Lise Moret

The COVID-19 pandemic has wreaked havoc for the global healthcare system, economy and markets but there has been a ‘green lining’ in the form of lower carbon emissions, according to the latest research from AXA Investment Managers (AXA IM).

With countries reaffirming their commitment to the Paris agreement this year, the reduced emissions could set the stage for a renewed focus on global stewardship and responsible investment. AXA IM is calling on government and regulators to condition business support on a decarbonisation criteria.

Lise Moret, AXA IM’s Head of Climate Strategy, said the Coronavirus outbreak had forced global economies to make rapid changes to limit the pandemic, resulting in significantly lower emissions, but that more needed to be done.

“To achieve our commitment to the Paris Agreement, and limit global warming to 1.5°c in temperature rise, it would take a COVID-19-like event every year until 2050,” Ms Moret said.

Figures from specialist publisher Carbon Brief estimate that carbon emissions in China fell by 25% in February alone^[1] , while the EU could face a drop of 25% in 2020 when compared to 2019 levels^[2]. Overall, it is estimated the global emission impact of Coronavirus will be -5.5%, the largest annual reduction since records began^[3].

“While globally we have significantly reduced our impact during the height of the pandemic, the question now is whether the world can use this moment to find a ‘new normal’ and build a less carbon-intensive economic model – a model that could put the temperature goals of the Paris Agreement tantalisingly within reach,” Ms Moret said.

“One clear point about the hit to global GDP is it is likely to be temporary, and that means the drop in emissions will likely be temporary too. For all our progress over the years, we have not yet successfully decoupled economic growth from carbon emissions.

“We believe the Coronavirus outbreak should harden policy thinking and investment around climate change and the need for decisive and collaborative action to tackle global, existential threats.”

In an environment where regulators are deprioritising green projects, Ms Moret said there was currently a clear opportunity for policymakers to deploy green stimulus by conditioning support for businesses on decarbonisation criteria. This could include continuing to incentivise oil and gas companies to decarbonise and providing incentives for utility companies to transition away from coal and into renewables.

“We have been given a glimpse of the kind of adjustments our world needs to make if we are to definitively tackle the looming threat of the climate crisis. Far from distracting us from this, COVID-19 should harden our resolve while teaching us valuable lessons.”

A decade of transition

According to AXA IM’s 2019 Global Stewardship Report, climate change accounted for more than 40% of the investment manager’s total engagement with companies. In a 12-month period, AXA IM engaged with 217 issuers, voted at 6016 general meetings, and 64,439 proposed company resolutions were voted in. This is an increase of engagement by 74 per cent from 2018 levels.

Matt Christensen, AXA IM’s Global Head of Impact Strategy and Responsible Investments, said climate change would remain a key focus area for AXA IM’s stewardship team, along with biodiversity loss, diversity and public health.

“As an industry, we are moving away from the narrow definition of fiduciary duty – a transition that we at AXA IM firmly support,” Mr Christensen said.

“The next decade will be defined by our ability as an investment and corporate community to turn our thoughts and ambitions into tangible action to solve global issues. This will create long-term value for shareholders, stakeholders, and society.

“Today we are at the starting line. The road ahead requires both imagination and pragmatism to meet a daunting set of challenges. As we move into a decade of transition, active investing will require a more activist approach that incorporates sustainability into its DNA. We are committed to a better tomorrow, and tomorrow starts today.”

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[1] Carbon Brief, April 2020
[2] Independent Commodity Intelligence Services Company
[3] Carbon Brief, April 2020

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