This is a snippet of the full article originally written by Cintia Cheong for Environmental Finance.
Axa Group has calculated the potential value at risk (VaR) in its asset portfolio due to climate change, in a ground-breaking piece of analysis for an insurance company.
The analysis is published in the insurer's first report that complies with Article 173 – the French law on climate risk disclosure – and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
Axa calculated the climate VaR for the group's holdings of equities and corporate bonds – which represent 45% of its general account assets – to understand the impact that future climate costs and/or revenues might have on the price of these securities.
The VaR figure represents the percentage of a company's market value that would increase or decrease under particular scenarios.
Axa found that its corporate bonds have a far lower exposure to climate risks than equities, mostly because they pay coupons steadily over time.
In a scenario where average global temperatures rise by 2°C, the group would suffer a $904 million loss in its €16 billion ($19.3 billion) equities portfolio, with a climate VaR of -3.7%. But its €187 billion ($226 billion) bond portfolio would suffer a dent of only $24 million, with a climate VaR of 0.01%.
Axa has emphasised the preliminary nature of the analysis, saying it is still examining whether the approach could be used to manage its equity and bond investments.
You can read the full, original article published in Environmental Finance here.