Engagement theme: Climate change
Climate change is one of the central pillars of AXA IM’s engagement with companies. While this theme is transversal and relevant to all firms from all sectors, we focus our efforts where materiality is greatest, notably energy (hence the relevance of UN SDG 7 and SDG 13), but also banks – through their lending policies as well as the building materials industry.
In 2021, as the world economy rebounded after the sharp pandemic driven drop in 2020, so did greenhouse gas emissions, helped by the highest ever level of coal power generation. It is therefore not surprising the concentration of carbon dioxide (CO2) in the atmosphere reached its highest recorded level since the industrial revolution1 . The challenges of the energy transition, i.e. weaning ourselves off hydrocarbons and fossil fuels, are still very prevalent and unchanged by the pandemic.
On the climate change front, three key moments marked 2021:
- The IEA published a net zero roadmap for the energy sector in May, presenting a very demanding and challenging path to limit the increase in temperature to +1.5°C from pre-industrial times2 . This body of work has quickly become a reference for many discussions and a source of intense debate
- The IPCC published an essential report in August on the physical science basis of climate change. One of its many statements is stark and clear: “It is unequivocal that human influence has warmed the atmosphere, ocean and land”3
In November, in Glasgow, the COP26 convened. Participating countries, although they failed to address several issues, progressed on several others and overall increased their pledges to reduce emissions
The 2015 Paris Agreement called for limiting global warming to well below 2°C and ideally 1.5°C. According to the IPCC, the world has already warmed by 1.1°C. Looking at actual emissions and current pledges, some observers concluded that the world is on track to limit the increase to below 2°C, but a less optimistic analysis pointed toward closer to 2.5°C4 . More needs to be done.
In 2021, we focused our research effort on the energy transition and the oil and gas industry. We published the following reports:
- An analysis of the IEA net zero report (June)
- The role of methane in climate change and its place in the energy transition (September)
- An assessment of Europe’s oil and gas climate change strategies (October)
- Measuring emissions from the world’s oil and gas fields (December)
The findings from this research will be of direct use while engaging with companies in the oil and gas value chain.
Our engagement goals and activity
Regarding engagement, the year was notable for the first ‘say-on-climate’ resolutions at several annual general meetings (AGMs) where firms outlined their climate action plans. In this context, we engaged and held detailed discussions with French groups TotalEnergies and Vinci. We also signed a letter with other investors, coordinated by Climate Action 100+, to be read at TotalEnergies’ AGM highlighting potential areas of improvement in the group’s climate strategy. We also participated in collective engagements with French utility Engie5 , car maker Renault6 and Colombia’s Ecopetrol7 , three companies which went on to significantly improve their climate commitments.
Through our votes, we contributed to the election of three new board members at US oil group ExxonMobil, against the explicit wishes of the management.
Increasingly, the discussions we are having while engaging on climate are becoming more detailed and specific. Beyond the minimum requirements of having both a long-term ambition and mid-term targets aligned with Paris Agreement goals, we are asking companies to be very detailed about their actions, the alignment of governance and capital allocation with the strategy and the inclusion of their whole value chain in their climate strategy. We also encourage transparency around the implementation of these commitments through public reports. At AXA IM, we believe that this holistic approach is necessary to assess the credibility of those strategies and is consistent with the systemic nature of the energy transition. When sector frameworks exist, we encourage investee companies to set science-based targets, and we therefore supported the annual CDP-related investor statement8 .
Outcomes and next steps
Overall, although it is often difficult to identify a perfect line between engagement and action, many companies we engage with on a regular basis, individually or collectively, have improved their climate policies, committing to net zero and/or enhancing their targets.
- UNEP - Emission Gap Report 2021: https://wedocs.unep.org/bitstream/handle/20.500.11822/36991/EGR21_ESEN.pdf Glasgow’s 2030 credibility gap - Climate Action Tracker: https://climateactiontracker.org/documents/997/CAT_2021-11-09_Briefing_Global-Update_Glasgow2030CredibilityGap.pdf
- https://www.engie.com/sites/default/files/assets/documents/2021-05/ENGIE SU 2021 Presentation VDEFF.pdf
- 220 financial institutions across 26 countries are pressing 1600 companies to set emissions reduction targets through the Science Based Targets initiative to ensure that corporate ambition is independently verified against the de-facto industry standard for robust and credible climate targets. From July 2022, these must be aligned with a 1.5°C pathway to be approved. Financiers with $29 trillion ask 1600 companies for science-based targets ahead of COP26 - CDP. CDP (formerly the Carbon Disclosure Project) is a donor- member- and government-funded organisation that runs a global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts.