AXA Group’s chief risk and investment officer, Alban de Mailly Nesle is required to ponder myriad dangers to the Paris-based insurer and its 830 billion-euro ($995 billion) asset management arm. He says one of the greatest and most under-appreciated threats to human health, economic vitality and the climate is the rapid reduction of the planet’s biodiversity.
In 1993, when he started his career at BNP Paribas SA, he didn’t imagine the earth’s ecosystems would become a top priority. But last year, AXA – the firm he joined in 2000 – and the WWF presented a report to the environment ministers of the Group of Seven countries about the economic impact of biodiversity loss.
De Mailly Nesle spoke in an Oct. 22 interview about biodiversity, its link to the climate, and the challenges of measuring so-called natural capital.
Q: Why is biodiversity important for AXA?
de Mailly Nesle: If we take a cold review, $33 trillion is the estimated monetary value of goods and services that ecosystems provide. What that means is that ecosystems play a large role in our economies. If we do not ensure that we use them in a sustainable manner, we will lose that value. And when you look and you see that since 1970 something like 60% of all vertebrates on the planet have disappeared, there is a real issue.
What do the ecosystems produce? It’s our food; it’s essential components for our medicines; and for some particular things – such as forests, mangroves, oceans – it’s protection against climate risk. We are an insurer, and insurance thrives only if the environment is reasonably stable. We are also an investor and as such we want to make sure that the value of our assets does not go down – to avoid stranded assets.
You may remember that we were among the first to exit tobacco and to exit coal, because we couldn’t see the logic of having investments in those areas, which were detrimental to our clients. It’s the same for biodiversity. We believe that, because biodiversity provides medicine and food of good quality and fights against climate risk, it makes sense to protect it.
Q: What do you plan to do next?
de Mailly Nesle: The first thing is to raise awareness, and we believe awareness of a decrease in biodiversity is still too low, compared to the problem it generates. The second thing is to measure. When you’re not able to measure something, you can’t be impactful because you can’t determine your direction. We recently helped launch the Task Force on Nature-related Financial Disclosures because we want to work on the methodologies, so as to have ratings and metrics. We make commitments on what we have measured, such as the global warming potential of our assets. That’s what we want to do for biodiversity – it will take time because it’s probably even harder than for global warming. The third component is concrete action, and that’s the impact fund (AXA Impact Fund III Climate & Biodiversity) that we have launched and which we have increased the size of to 350 million euros.
Q: How can you measure and value nature?
de Mailly Nesle: We are only at the very beginning. There are some companies that do provide ratings on assets, and AXA IM (AXA Investment Managers) launched an RFP (request for proposal) with a few other investors to be able to measure the biodiversity of our assets to the same extent we have a climate carbon footprint, or global warming measurement of our assets. That’s extremely recent and the RFP ended last month (September); now we need to work with that provider on how it’s done effectively. An example of a potential biodiversity measure could be the number of species by area that we have exposure to, directly or indirectly.
For the time being, to be honest, we have more questions than answers. We are not looking to price an economic transaction, but at least measure in economic terms the loss of potential or the loss of that reality, so that we can know whether or not we are going in the right direction.
Q: When placing a value on the bounty of nature, some people talk about “natural capital.” Is that a helpful phrase and what does it mean?
de Mailly Nesle: I think it is a very helpful phrase. Because for some people, something that doesn’t have value does not exist. What we want to make sure, collectively, is that – as for any capital that you use – it grows and it’s not depleted.
So, while the word is useful, the measurement is what is really useful. As a third step you have potential economic transactions, because then that will make it more concrete, though I believe we are very far from that. But to the same extent you have carbon rights, you could imagine rights in the future for biodiversity.
Q: How high up on your list of priorities and worries is biodiversity?
de Mailly Nesle: When we look at the consequences of the biodiversity threats that we see and what it means for health, for instance, or the value of assets, it should be one of our very top risks. There are a number of companies in which we invest that will not thrive if the current biodiversity trends continue. So we need to address biodiversity as the root cause. Same for health – we need to be able to source the key components of the medicines that we need. And we need the variety of species that we have in fauna and flora across the world.
Q: Did you expect to be talking about biodiversity when you started your career?
de Mailly Nesle: I don’t think anybody talked about biodiversity risk when I started my career 20 or 30 years ago. We have a team at AXA focusing on emerging risks—the ones that will materialize over the next five to 10 years. When I became the group chief risk officer seven years ago, biodiversity was included among the emerging risks, and since then, it has grown significantly.
Q: What other risks are at the top of your list?
de Mailly Nesle: The risks that matter when you are as diversified as AXA are risks that do not diversify and that are global. Among these, you have pandemics, cyber attacks, climate change and the economic environment. Those are the four that have materialized the most recently and that go against the business model of an insurer. So we need to be innovative and to contribute to collective actions to make sure that we can protect our customers and society from those risks.
Photograph: Pine trees stand in a forest near the site of the Tesla Inc. Gigafactory in Gruenheide, Germany, on Sunday, Feb. 23, 2020. Photo credit: Krisztian Bocsi/Bloomberg.