Sustainability Report 2021 04.3 Strategy 01 Introduction Internal analysis shows that our proprietary Long-term ambition and the Managing transition risks Seizing on opportunities investment portfolio, especially the listed equity Net-Zero Alliances Fundamental to managing transition risks Our business strategy includes systematically 02 Measuring and and corporate bonds asset classes, is most After the release of the landmark Special is an understanding of the pathways along leveraging opportunities to finance a low-carbon managing sustainability sensitive to climate transition scenarios. This is Report on Global Warming of 1.5°C by the which companies can, and should, develop and climate-resilient future, e.g. by investing mainly because equity investments are directly Intergovernmental Panel on Climate Change their business models to align with 1.5°C. in renewable energy, energy efficiency in real 03 Strengthening affected by climate-related impacts and changing (IPCC) in October 2018, we thoroughly reviewed Allianz continuously conducts detailed analysis estate and electric vehicle infrastructure and by our foundation market expectations and resulting market the implications for our corporate response. As a of energy-intensive sectors’ emission profiles, providing insurance solutions to protect against valuation. In contrast, for a long-term investor like result, we increased our ambition from ‘well below prototypical decarbonization pathways and physical climate impacts and support low-carbon 04 Climate-related Allianz, impacts on debt investments would be 2°C’ and committed to pursuing efforts to limit necessary technology shifts within sectors business models. For proprietary investments, financial disclosure felt first by a changing of spreads and to a lesser global warming to a maximum of 1.5°C by the and companies. the Allianz ESG Functional Rule for Investments 04.1 Highlights extent by impairment of debt service of assets. end of the century. This is postulated as the upper provides the foundation for integrating 04.2 Governance In section 04.4 we disclose different quantitative As part of the Glasgow Financial Alliance for climate-related issues. It comprises asset 04.3 Strategy and qualitative assessments for physical and ambition level of the Paris Agreement and the Net-Zero (GFANZ) Allianz is leading the work on European Union’s long-term climate strategy. sectoral decarbonization pathways to enhance manager selection and systematic integration 04.4 Strategy resilience, stress-tests and transition risks. development, understanding and uptake. As part of climate and sustainability factors into our climate scenario analysis As a major outcome of incorporating the investment decisions. 04.5 Risk and opportunity management As well as being impacted by climate change, assessment of climate-related risks and of this, we are also engaging with top-down and 04.6 Targets and metrics the choices Allianz makes about how to conduct opportunities into our business strategy, we co- bottom-up modelers of those pathways. Read more in our ESG Integration Framework its business have an impact on climate change, founded the U.N.-convened Net-Zero Asset Owner We use the results for portfolio analysis, for risk We have strategically invested in low-carbon 05 Our universal principles e.g. by investing in or insuring activities which Alliance (AOA) and Net-Zero Insurance Alliance management and to inform our engagement assets for over a decade. This includes renewable either cause or reduce GHG emissions. To manage (NZIA), thereby committing to setting long-term process and management decisions. Emissions energy, certified green buildings and green bonds potentially detrimental impacts on both climate emissions reduction targets for our proprietary footprints are used as a proxy for transition (see section 02.2.2). Our Sustainable Solutions and our business, we have committed to align investment portfolio, insurance underwriting and risks and are therefore covered in our program provides products and services that our proprietary investment and insurance business operations. decarbonization targets. create shared value by improving people’s lives underwriting portfolios to 1.5°C climate scenarios. The AOA is explained in more detail in section and/or delivering a positive environmental Allianz started to restrict financing coal-based impact. Allianz is one of the leading insurers 04.3.3 Our response 02.2 and the NZIA is explained in section 02.1. business models in 2015. Equity stakes have been In 2020, Allianz set intermediate targets following divested, existing fixed income investments put of low-carbon technologies. As part of our We embed the management of risks and the guidance of the AOA for the asset classes listed in run-off and no new investments have been Sustainable Solutions approach, we provide opportunities resulting from climate change equity, corporate bonds and real estate. In 2021, allowed since 2015. We do not offer insurance standardized and tailor-made insurance products in our overall business strategy. Measures we also set targets for infrastructure investments. for individual coal power plants or mines and we and are insuring renewables in 70 countries. include: developing and adjusting financial Our targets cover all four dimensions as described require all companies across our P&C insurance We also aim to reduce the impacts of climate products and services; updating policies and in the U.N. AOA Target Setting Protocol and are and proprietary investment portfolio to fully risks and incentivize preventive measures to processes; setting targets and limits; managing explained in detail in section 04.6.1. phase out coal by 2040 at the latest. Our criteria increase customers’ resilience and compensate for our operational climate footprint; and engaging are continuously tightened as explained in more climate-related damages. Examples include risk with internal and external stakeholders. detail in our public Statement on Coal-based consulting services offered by AGCS, our active Business Models. A more detailed explanation of support of the InsuResilience Global Partnership our coal approach is included in section 02.2. and our work with the German Corporation for International Cooperation (GIZ) to pilot innovative insurance solutions in emerging and developing countries. 70