Yesterday (October 27) AXA received the top award in the “Best Investor Climate-Related Disclosures” contest organised by the French Minister of the Environment. This award confirms the relevance of initiatives in the area of climate finance.
Can climate change have material impacts on our investments? How do we identify and manage them ? These are the questions that the French government is asking AXA to report on, as well as all other investors based in France, starting this year. How did we answer this call?
The COP21 “Paris agreement” put investors at the forefront by striving to align financial flows with a “low-carbon” future. It is against this backdrop that France chose to develop this new piece of regulation, named “article 173”, which is an investor-focused subset of a broader “Energy Transition” law. In doing so, France became the first country to request that investors disclose advanced climate risks analyses, in an effort to encourage financial markets to fully integrate climate risks into financing.
AXA had already taken strong initiatives such as divesting from coal-related assets and measuring the “carbon intensity” of its investments. However, article 173 takes the debate to a more complex space by requiring investors (both asset owners and asset managers) to initiate a deeper analysis of “carbon-related” risks. These include reporting on how we integrate sustainability and climate-related considerations into our investment analyses, how we may be exposed to “carbon” risks (eg. as portfolio companies adjust or fail to adjust to a low-carbon economy), whether we conduct “carbon stress tests” on our assets (eg. in case of a high price on carbon), or even if and how we measure our investments’ contribution to energy transition scenarios. This information must be included in our main annual financial reporting.
To test answers to these questions ahead of the “article 173” regulatory deadline at year-end, we have decided to take part in an international “award” organized by the French government and designed to foster innovative reports. What have we found out?
We have engaged substantial work in order to develop a rigorous analysis. This has involved tapping into the expertise of different teams – Group Investments, Group Risk Management, AXA IM and Group Corporate Responsibility. We are treading new transversal and shifting grounds, with more open questions than answers. What we have started to learn is that there is no magic “climate KPI”, no silver bullets to understanding and measuring the nature of climate-related financial risks. Rather, a patient and tailored analysis of our investments, by asset class, by region, by industry, is what is needed. The full report can be accessed here: https://www.axa.com/en/about-us/low-carbon-investment
AXA’s submission received the top award. The international jury, which featured representatives from French and EU Public Administration, Members of Parliament, Investor Groups and NGOs, particularly praised AXA’s work on risk analysis as well as the overall consistency of our award submission.
This achievement is consistent with our vice-chairmanship of the FSB Task Force on Climate-related Disclosures (TCFD), also initiated during COP21 by the G20.This task force aims at making the principles of Article 173 implemented by all companies across G20 countries in order to help investors better understand how the strategy of the companies they invest in take into account climate-related risks. Both the TCFD and the Award on Investor Climate-related Disclosures embody this approach, which ultimately can drive us towards a green, inclusive and sustainable global economy.