Investing in a 1.5ºC world: aligning business with the Paris AgreementA major focal point of AXA’s new climate strategy is an overarching target to align its investments with the Paris Agreement, thereby committing to achieve a 1.5°C warming potential by 2050. But what exactly does being a 1.5ºC investor mean? And how does “warming potential” serve as a yardstick for measuring “Paris-alignment”? ALL ARTICLES | Innovation
Finance must act for climate
The Paris Agreement, which has now been ratified by 187 countries, has united most of the world in a concerted effort to limit the century’s global average temperature increase to a maximum of 2ºC above pre-industrial levels, and ideally 1.5ºC. AXA can play a key role in this regard: as a long-term institutional investor, the Group is well positioned to send out the right signals to the investment community, and to the companies in which it invests.
In fact, since 2015, AXA has acted on its investments by implementing a “divest / invest” strategy based on a green investment target and active coal divestment. This was later extended to its insurance underwriting business.
Taking the temperature
In the wake of the publication of our third Climate Report in July 2019, we are now launching our new climate strategy. This includes a decision to align our investment portfolio with the Paris Agreement. What do we mean by this?
The Paris Agreement invites all market participants to “reorient financial flows” in line with a +1.5C target. We tested this “investment temperature” concept in our 2019 Climate report, and now our target is to contain the “warming potential” of our investments under 1.5°C by 2050. We believe this concept provides a forward-looking picture of our investments’ “climate dynamics”.
How far are we from this target? Our current modelling shows that our investments have a 3.3°C “warming potential”. While this is well below our market reference of 3.7°C, it still is far from 1.5°C. This means most investors operate in a business environment which is not “Paris-aligned”, and where mainstream investment strategies can only lead to a world which is above 1.5°C. We remain largely constrained by a carbon intensive global economy.
This is why we undertake this commitment in the expectation that governments will implement their own commitments. We have also decided to join and support the recently launched “Net Zero Asset Owner Alliance”. As part of this Alliance, we will contribute to the development of metrics and methodologies: measuring the “warming potential” of investment is still work in progress.
AXA’s new climate strategy not only makes a commitment to this long-term transition, it also:
- Strengthens the Group’s coal policy and implements an exit strategy;
- Launches AXA’s Transition Bonds, a new type of bond used to finance energy transition projects, encouraging the move towards low-carbon energy technologies;
- A doubling of its green investment target from €12bn in 2020 to €24bn in 2023.