Axa’s CEO answers our questions on the role the industry can play in helping create a more sustainable future
What role can an insurer play in helping protect natural capital and reduce biodiversity loss?
A significant part of our economy relies directly or indirectly on nature. From the food industry to advanced chemistry or medicine, many production processes require healthy ecosystems. These “ecosystemic services” are critical because they would require considerable investments if they were to be provided artificially. For instance, alternative pollination could cost up to €153bn, far exceeding any economic viability.
However, with more than one million species under threat of extinction over the next decades, biodiversity loss endangers “ecosystemic services”, which threatens both society and businesses that depend on them, and in turn investors and insurers that rely on a well-functioning economy. Global warming is accelerating this trend, adding pressure on ecosystems through droughts, ocean acidification or more frequent severe meteorological events.
A lot still needs to be done to curb environmental losses, but I am confident insurers can play a central role through the right protection and prevention mechanisms.
Addressing biodiversity-related risks and opportunities is therefore a natural extension of Axa’s climate efforts. As early as 2013, we divested from unsustainable palm oil producers, which are known to cause massive disruption to ecosystems through deforestation. In 2019, we committed to funding biodiversity preservation projects through a dedicated €350mn impact fund. As insurers, we know healthy ecosystems are also key to mitigate some of the effects of climate change. Axa XL is leading the way through its “Ocean Risk Initiative” and the development of nature-based protection mechanisms for coastal areas.
A lot still needs to be done to curb environmental losses, but I am confident insurers can play a central role through the right protection and prevention mechanisms. Moving forward, the ability to build industry-wide initiatives and public-private cooperation will be key to maximise our collective impact.
What are the next steps in your efforts towards enhancing biodiversity protection?
A lot still needs to be done to provide a common framework for action. I see three main areas requiring extra efforts: coalition-building, metrics and political frameworks.
Regarding coalitions: back in 2019, we partnered with the WWF and published a joint report which reframed the biodiversity crisis as a financial risk. Our main recommendation, endorsed by the G7, was the creation of a Task Force on Climate-related Financial Disclosures-like “Task Force on Nature-related Financial Disclosures”, the TNFD. Since then we actively supported a large group of stakeholders crafting the TNFD. We are now fully focused on the launch of this coalition in close coordination with our industry peers, several governments and the UN. Once created, the main task of the TNFD will be to develop a framework enabling financial institutions to identify economic activities that have a material impact on biodiversity. This will allow investors to further incorporate nature conservation objectives into their asset allocation strategies.
2021 will be an important year for biodiversity with the upcoming COP15 on biodiversity in China this fall.
What are the key messages you will be taking to the COP26 climate talks and what are your hopes for outcomes?
We have entered what some call the “decade of action”. These few years that we still have ahead of us are crucial to try to curb global warming trajectories. This COP may be an opportunity for the US to reinforce the commitments made in Paris and to set new grounds for renewed multilateral climate cooperation, possibly in the form of a “Glasgow Agreement”.
COP26 is also an occasion for us all to acknowledge the concrete political progress made in recent years. The EU has ramped up its regional commitment to -55 percent by 2030 compared to 1990. Last year, China committed to achieve climate neutrality by 2060. And the US is now back in the Paris Agreement framework with new ambitious climate neutrality commitments. Of course, a lot still needs to be done, but we are going in the right direction.
Lastly, private finance is expected to play an important role in a successful transition to a net-zero carbon economy. In particular, the COP26 Private Finance Agenda is designed to mobilise action from the financial system to help achieve the 1.5°C goal of the Paris Agreement, notably through frameworks for financial reporting, risk management and returns. We fully support this agenda – indeed we already practice it.
In what ways does Axa link sustainability and ESG performance to remuneration for senior executives?
For several years, ESG performance and corporate responsibility have been taken into account in the remuneration of Axa’s executives. This year, we decided to go one step further to ensure alignment with our purpose, “Act for human progress by protecting what matters”.
Our purpose acts as a compass, and we want to make sure it is reflected in every aspect of the business. To do so, we developed a specific set of indicators, the “Axa for Progress Index”, which we presented during our last shareholders’ meeting. The index is based on seven mid- to long-term engagements that all Axa entities must follow such as carbon neutrality in our operations, the development of inclusive insurance solutions as well as our position in the Dow Jones Sustainability Index.
Results of the Axa for Progress Index will be integrated in the calculation of compensation packages, with a growing impact as we move forward.
How do you establish the ESG criteria that apply to both your investment and underwriting portfolios? Do you have the same criteria for both?
Our main focus today is to support the twin agenda of climate and biodiversity and inclusive protection. We always act both as an insurer and investor whenever we take a decision on an ESG or climate concern. However, these apply differently, and the dynamics are different. For example, we do not have the same kind of relationship with a corporate when we engage with them as an investor or their insurer. Also, as an investor, we necessarily have an opinion on a company – whereas as an insurer we can be nuanced and choose to support, or not, only specific aspects of their business.
What steps would you like the insurance industry to collectively take on these issues?
The insurance industry has done a lot over the last few years to protect populations from the consequences of climate change and to drive the transition of our economies. But we know a lot still needs to be done.
Looking to the future, we believe insurers can play an equally unique role by integrating carbon-neutrality objectives in their core insurance underwriting activities. Together with leading insurers and reinsurers, we recently announced our intention to create an UN-convened Net-Zero Insurance Alliance (NZIA). Axa will chair this new coalition, which should be launched later this year.
We are at the beginning of an ambitious journey, which can set new standards in the way insurers evaluate and select risks with growing attention paid to the impact of insured activities on climate change. The NZIA will provide a platform to further encourage “green” clients to thrive and carbon-intensive clients to shift to low-carbon business models. We know these are not easy commitments for insurers, but we believe they can represent a milestone in our industry’s involvement in the fight against climate change.
We are at the beginning of an ambitious journey, which can set new standards in the way insurers evaluate and select risks with growing attention paid to the impact of insured activities on climate change.