I am not sure how exactly this impact is calculated. To measure transition risks for their corporate equity and bond holdings they compute the impact of CO2 emissions reduction, expressed in percentage of enterprise value. For real assets, they compute building-level impacts of extreme weather events, expressed in million of Euros. Under physical risk, for corporate bonds and equity they compute the Impact of extreme weather events (asset damages and business interruption), expressed in percentage of enterprise value. I am somewhat skeptical of these models that claim to pin down warming to the level of an individual security or a company.ĪXA computes a measure called climate at risk, which is based on the usual three constructs: (i) physical risk (ii) transition risk and (iii) technological opportunities. Outside data is drawn from MSCI, Carbon Delta, S&P Trucost, and Beyond Ratings. To measure what they call “warming potential” for sovereign debt, corporate bonds, and equity they consider contribution to warming in centigrade. What climate metrics are measured for various asset classes and what is the underlying data source?ĪXA clearly lays out what metrics are measured and how. The bigger point being that insurers have sizeable assets under management but their demonstrated approach to incorporating climate considerations varies considerably. They state, “as of December 31, 2021, 45% of our fixed income portfolio is invested in municipal bonds, which some market participants consider the original ESG bonds.” Travelers has a unique take on municipal bonds. P&C insurer because of its lower allocation to equities.” More interesting, they seem to argue that the short horizon of their investments makes them somewhat protected: “the relatively short average maturity and liquidity of our fixed income investment portfolio allows the portfolio to be continually adjusted as trends evolve over time.”īut before we fault Travelers, I think they make a great point that has always bothered me about climate risk calculations, “The incremental portfolio downside risk under each of the three climate scenarios considered is significantly smaller in magnitude than the downside risk from various economic conditions alone (e.g., inflation, interest rates, recessions).” Travelers also claims that it is less exposed to climate risk in its investment portfolio than the average large U.S.
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