Nick Holmes is a guest contributor at IEEFA.
At the COP26 summit, leading global insurance firm AXA announced an important step forward in its strategy to combat climate change. It has considerably extended its restrictions on both investing in and insuring new oil and gas projects.
This comes after AXA already established itself as one of the insurance world leaders in combating climate change by being the first insurer to divest from coal back in 2015.
What’s new in AXA’s statement?
As climate risk-adverse investors are only too aware, it is easy for financial institutions to talk and then fail to act.
There is one major potential weakness in AXA’s new policy. It says it won’t exit all oil and gas companies if they are making a genuine effort to transition from fossil fuels to renewables.
How worrying is this?
In our opinion, there are three reasons why we can, on balance, trust AXA.
First, it says its selection process currently limits it to less than 5% of the approximately 650 companies identified in the Global Oil and Gas Exit List by Urgewald.
Actions count, public leadership more so
Second, a compelling example of putting words into action occurred this year when AXA parted ways with the major German utility, RWE. AXA decided RWE was not serious enough about its transition from coal to renewables. The result was that AXA severed all ties with the company. Actions count, public leadership more so.
Third, AXA says that its screening process will increasingly focus on science-based protocols such as the upcoming Science Based Targets initiative (SBTi) +1.5°C framework for oil and gas. This should help to make its selection criteria more objective and robust as the financial world increasingly aligns with its net zero emissions and 1.5°C pledge, along with strong interim 2030 targets as outlined by the Glasgow Financial Alliance for Net Zero, which IEEFA estimates has now reached over US$100 trillion of collective assets under management.
AXA’s climate record
Another point worth highlighting is AXA’s strong track record in delivering on its climate promises.
It was the first insurance company to divest from the coal industry in 2015. It ended insurance coverage for coal plants and coal mines in 2017, and now four years later over 180 globally significant financial institutions have followed suit.
Finally, in 2019, it decided to end its client relationships with large, diversified energy companies if they were not sufficiently committed to an accelerated coal exit aligned with climate science (such as RWE).
AXA stopped providing insurance coverage for oil and gas drilling since 2017
With unconventional oil and gas activities, AXA has also led the way.
In 2017, it divested from oil sands-related businesses (defined as companies deriving more than 20% of their revenue from oil sands, including pipeline operators) and stopped providing insurance coverage for oil sands production and related transportation (pipelines).
Since 2017, AXA has stopped providing insurance coverage for oil and gas drilling in the Arctic region.
It should also be mentioned that AXA is a leader in protecting biodiversity. For example, two weeks ago it announced that it will invest 1.5 billion euros to support sustainable forest management. With more than 60,000 hectares of forests in its portfolio, AXA Investment Management is a visibly active player in this area.
AXA is chairing the Net-Zero Insurance Alliance this year. Therefore, it’s important that it leads by example.
We think it’s doing just that. It is now up to the rest of the insurance industry, not just in Europe but worldwide, to do the same.
IEEFA guest contributor Nick Holmes was an equity analyst and is a former Managing Director and Head of Insurance at Société Générale Investment Bank.