForce on Climate-related Financial Disclosures (TCFD).

AXA’s climate strategy currently includes the following initiatives:

• Investments: investing in green assets, Impact Investing, divesting from certain carbon-intensive industries (coal and oil sands), climate-related shareholder engagement, climate risk analysis with a long-term view. This work notably explores advanced “portfolio alignment” and “cost of climate” metrics in line with the TCFD framework. This insightful “temperature” approach helps to raise awareness on the need to factor “transition” pathways into climate risk analyses. See latest Climate Risk Report below for further details.
• Insurance: underwriting restrictions on the coal and oil sands industries, “green/sustainable” products in both Property & Casualty and Life & Savings ranges, promotion of new insurance solutions designed for developing countries (typically parametric insurance). As a signatory of the UN Principles for Sustainable Insurance, AXA is committed to “work together with our clients and business partners to raise awareness of environmental, social and governance issues, manage risk and develop solutions.”, as mentioned in the Principle n°2. When relevant, AXA will discuss about Climate or ESG material issues with some of its Corporate clients, and on a more long term and systematic approach, AXA has also initiated this conversation with some of its brokers, either on a one to one format or in the context of the UN Principles for Sustainable Insurance initiatives and forums. See latest Climate Risk Report below for further details.
• Operations: direct environmental footprint targets covering energy & carbon emissions, water and paper (see Environmental Footprint Management).
• Thought leadership, NGO partnerships, academic research (AXA Research Fund), public / private partnerships to foster prevention. See latest Climate Risk report for details.
• More recently, the Group has also decided to start addressing the interrelated issue of biodiversity loss through a comprehensive strategy that will be gradually rolled out. See for example AXA’s first report, with recommendations co-signed by AXA and the WWF, on the connections between biodiversity loss and investments.