The escalating threat of climate change means businesses rapidly need to take collective action. Matt Christensen, Global Head of Responsible Investment at AXA Investment Managers, believes the insurance sector can be a leader in helping drive this transformation.
The contribution that corporations, and indeed the world at large, need to make in order to mitigate climate risk was brought sharply into focus recently.
In December, delegates at the United Nations COP 24 climate conference in Poland were warned that the planet has reached a crossroads. Greenhouse gas emissions, after plateauing for four years, were once again on the rise.
The UN’s 2018 Emissions Gap Report revealed that global CO2 emissions from industry and energy production rose by 1.2% in 2017. Economic growth was responsible for this surge but it seems national efforts to cut carbon have stalled.
The scientific consensus in the Intergovernmental Panel on Climate Change (IPCC) report asserted that to avoid catastrophic and irreversible climate change, global temperatures must not go up by more than 1.5°C.
According to the UN, to keep the world below that target, global greenhouse gas emissions in 2030 would have to be 55% lower than they are today.
AXA IM Global Head of Responsible Investment, Matt Christensen believes that all businesses should be galvanised by the news and redouble their efforts to create a more sustainable global economy.
He believes the insurance industry in particular, “is uniquely well placed to influence and give momentum to sustainability efforts. And that applies to participants across all lines of business”.
Christensen adds: “It should include all key functions in an insurance company, from risk management and underwriting, through sales and marketing to investing”.
Christensen, who directs the development of AXA IM’s responsible and impact investment programme, is also tasked with integrating Environmental, Social and Governance (ESG) criteria across the firm’s €740bn of assets under management as of 30 September 2018.
This role includes developing innovative solutions which help AXA IM’s insurance clients invest sustainably while meeting their financial, accounting and regulatory needs.
Before joining AXA IM, Christensen was a member of the European Commission’s coordination committee, which explores the future of sustainability policy and legislation across the European Union.
He says: “It’s important to remember that sustainability is not only about the environment. Of course, insurers have a vested interest in future proofing their business models against catastrophic climate change but they can also drive positive changes for society in other ways, to do with accountability and transparency, for example”.
Cornerstone framework
Christensen believes that together, insurers, reinsurers, brokers and asset managers, can make a big difference – pointing to guidance put in place by the UN.
The cornerstone framework for the insurance sector consists of the UN’s FI Principles for Sustainable Insurance Initiative (the PSI Initiative). Its aim is to prevent and reduce ESG risks and better manage opportunities to provide quality and reliable risk protection.
The PSI provides a global roadmap to develop and expand the sort of risk management and insurance solutions that are needed to promote renewable energy, clean water, food security, sustainable cities and disaster-resilient communities.
Co-founded by 27 organisations in 2012, the initiative now has around 100 members worldwide, including insurers representing around 20% of global premium volumes and US$14 trillion in assets under management.
The PSI’s evolving principles are part of the insurance industry criteria of the Dow Jones Sustainability Indices and the FTSE4Good ethical index.
In November, having announced the decision to extend the Group’s climate policies to its new AXA XL division, AXA also announced its support for the PSI’s launch of its Climate Ambition Coalition, which starts in 2019. Members of the coalition will commit to actions on decarbonisation and climate resilience in their insurance and investment activities, and also raise their ambition in line with the Paris Agreement on tackling climate change.
Separately, UNEP FI has announced a partnership with 16 of the world’s largest insurers, including AXA. The group’s aim is to develop a new generation of risk assessment tools to give the insurance industry a better understanding of the impact of climate change on their business.
This latest high-level initiative focuses on assessing climate risks in insurers’ core insurance portfolios and products.
But Christensen believes there’s plenty of scope for insurers of all sizes to start making a bigger difference through smarter investment decisions.
ESG integration
“AXA IM was a pioneer in the ethical and sustainable investment domain, launching a fund in France in 1998 that integrated specific screening criteria. Today, ESG criteria is progressively being integrated into our investments irrespective of the asset class – across equities, bonds, high-yield, property, alternatives and so on,” Christensen says.
“As a responsible investment leader and as an investment manager with insurance heritage we’re uniquely positioned to advise clients.”
Christensen, who is in dialogue with AXA IM clients around the world, finds the pace at which responsible investing is developing varies across insurance markets.
He explains: “While some insurers are just starting out, others are beginning to align their investments with core values and business lines, for example in divesting fossil fuels. Others are quickly moving beyond ESG integration risk management onto impact investing opportunities, such as microfinance or green bonds.
“Being an early starter in sustainable insurance investing, we have developed the resources to help clients drive change through their investments. Not only that, we’re firm believers that ESG analysis can offer improved risk-adjusted investment returns, that are greater over the long term.”
Christensen’s conversations with insurance carriers around the world are taking on a new urgency. He believes this is in response to the human and economic toll of natural catastrophes – from historic wildfires in California to flooding across Asia because of unprecedented typhoons in the region.
He asserts: “Taking a lead role in mitigating climate change is no longer a ‘feel good’ issue: it’s a social issue and it’s a business issue.
“The insurance industry has the resources and expertise to make a real difference – and I’m proud to be a part of it at such a time as this.”
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