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Green
Finance
A $1 Trillion CEO Has to Choose: Burn the Client or
Burn the Carbon
Running the greenest insurance giant means Axa
CEO Thomas Buberl has to make a sacrifice By
Alastair Marsh
March 15, 2022
The glass tower in Paris where Axa
SA, one of the world’s largest insurers, has its temporary
headquarters looks as if a giant feral cat has ripped chunks out of
it. In recent months that jagged feeling extends inside, too, as
senior executives prepared to claw off an extraordinarily profitable
part of the company’s $20 billion business: the oil and gas clients
whose ties to the insurer go back decades.
Axa has made a name for itself more recently as a climate leader among
financial institutions. It was the first of its peers to divest from
coal and restrict the kinds of insurance it would offer to
businesses mining and burning the dirtiest fossil fuel. It strives to
take the temperature of its more than $1 trillion portfolio of
investments, measured in increments of future
warming, something few companies of its size and complexity
have tried. There’s even an official corporate policy to be un
leader du climat — it’s made a public commitment to regularly
“ramp up” its ambition and take further steps to “shape the climate
transition,” including by further cutting the carbon footprint of its
assets.
![](images/images_03_16_2022/pic1.png)
Axa’s temporary headquarters are located in the Majunga office
tower in the La Defense business district of Paris.
Photographer: Francois Guillot/AFP/Getty Images
But dividends for climate leadership can be ephemeral on a balance
sheet. Taking a hard line against greenhouse gasses carries a much
clearer upfront cost for an insurer ranked among the top 10
underwriters of oil and gas worldwide.
The pressure
of corporate profits weighing against planetary losses
surfaced in a PowerPoint presentation put together by Axa’s main
sustainability council last September. The so-called Role in Society
Steering Committee is made up of about 45 climate-focused people from
corporate social responsibility and risk teams and executives who
specialize in sustainability and what Axa terms “inclusive insurance.”
Their main recommendation: Axa should move to curtail ties to the oil
and gas industry as a natural next step for a company already
operating under a loud and proud net-zero commitment.
The slide deck laid out various limitations that could come next. Axa,
which already bans contracts involving tar sands and Arctic drilling
operations, might set a policy against financing or insuring
additional “unconventional oil and gas exploration,” a category that
includes fracking and ultra-deepwater drilling. One slide displayed a
map showing different demarcations of the Arctic’s boundaries, with a
red line suggesting a larger area might be subject to more severe
restrictions.
“We cannot be part of the solution if we antagonize those many
clients”
But the presentation also included powerful dissenting comments from
Axa’s underwriters. For them, a boundary in the Arctic region — or any
other new climate line — would sever lucrative relationships. Axa XL,
the property and casualty insurance unit responsible for most of the
company’s oil and gas business, saw a risk that aggressive policies
could hollow out the franchise. Staff would quit, taking technical
know-how with them; clients would defect. The total projected loss to
core business could reach $1 billion.
This wasn’t exactly a what-if scenario for Axa’s fossil underwriters.
The XL team joined the company in a 2018 acquisition and had to take
on board the insurer’s existing coal restrictions. That process led to
the forced termination of some client relationships, and the XL
underwriters dreaded a repeat in the more lucrative oil and gas
business. The counter-climate case was clearly stated, quoted in full
in the deck: “We cannot be part of the solution if we antagonize those
many clients who are diverting their [oil and gas] profits into
offshore wind farms, by walking away from them on the start of this
challenging journey.” By cutting off some oil and gas projects, Axa
faced a bigger risk than an exodus of energy clients. The insurer
stood to lose out on the substantial renewable energy businesses of
the green future being built by today’s oil and gas giants.
Take TotalEnergies
SE, a pillar of French business that, in addition to being
Europe’s second-largest oil producer, is one of the region’s top
clean-energy players. Refusing to insure Total on an oil project might
mean losing out on the renewables business, too. Axa also manages a
lucrative retirement program for Total employees.
Whether to burn
clients or burn carbon is a choice facing every banker,
insurer, and investor. Few are grappling with the trade-offs to the
degree Axa is, making it a case study in the climate transition.
Others are trying to have it both ways. A prime example is BlackRock
Inc., whose first big move in 2022 was to rule out
divestment from oil, gas, and coal companies. In the same annual
letter on Jan. 18, Larry Fink, chief executive of the $10
trillion firm, put the responsibility for action on the companies
themselves, invoking the dodo to describe those clinging to
carbon-heavy business models.
More than 450 of the world’s biggest finance companies, including
BlackRock, have pledged to cut financed emissions from their
portfolios and loan books in half by 2030, which would amount to a
major move toward zeroing out planet-warming pollution by midcentury.
That’s the commitment banks and asset managers made when joining the Glasgow
Financial Alliance for Net Zero, which emerged alongside
last year’s United Nations climate talks in Scotland. (Michael
Bloomberg, the owner and founder of Bloomberg LP, is co-chair of the
alliance.)
Activists tend to frame the decision as a contest between short-term
and long-term thinking. “Adopting meaningful net-zero targets will
undoubtedly require foregoing some investment opportunities that would
be profitable,” says Colin Baines, investment engagement manager at
Friends Provident Foundation, a U.K. charity that uses its endowment
to push for a fairer and more sustainable economy. But in reality,
carbon budget considerations usually lose out against the priorities
of businesses’ monetary budgets. Most of the biggest financial firms,
even the most climate-forward, such as Axa, continue to back fossil
fuels. The question is: How much longer can pursuing ambitious climate
goals reasonably coexist with financing heavy emitters?
The answer hasn’t been uncontested inside Axa. What sets the French
insurer apart is that it’s too late for it to stick with the status
quo: The company already decided to implement a tougher oil and gas
policy and told certain stakeholders, including NGOs, that such
measures were coming by the end of 2020. After missing that initial
deadline and keeping the question open for more than a year, Axa CEO
Thomas Buberl decided that he’d finally reveal the restrictions on Paris
Climate Finance Day.
That meant Axa’s leadership had to decide which clients to burn by
Oct. 26, 2021. The PowerPoint presentation underscoring internal
divisions between underwriters and sustainability executives left just
weeks to settle the question. The negotiations and wrangling that
followed, in a series of in-person meetings and video conferences,
would go down to the wire.
“These decisions have never been easy: They reflect ambitious
commitments which have financial and business consequences,” an Axa
spokesperson said. “When it comes to oil and gas, our ambition is not
to penalize an industry which will be key in the transition of the
energy sector. It is to incentivize our clients and the companies we
invest in to accelerate their own transition towards low-carbon
business models.”
![](images/images_03_16_2022/pic2.png)
Last March, Axa dropped German energy giant RWE as a client due to
the utility’s large coal operations.
Photographer: Alex Kraus/Bloomberg
For the climate-conscious finance professional, coal has long been
enemy No. 1. Any financial link to coal companies, the biggest
contributors to human-induced global warming, were obviously the first
to go. That puts oil and gas next in line. A smaller but growing
number of companies are beginning to close the financial spigot:
Deutsche Bank and UBS are among more than 80 finance companies with
policies that limit financing certain types of production, including
drilling in tar sands.
For an insurer, exiting coal is much easier than oil and gas. More
than $17 billion in premiums was paid on oil and gas projects in 2018,
compared with just $6 billion for coal, according to estimates from
Peter Bosshard, global coordinator of Insure Our Future, an
environmental coalition. Perhaps as a result, the number of insurers
with coal restrictions, according to analysts at Société Générale SA,
is significantly higher than those with oil and gas limits. The
restrictions on coal are generally more expansive than the partial
exclusions applied to oil and gas sub-segments.
Inside Axa, the pushback focused on narrowing the exclusions. The XL
underwriting unit countered with a proposal to continue insurance
policies only with companies that had “a proven track record in
fracking activities.” Protecting the oil and gas business fell to
Scott Gunter, a 30-year insurance veteran who joined Axa from Chubb
Ltd. two years ago and leads the XL unit from New York. Gunter, who
reports directly to the CEO, oversees a $20 billion business with
9,000 employees. His team sought an alternative goal, setting a target
to have frackers make up less than 10% of XL’s overall underwriting
portfolio.
“They should be able to end fossil fuel insurance without in any way
endangering their core business.”
The sustainability team, led by Céline Soubranne in Paris, was dubious
of the doomsday predictions coming from the underwriters. Axa’s coal
exclusions, first introduced in 2017, had led to a loss of about $100
million in revenue, compared with total annual revenue in 2017 of more
than $100 billion. Although the coal policy pushed some clients away,
others made changes to stay within Axa’s guidelines.
Soubranne oversees a team of about a dozen people and, unlike Gunter,
doesn’t sit on Axa’s management committee. She worked in
communications before moving over to sustainability and has been with
Axa since 2007. Together with her ESG comrades from other parts of the
insurance giant, she argued Axa needed to maintain its climate
leadership and go above and beyond its peers, as it had on coal. And,
she and her allies pointed out, since Axa is a founding member and
chair of the Net-Zero
Insurance Alliance, a coalition of insurers committed to
eliminate emissions from their underwriting portfolios, the company
was essentially obligated to go the extra mile.
The net-zero alliance has some work to do. Four of the founding
members—Axa, Allianz, Munich, and Zurich Insurance Group — provide
more than 20% of all oil and gas insurance, according to Insure Our
Future. That doesn’t necessarily mean moving past oil and gas will be
as economically damaging as some expect. “It shouldn’t be forgotten
that the vast bulk of insurance revenues aren’t energy related at
all,” says Nick Holmes, former managing director and head of insurance
at SocGen. “They should be able to end fossil fuel insurance without
in any way endangering their core business.”
And there has been a nonenvironmental upside to Axa’s climate-friendly
approach. The company’s coal policy helped it win a 6% target stock
price increase from SocGen analysts, led by Holmes at the time, after
they decided to take into account ESG factors — the biggest upgrade
awarded to any insurer. Those same analysts said in July that
restricting oil and gas insurance could further add to insurers’ ESG
premiums.
As Climate Finance Day approached, Axa faced two key sticking points
in its internal deliberations: what to do with new oil and gas
exploration sites and how to assess the credibility of oil companies’
transition plans. The sustainability team favored allowing the insurer
to do business with companies that could demonstrate a science-based
commitment to doing business in alignment with the 1.5C ambition of
the Paris Agreement.
The opposing factions within Axa took different conclusions from a report last
year by the International Energy Agency. The IEA found that its
net-zero scenario was incompatible with continued exploration for new
oil and gas resources beyond those already approved for development.
In the PowerPoint, this fact bolstered the case for restrictions. On
behalf of the underwriters, Axa XL pointed out that oil majors with
net-zero goals are still buying licenses and drilling wells. And those
companies would certainly need insurance.
With the battle lines drawn, it was down to the CEO to step in.
An Insurer Takes Its Own Temperature
Axa’s assessment of global warming as measured through its vast
portfolio
+2.7°C
Increase in global temperature by 2100 implied by investments
7.4%
Potential loss to market value of investments from climate transition
and risks
199
Tons of carbon dioxide per $1M revenue from bonds and equities
$27.5B
“Green” investments planned by 2023
Unusually for the ebullient insurance boss, Thomas Buberl wasn’t
pleased to see his face in the Financial
Times. Showing him sporting a dark suit and slicked-back hair,
the photo of the Axa chief was the centerpiece of a full-page ad
bought by climate activists from Insure Our Future. The group questioned his
credibility on climate change, just five days before Axa would state
its new policy.
“Climate leaders don’t insure oil and gas,” it read.
The NGOs were beginning to suspect the insurer might water down its
green ambitions. In fact Axa’s reputation as a climate leader could
prove a liability: If its long-awaited new policy went too easy on oil
and gas, it would send a powerful signal in the opposite direction.
Buberl, 48, is a rare German to lead a major French company and was
the youngest CEO among France’s CAC 40 businesses when he was
appointed in 2016. He took the challenge from climate activists
personally — and that’s how it was intended. Insure Our Future’s
Bosshard says he’s convinced Buberl understands the climate emergency
and has proved willing to move his company to meet it. The activists
intended to use public pressure to make sure he remained directly
involved.
![](images/images_03_16_2022/pic3.png)
Thomas Buberl was the youngest chief executive among France’s CAC 40
businesses when he was appointed to lead Axa in
2016.Photographer:
Marlene Awaad/Bloomberg
When he saw his face in the newspaper ad, Buberl hadn’t told his staff
what he would reveal in his speech about Axa’s new climate policy,
according to people familiar with the matter. The latest version had
been presented to him less than a week earlier. Poring over the plan
during the weekend before Climate Finance Day, Buberl didn’t like what
he saw, the people said. Commercial interests had trumped climate
concerns, leading to too many loopholes.
He called his lieutenants and demanded the policy be rewritten. In
fact, people familiar with the debate say, Buberl appeared to be
willing to go further than even the sustainability team under
Soubranne. The CEO insisted operations affected by the policy be cut
off immediately rather than be phased out over a grace period, as had
been the case for Axa’s restrictions on coal and tobacco.
He sent the team back with changes, and more tweaks followed. Finally,
a sweeping policy shift that began in the middle of 2020 was ready,
just 24 hours before Buberl’s speech. Even then, only the broad
brushstrokes of the policy were settled. The detailed documents
explaining the nuances were still unfinished when Buberl left his
office in La Défense on a Tuesday morning to finally chart his
insurer’s path into the climate future.
And then, improbably, Buberl never gave the speech. He didn’t even
make it into the building where France’s finance minister and central
bank governor were also due to speak for Climate Finance Day.
Activists from Friends of the Earth stormed
the event, delaying the proceedings. A woman with her blond
hair streaked black to represent an oil spill wore a T-shirt that
read, “Your money, our lives.” The protesters chained themselves to
the chairs and shouted slogans about French President Emmanuel
Macron’s climate record. It took more than an hour for the police to
remove the protesters. Buberl never reached the podium.
Three days later, he outlined his plan in a much more humble setting,
a television studio interview with the organizers of the Finance Day
event. His staff by then had managed to prepare the detailed
supporting documents, finishing just hours beforehand.
Axa had delivered on its promise of imposing restrictions on oil and
gas insurance, securing its position as the first major insurer to do
so. Announcing the policy two days before the start of the UN climate
summit, Axa had pledged to curb its involvement with fracking and
impose further limits on underwriting activity in tar sands and the
Arctic. Those moves mean less than 5% of the 650 most polluting
companies in the oil and gas sector would meet Axa’s criteria.
Even within this new climate policy, however, Axa had left itself
latitude to insure fossil fuels—and climate activists haven’t relented
in scrutinizing the greenest insurance giant. Reclaim Finance put out
an analysis
of the policy arguing that Axa’s new rules would cover just
43% of all currently planned oil and gas projects worldwide.
That one of the most progressive companies on climate issues had tied
itself in knots to uphold its own goals shows just how fraught the
energy transition will be for the biggest players in finance and
insurance who will need to support it. Balancing planet and profit is
an unforgivingly difficult task. Even giving a speech on the topic
can’t be guaranteed.
Green
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