Axa investment managers, a Paris-based investment services provider, has committed to divesting €165 million and €12 million respectively from its fixed-income and equity portfolios, following the adoption of a new coal policy. The company announced that from 30 June it will not invest in companies that derive more than 50 per cent of their profits from coal-related activities (specifically mining activities and electricity companies). The coal policy will apply to €714 billion, equivalent to 99.5 per cent of assets managed by Axa Im. In a press release, the company also stated that all its portfolio managers will work with Axa Im's sustainable investment team to ensure that all funds are aligned with the new coal policy and that all affected clients undergo a gradual transition of their portfolios.

"As responsible investors and active managers of our clients' assets, we firmly believe that divesting from coal can help reduce long-term risks by decreasing exposure to those assets that risk becoming 'stranded' in the future, as the world acts to align itself with the 2-degree global temperature rise scenario." (Andrea Rossi, chief executive officer, Axa Im)

Axa's journey towards sustainable investment

The coal policy is just the latest move by Axa Im towards sustainable investment. Indeed, the company had already implemented policies to divest from palm oil, controversial weapons, tobacco and soft commodity derivatives. This means the company does not participate in long-term instruments such as commodity futures and does not enter into speculative transactions that could contribute to price inflation for basic agricultural and marine products (such as wheat, rice, meat, soy, sugar, dairy products, fish and maize). In 2015, parent company Axa Sa, France's largest insurer, had announced it would divest €500 million from coal, while in May 2016 it stated it would no longer invest in tobacco, withdrawing its €1.8 billion from the sector.

"Axa Im has been committed to sustainable investment for almost 20 years. With the decision to divest from coal, we have placed the long-term needs and objectives of our clients at the centre, to ensure our alignment with global macro trends — namely greater awareness of climate change risks and their impact on asset classes, companies, sectors and regions. We believe that following Cop21, the ratification of the Paris Agreement and growing momentum to divest from fossil fuels worldwide, now is the time for Axa Im to make this move and send a strong message to the rest of our industry." (Matt Christensen, head of sustainable investment, Axa Im)

Divesting from coal: a global movement

A growing number of investors around the world have decided to divest wholly or partially from companies that profit from oil, gas and coal. Investors controlling more than $5 trillion in assets have committed to abandoning some or all shareholdings linked to fossil fuels, according to analysis conducted by Arabella advisors. In recent years more than 700 major investors have committed to reducing their exposure to fossil fuels, according to data gathered by 350.org, an organisation that advocates divestment. Withdrawing money from these sectors could heighten concerns, as coal companies may face significant financial losses, given that governments are seeking to combat climate change through initiatives that could lead to higher taxes and costs for the most polluting companies, making them less profitable.

Does divestment have an effect on finance?

Divesting from fossil fuel companies remains a contentious issue. While widespread concerns persist that companies divesting too early from fossil fuel firms may miss out on future gains, many academics and investment experts argue that delaying divestment could lead to significant losses. Tom Sanzillo, financial director of the research organisation Institute for energy economics and financial analysis, believes that the risks of maintaining investments in fossil fuel companies outweigh the potential returns. Moreover, pension funds are reassessing their exposure to oil and gas not only on environmental grounds but also due to their poor financial performance over the past three years. Financial services company Msci shows that, between November 2010 and May 2016, two of its indices that excluded coal and all other fossil fuels outperformed the main indices that included such stocks. In March, the Norwegian oil fund, the world's largest sovereign wealth fund, stated that it had gained 0.78 per cent over ten years to end-2016 thanks to its decision to exclude companies that cause serious environmental damage, such as coal mining. Paul Fisher, former deputy head of the Prudential regulation authority at the Bank of England, added that long-term investors are increasingly aware that fossil fuels are in decline and will be replaced by cheaper, cleaner renewable energy sources.

Translated by Camilla Soldati