Sustainability Report 2021 04.4 Strategy resilience, stress-tests and climate scenario analysis 01 Introduction 04.4.6 Strategic response to As founding member to the U.N.-convened Net- identified carbon risks Zero (AOA), we have set intermediary investment 02 Measuring and portfolio targets. The work of the AOA is done managing sustainability The impacts of transition risk scenarios on the in collaboration and with a collective ambition, investment portfolio discussed in sections 04.4.1, bringing together global investors, leading civil 03 Strengthening 04.4.3, and 04.4.4 appear to be manageable society, academia, and the leadership of the our foundation considering both the magnitude of predicted U.N. The AOA remains the first and only group of losses and the time horizon over which they financial sector global players to set 2025 interim 04 Climate-related materialize. Extending this analysis to a full targets across four areas: sub-portfolio targets financial disclosure balance sheet view, including mitigating effects (at asset class level); sector targets; engagement 04.1 Highlights from insurance liabilities, would further support targets and financing targets. The purpose of 04.2 Governance this assessment – for example accounting for the these targets is to drive decarbonization of real 04.3 Strategy offsetting of fixed-income losses from increasing economy towards 1.5°C. (see section 04.6.1 04.4 Strategy resilience, stress-tests and long-term interest rates by lower long-term on investment portfolio targets). With regard climate scenario analysis liabilities from life insurance under the EA and to target implementation, both the top-down 04.5 Risk and opportunity management LA CBES scenarios. Moreover, the investment and bottom-up approaches for investments 04.6 Targets and metrics portfolio will not remain static. Instead inter- and included in this report support our view that 05 Our universal principles intra-sector asset allocation will be adapted sector pathways such as those being developed dynamically to limit the identified transition in the Glasgow Financial Alliance for Net-Zero risk exposure. Effective mitigation, however, and assessing companies transition plans along requires long-term action to align the portfolio these pathways is the way to go as we want to with policy targets. finance the transition and not divest from high Reports like the U.N. Emission Gap Report show emitting sectors. that the world is currently on a 2.7°C pathway While increasing the resilience of our portfolio meaning decisive and credible measures against the transition risks, for example as from all groups of actors are needed urgently. exemplified in the EA and LA CBES scenarios Our strategic response to carbon risks is our over the short- to mid-term in section 04.4.3, long-term commitment to decarbonize our our decarbonization strategy also contributes to investment and insurance portfolios to net- limiting the physical risks showcased in the NAA zero GHG emissions by 2050, consistent with a CBES scenario, which may materialize in our maximum temperature rise of 1.5˚C above pre- portfolio over the long-term. industrial temperatures. 81