The glass tower in Paris where AXA SA, one of the world’s largest insurers, has its temporary headquarters looks as if a giant feral cat has ripped chunks out of it. In recent months that jagged feeling extends inside, too, as senior executives prepared to claw off an extraordinarily profitable part of the company’s $20 billion business: the oil and gas clients whose ties to the insurer go back decades.

AXA has made a name for itself more recently as a climate leader among financial institutions. It was the first of its peers to divest from coal and restrict the kinds of insurance it would offer to businesses mining and burning the dirtiest fossil fuel. It strives to take the temperature of its more than $1 trillion portfolio of investments, measured in increments of future warming, something few companies of its size and complexity have tried. There’s even an official corporate policy to be “un leader du climat”—it’s made a public commitment to regularly “ramp up” its ambition and take further steps to “shape the climate transition,” including by further cutting the carbon footprint of its assets.

But dividends for climate leadership can be ephemeral on a balance sheet. Taking a hard line against greenhouse gasses carries a much clearer upfront cost for an insurer ranked among the top 10 underwriters of oil and gas worldwide.

The pressure of corporate profits weighing against planetary losses surfaced in a PowerPoint presentation put together by AXA’s main sustainability council last September. The so-called Role in Society Steering Committee is made up of about 45 climate-focused people from corporate social responsibility and risk teams and executives who specialize in sustainability and what AXA terms “inclusive insurance.” Their main recommendation: AXA should move to curtail ties to the oil and gas industry as a natural next step for a company already operating under a loud and proud net-zero commitment.

The slide deck laid out various limitations that could come next. AXA, which already bans contracts involving tar sands and Arctic drilling operations, might set a policy against financing or insuring additional “unconventional oil and gas exploration,” a category that includes fracking and ultra-deepwater drilling. One slide displayed a map showing different demarcations of the Arctic’s boundaries, with a red line suggesting a larger area might be subject to more severe restrictions.

But the presentation also included powerful dissenting comments from AXA’s underwriters. For them, a boundary in the Arctic region—or any other new climate line—would sever lucrative relationships. AXA XL, the property and casualty insurance unit responsible for most of the company’s oil and gas business, saw a risk that aggressive policies could hollow out the franchise. Staff would quit, taking technical know-how with them; clients would defect. The total projected loss to core business could reach $1 billion.

This wasn’t exactly a what-if scenario for AXA’s fossil underwriters. The XL team joined the company in a 2018 acquisition and had to take on board the insurer’s existing coal restrictions. That process led to the forced termination of some client relationships, and the XL underwriters dreaded a repeat in the more lucrative oil and gas business. The counter-climate case was clearly stated, quoted in full in the deck: “We cannot be part of the solution if we antagonize those many clients who are diverting their [oil and gas] profits into offshore wind farms, by walking away from them on the start of this challenging journey.” By cutting off some oil and gas projects, AXA faced a bigger risk than an exodus of energy clients. The insurer stood to lose out on the substantial renewable energy businesses of the green future being built by today’s oil and gas giants.

Take TotalEnergies SE, a pillar of French business that, in addition to being Europe’s second-largest oil producer, is one of the region’s top clean-energy players. Refusing to insure Total on an oil project might mean losing out on the renewables business, too. AXA also manages a lucrative retirement program for Total employees.

Whether to burn clients or burn carbon is a choice facing every banker, insurer and investor. Few are grappling with the trade-offs to the degree AXA is, making it a case study in the climate transition. Others are trying to have it both ways. A prime example is BlackRock Inc., whose first big move in 2022 was to rule out divestment from oil, gas and coal companies. In the same annual letter on Jan. 18, Larry Fink, chief executive of the $10 trillion firm, put the responsibility for action on the companies themselves, invoking the dodo to describe those clinging to carbon-heavy business models.

More than 450 of the world’s biggest finance companies, including BlackRock, have pledged to cut financed emissions from their portfolios and loan books in half by 2030, which would amount to a major move toward zeroing out planet-warming pollution by midcentury. That’s the commitment banks and asset managers made when joining the Glasgow Financial Alliance for Net Zero, which emerged alongside last year’s United Nations climate talks in Scotland. (Michael Bloomberg, the owner and founder of Bloomberg LP, is co-chair of the alliance.)

Activists tend to frame the decision as a contest between short-term and long-term thinking. “Adopting meaningful net-zero targets will undoubtedly require foregoing some investment opportunities that would be profitable,” says Colin Baines, investment engagement manager at Friends Provident Foundation, a UK charity that uses its endowment to push for a fairer and more sustainable economy. But in reality, carbon budget considerations usually lose out against the priorities of businesses’ monetary budgets. Most of the biggest financial firms, even the most climate-forward, such as AXA, continue to back fossil fuels. The question is: How much longer can pursuing ambitious climate goals reasonably coexist with financing heavy emitters?

The answer hasn’t been uncontested inside AXA. What sets the French insurer apart is that it’s too late for it to stick with the status quo: The company already decided to implement a tougher oil and gas policy and told certain stakeholders, including NGOs, that such measures were coming by the end of 2020. After missing that initial deadline and keeping the question open for more than a year, AXA CEO Thomas Buberl decided that he’d finally reveal the restrictions on Paris Climate Finance Day.

That meant AXA’s leadership had to decide which clients to burn by Oct. 26, 2021. The PowerPoint presentation underscoring internal divisions between underwriters and sustainability executives left just weeks to settle the question. The negotiations and wrangling that followed, in a series of in-person meetings and video conferences, would go down to the wire.

“These decisions have never been easy. They reflect ambitious commitments which have financial and business consequences,” an AXA spokesperson said. “When it comes to oil and gas, our ambition is not to penalize an industry which will be key in the transition of the energy sector. It is to incentivize our clients and the companies we invest in to accelerate their own transition toward low-carbon business models.”

For the climate-conscious finance professional, coal has long been enemy No. 1. Any financial link to coal companies, the biggest contributors to human-induced global warming, were obviously the first to go. That puts oil and gas next in line. A smaller but growing number of companies are beginning to close the financial spigot: Deutsche Bank and UBS are among more than 80 finance companies with policies that limit financing certain types of production, including drilling in tar sands.

For an insurer, exiting coal is much easier than oil and gas. More than $17 billion in premiums was paid on oil and gas projects in 2018, compared with just $6 billion for coal, according to estimates from Peter Bosshard, global coordinator of Insure Our Future, an environmental coalition. Perhaps as a result, the number of insurers with coal restrictions, according to analysts at Société Générale SA, is significantly higher than those with oil and gas limits. The restrictions on coal are generally more expansive than the partial exclusions applied to oil and gas subsegments.

Inside AXA, the pushback focused on narrowing the exclusions. The XL underwriting unit countered with a proposal to continue insurance policies only with companies that had “a proven track record in fracking activities.” Protecting the oil and gas business fell to Scott Gunter, a 30-year insurance veteran who joined AXA from Chubb Ltd. two years ago and leads the XL unit from New York. Gunter, who reports directly to the CEO, oversees a $20 billion business with 9,000 employees. His team sought an alternative goal, setting a target to have frackers make up less than 10 percent of XL’s overall underwriting portfolio.

The sustainability team, led by Céline Soubranne in Paris, was dubious of the doomsday predictions coming from the underwriters. AXA’s coal exclusions, first introduced in 2017, had led to a loss of about $100 million in revenue, compared with total annual revenue in 2017 of more than $100 billion. Although the coal policy pushed some clients away, others made changes to stay within AXA’s guidelines.

Soubranne oversees a team of about a dozen people and, unlike Gunter, doesn’t sit on AXA’s management committee. She worked in communications before moving over to sustainability and has been with AXA since 2007. Together with her ESG comrades from other parts of the insurance giant, she argued AXA needed to maintain its climate leadership and go above and beyond its peers, as it had on coal. And, she and her allies pointed out, since AXA is a founding member and chair of the Net-Zero Insurance Alliance, a coalition of insurers committed to eliminate emissions from their underwriting portfolios, the company was essentially obligated to go the extra mile.

The net-zero alliance has some work to do. Four of the founding members—AXA, Allianz, Munich and Zurich Insurance Group—provide more than 20 percent of all oil and gas insurance, according to Insure Our Future. That doesn’t necessarily mean moving past oil and gas will be as economically damaging as some expect. “It shouldn’t be forgotten that the vast bulk of insurance revenues aren’t energy related at all,” says Nick Holmes, former managing director and head of insurance at SocGen. “They should be able to end fossil fuel insurance without in any way endangering their core business.”

And there has been a non-environmental upside to AXA’s climate-friendly approach. The company’s coal policy helped it win a 6 percent target stock price increase from SocGen analysts, led by Holmes at the time, after they decided to take into account ESG factors—the biggest upgrade awarded to any insurer. Those same analysts said in July that restricting oil and gas insurance could further add to insurers’ ESG premiums.

As Climate Finance Day approached, AXA faced two key sticking points in its internal deliberations: what to do with new oil and gas exploration sites and how to assess the credibility of oil companies’ transition plans. The sustainability team favored allowing the insurer to do business with companies that could demonstrate a science-based commitment to doing business in alignment with the 1.5C ambition of the Paris Agreement.

The opposing factions within AXA took different conclusions from a report last year by the International Energy Agency. The IEA found that its net-zero scenario was incompatible with continued exploration for new oil and gas resources beyond those already approved for development. In the PowerPoint, this fact bolstered the case for restrictions. On behalf of the underwriters, AXA XL pointed out that oil majors with net-zero goals are still buying licenses and drilling wells. And those companies would certainly need insurance.

With the battle lines drawn, it was down to the CEO to step in.

Unusually for the ebullient insurance boss, Thomas Buberl wasn’t pleased to see his face in the Financial Times. Showing him sporting a dark suit and slicked-back hair, the photo of the AXA chief was the centerpiece of a full-page ad bought by climate activists from Insure Our Future. The group questioned his credibility on climate change, just five days before AXA would state its new policy.

“Climate leaders don’t insure oil and gas,” it read.

The NGOs were beginning to suspect the insurer might water down its green ambitions. In fact, AXA’s reputation as a climate leader could prove a liability: If its long-awaited new policy went too easy on oil and gas, it would send a powerful signal in the opposite direction.

Buberl, 48, is a rare German to lead a major French company and was the youngest CEO among France’s CAC 40 businesses when he was appointed in 2016. He took the challenge from climate activists personally—and that’s how it was intended. Insure Our Future’s Bosshard says he’s convinced Buberl understands the climate emergency and has proved willing to move his company to meet it. The activists intended to use public pressure to make sure he remained directly involved.

When he saw his face in the newspaper ad, Buberl hadn’t told his staff what he would reveal in his speech about AXA’s new climate policy, according to people familiar with the matter. The latest version had been presented to him less than a week earlier. Poring over the plan during the weekend before Climate Finance Day, Buberl didn’t like what he saw, the people said. Commercial interests had trumped climate concerns, leading to too many loopholes.

He called his lieutenants and demanded the policy be rewritten. In fact, people familiar with the debate say, Buberl appeared to be willing to go further than even the sustainability team under Soubranne. The CEO insisted operations affected by the policy be cut off immediately rather than be phased out over a grace period, as had been the case for AXA’s restrictions on coal and tobacco.

He sent the team back with changes, and more tweaks followed. Finally, a sweeping policy shift that began in the middle of 2020 was ready, just 24 hours before Buberl’s speech. Even then, only the broad brushstrokes of the policy were settled. The detailed documents explaining the nuances were still unfinished when Buberl left his office in La Défense on a Tuesday morning to finally chart his insurer’s path into the climate future.

And then, improbably, Buberl never gave the speech. He didn’t even make it into the building where France’s finance minister and central bank governor were also due to speak for Climate Finance Day.

Activists from Friends of the Earth stormed the event, delaying the proceedings. A woman with her blond hair streaked black to represent an oil spill wore a T-shirt that read, “Your money, our lives.” The ­protesters chained themselves to the chairs and shouted slogans about French President Emmanuel Macron’s climate record. It took more than an hour for the police to remove the protesters. Buberl never reached the podium.

Three days later, he outlined his plan in a much more humble setting: a television studio interview with the organizers of the Finance Day event. His staff by then had managed to prepare the detailed supporting documents, finishing just hours beforehand.

AXA had delivered on its promise of imposing restrictions on oil and gas insurance, securing its position as the first major insurer to do so. Announcing the policy two days before the start of the UN climate summit, AXA had pledged to curb its involvement with fracking and impose further limits on underwriting activity in tar sands and the Arctic. Those moves mean less than 5 percent of the 650 most polluting companies in the oil and gas sector would meet AXA’s criteria.

Even within this new climate policy, however, AXA had left itself latitude to insure fossil fuels—and climate activists haven’t relented in scrutinizing the greenest insurance giant. Reclaim Finance put out an analysis of the policy arguing that AXA’s new rules would cover just 43 percent of all currently planned oil and gas projects worldwide.

That one of the most progressive companies on climate issues had tied itself in knots to uphold its own goals shows just how fraught the energy transition will be for the biggest players in finance and insurance who will need to support it. Balancing planet and profit is an unforgivingly difficult task. Even giving a speech on the topic can’t be guaranteed.

Top photo credit: Alex Kraus/Bloomberg.