Lack of data is hindering private equity investors from making informed decisions based on environmental, social, and governmental (ESG) risks.
To help investors gain a clearer understanding of these risks in their portfolio and future acquisition targets, AXA Climate has introduced a new functionality on its platform for asset managers.
The update allows users to obtain a consolidated view of ESG exposures at both the fund and portfolio level, helping them meet key reporting requirements from regulators and institutional investors.
“Climate change represents not just physical risks, but also systemic risks for any company,” said Théophile Bellouard (pictured), head of adaptation services for AXA Climate. “When you're financing any company, you need to take these risks into account.”
Looking at ESG risks more closely empowers the financial sector to finance climate adaptation mitigation and to build resilience with investees, Bellouard added.
Companies are increasingly looking to align their strategies with climate and ESG goals.
But there’s little data available in the market for private investors to do their due diligence organization’s ESG risks, especially on small- to medium-sized companies. This represents a gap that AXA Climate wants to address.
“When you're looking at information on small- and medium-sized businesses around the world, in any sector, there’s no database with all these companies pre-analyzed,” said Bellouard.
AXA Climate’s platform, called Altitude, contains algorithm and scientific databases that can identify all risks related to climate change, carbon emissions and biodiversity loss for businesses.
“Based on just a few pieces of information like sector, size, and location, we are able to model climate risks to help investors make informed decisions,” Bellouard told Insurance Business.
Launched in September 2022, AXA Climate’s Altitude platform has grown to a database of more than 750 companies. Leading asset management organizations such as Naxicap Partners and RAISE have also adopted the platform.
One of Altitude’s features is that it can serve as a collaborative tool for investment, management, and ESG teams to develop action plans for managing risks and create additional value for the organization.
“ESG roadmaps act as levers to increase the value of a company,” said Bellouard. “You have a growing demand from institutional investors, more regulatory constraints on measuring and reporting ESG.
“The key question for companies is not only on what ESG commitments or policies they have, but also what action they have taken. It’s important for firms to have a way to measure the ESG performance of the companies.”
Altitude’s initial version allowed analysts to incorporate climate data into their risk research. For each target, the platform offered a summary of the actions required to respond to climate change and mitigate its effects on the environment.
Bellouard said that AXA Climate would continue to bolster its platform to account for ever-more complex factors in ESG measurement and reporting.
“If you're asking a medium-sized company how climate change is impacting their value chain, most of the time they don't know the answer. That’s where science comes in,” Bellouard said.
“Our platform is there to impart the scientific knowledge and answer those questions for both the investor and the investee.”
Ultimately, more robust ESG data allows investors to respond to escalating public and shareholder calls to finance a sustainable future. However, it’s critical to assess organizations and their ESG in a holistic way.
“How do you find sustainable projects? How do you finance the energy transition and climate adaptation?” the AXA executive asked.
“On one hand, you have also a lot of businesses that are necessary but not sustainable because they may not be contributing to the transition towards a low-carbon economy. You still need to take those businesses into account using ESG criteria.”
Most importantly, AXA Climate is striving to not just make quality data available, but also understandable and actionable for investors.
“What are my criteria for investing? How can I invest and help build resilience with extra capital expenditure? Those are the questions we want bring on the table, to go further than just assessing the risks,” said Bellouard.
What are your thoughts on AXA Climate’s new offering? Leave a comment below.