Sustainability Report 2021 04.4 Strategy resilience, stress-tests and climate scenario analysis 01 Introduction Results In addition to high emitting sectors and issuers, Carbon price sensitivity of the Allianz listed equity portfolio 2021 Absolute emissions are concentrated in duration is another main driver of the carbon price 02 Measuring and only a few sectors. At level 2 of NACE sector sensitivity of the listed corporate bonds portfolio. for effective carbon prices projected for 2031. 2020 managing sustainability classification, for the listed equity portfolio the The overall sensitivity is around two times lower 10 sectors with the highest absolute emissions as compared to listed equity, with market value Net-Zero 03 Strengthening contribute around 82 percent to absolute owned losses going up to 4.0 percent to 4.5 percent under 2050 our foundation emissions in the portfolio, but only 29 percent the most onerous disorderly ‘Divergent Net-Zero’ to AuM. Sector concentration is even a bit scenario. This is mainly owing to the limited Diverent 04 Climate-related more pronounced in the listed corporate bond co-movement of corporate bond spreads and Net-Zero financial disclosure portfolio where the 10 sectors with the highest equity returns observed in historical timeseries 04.1 Highlights absolute emissions contribute around 84 percent data which is used in the model to translate 04.2 Governance to absolute financed emissions in the portfolio, sensitivities for listed equity into sensitivities for eo 2°C 04.3 Strategy but only 26 percent to AuM. listed corporate bonds. 04.4 Strategy resilience, stress-tests and Consistent with analyses disclosed in previous From 2020 to 2021, the numbers substantially Deaye climate scenario analysis decreased as our equity and corporate bonds transition 04.5 Risk and opportunity management years and with the scoping of this approach, our portfolio carbon footprint reduced, see section 04.6 Targets and metrics listed equity and corporate bonds portfolios show 05.6. Looking ahead to 2050, in the absence 0% -2% -4% -6% -8% -10% -12% -14% -16% – within the current modeling framework and its of adaptation or mitigation actions maximum Carbon price sensitivity (EQ) 05 Our universal principles limitations – sensitivities in those sectors. carbon price sensitivities under the ‘Divergent Net- Over the 2031 time horizon, the overall sensitivity Zero’ scenario could almost triple as compared Figure 1 Carbon price sensitivity of the Allianz listed equity portfolio for effective carbon prices projected of the listed equity portfolio stays contained in to 2031. for 2031. the ‘Below 2°C’ scenario, with market value losses Being aware of the limitations of our approach, Carbon price sensitivity of the Allianz corporate bonds 2021 between 2.5 percent to 4 percent depending the results are still leading us to the right follow- on climate-economic model. The consequences up questions to understand how carbon price portfolio for effective carbon prices projected for 2031. 2020 of more stringent policy reaction and faster increases can affect different sectors and which technology change are reflected in higher sensitivities under the 1.5°C-aligned ‘Net-Zero parameters of individual investee companies will Net-Zero 2050’ and ‘Divergent Net-Zero’ scenarios, where lead to a non-uniform development inside a given 2050 market value losses go up to 9 percent to 11 sector as not all will be affected equally. This holds percent in the disorderly ‘Divergent Net-Zero’ especially true as major carbon emitters are often iverent scenario. The carbon price sensitivity in the exempted from carbon pricing schemes due to Net-Zero ‘Delayed transition’ scenario is still muted relative carbon leakage risks. to other scenarios due to delayed policy action Our strategic response to carbon risks is our long- eo 2°C setting in only after 2030. term commitment to our intermediary portfolio targets made as part of the U.N.-convened Net- eaye Zero AOA. See section 04.4.6 for further details. transition 0% -1% -2% -3% -4% -5% -6% -7% Carbon price sensitivity (FI) Figure 2 Carbon price sensitivity of the Allianz corporate bonds portfolio for effective carbon prices projected for 2031. 79