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Allianz SE

PRI reporting framework 2019

You are in Strategy and Governance » ESG issues in asset allocation

ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

13.1. Indicate whether the organisation undertakes scenario analysis and/or modelling and provide a description of the scenario analysis (by asset class, sector, strategic asset allocation, etc.).

Describe As part of analysis to assess future climate-related risks and opportunities certain future ESG factors are assessed.
Describe Allianz’s investment strategy incorporates systematic analyses of long-term projections on the risks and opportunities of the low-carbon transition. We perform sensitivity and scenario analysis with time horizons up to 2040 and including scenarios ranging from well below 2°C to 4°C of global warming with internal models and with external partners.

13.2. Indicate if your organisation considers ESG issues in strategic asset allocation and/or allocation of assets between sectors or geographic markets.

We do the following

          Allianz enforces Group-wide exclusion policies relating to banned weapons and coal based business models.
        

13.3. Additional information. [OPTIONAL]


SG 13 CC.

13.4 CC. Describe how the organisation is using scenario analysis to manage climate-related risks and opportunities, including how the analysis has been interpreted, the results and any future plans.

Describe

Our core investment databases include climate and carbon data, which enables portfolio-wide analyses and measures.

Climate change considerations are an integral part of our insurance and investment strategy which is informed by regular stress tests and additional climate-related scenario analysis. We perform, for instance, sensitivity and scenario analysis with time horizons up to 2040 and including scenarios ranging from well below 2°C to 4°C with internal models and with external partners. While time horizons naturally differ depending on specific lines of business under consideration, the range of scenarios we apply allows to better assess the variety of risks and opportunities associated with climate change. We rely for this on scenarios for instance from the IPCC, IEA or IRENA but also on own scenarios. We apply scenarios for instance in analyzing decarbonization pathways of sectors and assets, potential stranded assets and technology developments across different sectors. We are furthermore using scenario data and analysis to develop forward-looking criteria for our investment decisions for carbon-intensive business models as well as low-carbon opportunities.

Examples from 2018 include:
• Allianz Economic Research and Allianz Investment Management analyzed potential transition risk drivers (policy, technology, market) and financial impacts on the sectors energy, utilities, materials, industrials, consumer discretionary, financials and ICT for 2°C and 1.5°C scenarios in different geographies. Results were translated into heat maps; for the energy sector, detailed quantitative analysis on potential loss of value from stranded assets has been conducted, informing Investment Management Board discussions and decisions.
• Allianz France piloted methods and disclosure on climate for the investment portfolio by measuring alignment with a 2°C scenario, conducting physical risk analysis as well as exploring value-at-risk metrics with results disclosed in its 2018 Sustainable Investment Report published in accordance with Article 173 of the French Energy Transition for Green Growth Law and in line with the TCFD recommendations.
• Allianz Group ran climate scenario and alignment analysis on listed equity and corporate bond portfolios.
• Allianz Real Estate conducted an energy and carbon performance overview of the direct real estate portfolio, including indicative science-based targets.
• Allianz co-led jointly with the UN PSI the development of an ESG guide to non-life underwriting, including a risk heat map for economic sectors which also covers climate-change related risk assessments.

We will continue to scale up this effort. In 2019, we will be conducting asset and portfolio scenario analysis for our direct infrastructure investments and plan to develop more scenarios and stress tests as part of our risk governance.

Describe

See answer to "Initial assessment"

Describe

See answer to "Initial assessment"

13.5 CC. Indicate who uses this analysis.

13.6 CC. Indicate whether the organisation has evaluated the impacts of climate-related risk, beyond the investment time-horizon, on the organisations investment strategy.

Describe

See answers to SG 01.6 CC, SG 01.8 CC and SG 01.10 CC.

13.7 CC. Indicate whether a range of climate scenarios is used.

Indicate the climate scenarios the organisation uses.
Provider
Scenario used
IEA
IEA
IEA
IEA
IEA
IRENA
Greenpeace
Institute for Sustainable Development
Bloomberg
IPCC
IPCC
IPCC
IPCC
Other

Other (1) please specify:

          IEA 450 scenario
        
Other

Other (2) please specify:

          Nationally Determined Contributions (NDCs)
        
Other

SG 14. Long term investment risks and opportunity

14.1. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following are considered.

14.2. Indicate which of the following activities you have undertaken to respond to climate change risk and opportunity

Specify the AUM invested in low carbon and climate resilient portfolios, funds, strategies or asset classes.

Total AUM
trillions billions millions thousands hundreds
Currency
Assets in USD
trillions billions millions thousands hundreds

Specify the framework or taxonomy used.

This includes our investments in

  • renewable energy infrastructure,
  • certified green real estate, and
  • green bonds

other description

          Commitment to set science-based long-term emission targets for proprietary investments and business operations, in line with Paris Agreement target of limiting global warming to <2°C.
        

14.3. Indicate which of the following tools the organisation uses to manage climate-related risks and opportunities.

other description

          Engagement with investee companies, other investors/asset owners, and "climate leaders"
        

14.5. Additional information [Optional]

In November 2015, Allianz SE announced that it would stop financing coal-based business models. Until end of March 2016 Allianz SE divested all equity stakes in coal-based businesses. Fixed income is in a run-off (no reinvestment). Allianz monitors the market and adjust the exclusion list based on market developments annually.

Allianz defines coal-based business models as all mining companies deriving 30% or more of their revenue from thermal coal as well as all utilities generating 30% or more of their electricity from coal.

In May 2018, Allianz sharpened the criteria for exclusion of proprietary investments in coal-based business models by widening the definition of coal-based business models to “Energy generation from coal” being defined as “planning more than 0.5 gigawatts (GW) of thermal coal capacity additions which are not in line with the 2°C ceiling and/or having to retire more than 50% of their generation capacities in the next ten years to be in line with the 2°C ceiling”.

The currently applicable threshold of 30% share in revenue or energy generation will be tightened over time to reach eventually 0% in 2040 latest, starting with a reduction to 25% by December 31, 2022.

By joining the Science Based Targets initiative (SBTi), we committed in 2018 to set ourselves long-term emissions reduction targets for our proprietary investment portfolio and for our business operations. These will be in line with latest climate science to support the Paris Climate Agreement’s target of limiting global warming to well below 2°C. To this end, all tradable proprietary investments are to be structured climate-neutrally by 2050.

See https://www.allianz.com/content/dam/onemarketing/azcom/Allianz_com/responsibility/documents/Allianz-Statement-coal-based-business-models.pdf 


SG 14 CC.

14.6 CC. Please provide further details on these key metric(s) used to assess climate related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Climate-related targets
          E.g. measuring progress on coal divestment

Climate-related targets in context of SBTi commitment will cover all proprietary investments.
        
          € amount divested/ in run-off
        
          Asset value
        
Weighted average carbon intensity
          Portfolio Analysis, Investment Strategy, Engagement
        
          Tons CO2e / $M sales
        
          According to data provider
        
Carbon footprint (scope 1 and 2)
          Portfolio Analysis, Investment Strategy, Engagement
        
          Tons CO2e / $M invested
        
          According to data provider
        
Portfolio carbon footprint
          Portfolio Analysis, Investment Strategy, Engagement
        
          Tons CO2e / $M invested
        
          According to data provider
        
Total carbon emissions
          Portfolio Analysis, Investment Strategy, Engagement
        
          Tons CO2e
        
          According to data provider
        
Carbon intensity
          Portfolio Analysis, Investment Strategy, Engagement
        
          Tons CO2e / $M sales
        
          According to data provider
        
Exposure to carbon-related assets
          See "Climate-related targets"
        
          See "Climate-related targets"
        
          See "Climate-related targets"
        
Other emissions metrics
          Measuring progress on investments in Low-Carbon assets
        
          € amount invested
        
          Asset value
        

14.7 CC. Describe in further detail the key targets.

Target type
Time Frame
Description
Attachments
          until 2050
        
          Structure tradable proprietary investments climate-neutrally
        

          until 2040 the latest
        
          Full phase-out of coal risks from proprietary investments and P&C insurance portfolio
        

          
        
          
        

          
        
          
        

          
        
          
        

14.8 CC. Indicate whether climate-related risks are integrated into overall risk management and explain the risks management processes for identifying, assessing, and managing climate-related risks.

Please describe

Climate-related risks are addressed as part of an overarching qualitative and quantitative risk reporting and controlling framework. Early-warning indicators are monitored and regularly reported to senior management including risk dashboards, risk capital allocation, and limit consumption reports, where climate aspects become material. The Allianz Risk Capital Model assesses, amongst many other criteria, NatCat events for the upcoming year on subsidiary and Group level. The yearly Top Risk Assessment (TRA) has the goal to identify and remediate significant threats to financial results, operational viability, reputation and delivery of key strategic objectives, regardless whether quantifiable or or not, and is being conducted both on the level of operating entities and the Group. Supplemented by quarterly updates, senior management decides on a risk-management strategy and related actions. Climate-related factors are included in TRAs.

Each operating entity is responsible for controlling its exposure to individual catastrophes and defining its local reinsurance requirements, based on its local risk appetite and capital position. The respective cover is provided by Allianz SE or subsidiaries. At Group level, the Allianz SE Board reviews and approves the risk appetite. The reinsurance division is responsible for designing and implementing Group catastrophe protections within given exposure limits. These covers take various forms and aim to protect the Group against excessive losses from major NatCats.

Special modeling techniques for NatCats combine portfolio data with simulated natural disaster scenarios to estimate magnitude and frequency of potential losses. Where such models do not exist, we use deterministic, scenario-based approaches. We are continuously testing several dozens of NatCat scenarios, including atmospheric events, mapping a range of perils and regions. Results provide the basis for Group-wide risk monitoring, risk limits and subsequent business decisions. Selected stress scenario analysis on NatCat risks are used in risk steering. NatCat models are regularly updated according to newest scientific information. We are continuously improving the inclusion of global NatCat hazard information, including climate, into underwriting decisions.

Our ESG approach applies Group-wide corporate rules and ESG instruments across all underwriting, investment, and asset management activities. We also rely on external providers for data related to climate, ESG and reputational risks.

Our climate team within the CR department works on early identification, measurement and business integration of risks and opportunities from physical climate change and the low-carbon transition.

Additional processes include NGO dialogue, AGCS Risk Barometer, Global Claims Review, and on-going dialogue with policy makers, NGOs and academia on economic, governmental and societal issues.

For proprietary investments, the ESG Functional Rule for Investments provides the foundation of integrating climate-related issues, comprising asset manager selection and systematic integration of climate and ESG factors into investment decisions. Portfolio-wide ESG assessment processes and data, including climate and carbon data, enable continuous monitoring and steering of performance at security and portfolio level. For listed assets, we use ESG scores and climate indicators to manage risks and opportunities in our proprietary portfolio. If assets score below defined thresholds, further investigation is mandatory under central monitoring, leading to a variety of potential measures, including engagement with respective companies.

14.9 CC. Indicate whether the organisation undertakes active ownership activities to encourage TCFD adoption.

Please describe

In 2017, we developed a systematic approach to drive engagement with selected investee companies that have a low ESG performance. Through collaboration, we address material ESG risks and concerns, build understanding and ultimately driving change and ESG improvements, including encouraging better disclosure and practices around climate-related risks.

In December 2017, we joined the Climate Action 100+ initiative. Led by investors, its purpose is to engage with the world’s largest corporate greenhouse gas emitters to curb emissions, strengthen climate-related financial disclosures and improve governance on climate change.

In order to support our commitment to the Science Based Target initiative (SBTi) and the long-term transformation to a low-carbon economy, we have designed an engagement approach and a dedicated engagement function at Allianz Investment Management besides the Group ESG Office to create an impact in the real economy and encourage companies to define and implement climate strategies in line with science. By actively engaging with companies to have them set measurable climate targets that are transparently pursued, for example by joining the SBTi, we aim to not only reduce carbon emissions in our portfolio but also in the real world.

Additionally, we plan to join forces with other asset owners in encouraging companies to implement such pathways. Our participation in the Transition Pathway Initiative, the engagement platform of Climate Action 100+ as well as in the Portfolio Decarbonization Coalition and the Principles for Responsible Investment (PRI) connects us with like-minded investors and offers platforms for collaborative engagement.


SG 15. Allocation of assets to environmental and social themed areas

15.1. Indicate if your organisation allocates assets to, or manages, funds based on specific environmental and social themed areas.

15.2. Indicate the percentage of your total AUM invested in environmental and social themed areas.

4 %

15.3. Specify which thematic area(s) you invest in, indicate the percentage of your AUM in the particular asset class and provide a brief description.

Area

Asset class invested

1 % of AUM

Brief description and measures of investment

Allianz is one of the leading private investors in renewable energy, with EUR 6.8 billion invested, in 95 wind and solar parks, with a combined generating capacity 2.2 GW.

We see renewables as an investment opportunity with an attractive risk-return profile and are expanding our investments. Investments in renewable energy projects provide sound long-term returns, which fits well with Allianz’s long-term investment strategy.

Asset class invested

2 % of AUM

Brief description and measures of investment

For our real estate investments, we have a separate Allianz Real Estate ESG Group Policy based on the ESG Functional Rule and the Group’s PRI commitments.. Furthermore, Allianz Real Estate (ARE) has had a Sustainability Program in place for the last five years which aims to: create transparency through reporting by introducing common metrics such as property-related consumption and the sustainability performance of the real estate portfolio;

improve communication between ARE and tenants to improve sustainability performance, include property-specific sustainability strategies into asset business plans (such as green leases and environmental certifications); and measure, collect and report building information, implement improvements and suggest measures to further optimize sustainability performance.

ARE also applies the Green Rating system, a consistent approach to assessing, benchmarking and improving the environmental performance of buildings. The system was established by Green Rating Alliance, a European association of real estate owners, investors and other stakeholders, and covers six areas: energy, carbon, water, transport, wellbeing and waste.

Currently, Allianz Group has invested EUR 11 billion in certified green buildings.

Asset class invested

Brief description and measures of investment

For example, over four years, we have invested in low-carbon projects, generating certificates that can be used to offset our carbon footprint and become a carbon-neutral business. These Reducing Emissions from Deforestation and Degradation (REDD+) investments in Kenya, the Democratic Republic of the Congo and Indonesia are projects that not only generate CO2 certificates, but also help protect biodiversity and support local communities.

Asset class invested

0 % of AUM

Brief description and measures of investment

Allianz invested USD 0.1 billion to affordable housing project in the US (Low Income Housing Tax Credit program).

Asset class invested

0 % of AUM

Brief description and measures of investment

Allianz investment of EUR 0.5 billion into the Thames Tideway Tunnel Project, an under-construction 25 km tunnel through central London, which will provide capture, storage and conveyance of almost all the combined raw sewage and rainwater discharges that currently overflow into the river. The main objectives of the project are to:

  • Protect the ecology of the Tideway
  • Reduce aesthetic pollution due to sewage-derived litter
  • Protect the health of recreational water users
     
          Green bonds
        

Asset class invested

0.5 % of AUM

Brief description and measures of investment

EUR 3.6 billion of Allianz investments are part of the Barclays MSCI Global Green Bond Index, which means that 90% of proceeds, as measured by revenues, fall within one or more of the eligible environmental categories: Alternative Energy, Energy Efficiency, Pollution Prevention & Control, Sustainable Water, Green Building

15.4. Please attach any supporting information you wish to include. [OPTIONAL]



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