Sustainability Report 2021 04.4 Strategy resilience, stress-tests and climate scenario analysis 01 Introduction 04.4.1 Top-down qualitative Methods According to report findings, the energy sector will We have used the findings of this macroeconomic transition risk exposure The analysis focused on the most important be hit hardest with an estimated cost of 900 billion analysis for internal analyses. For this year’s 02 Measuring and measures of climate policy currently enacted U.S. dollars. The steel sector follows with a cost of report, we introduce an overview of the exposure managing sustainability screening of investment portfolio or under discussion. These measures can be 300 billion U.S. dollars. The air and marine transport of our proprietary investment portfolios to the Allianz Research calculated the macroeconomic grouped into the following categories: carbon sector faces 55 billion U.S. dollars costs. Other sectors sub-sectoral risks shown above. We assume a 03 Strengthening negative impact of increasing regulatory intensity pricing; energy mix and efficiency mandates; at risk include automotive, chemicals, pulp and static portfolio where the sector allocation would our foundation on the global industry at nearly 2.5 trillion mobility regulations; and industry-specific taxes, paper, retail and machinery/manufacturing. remain the same and where risks are evenly U.S. dollars over the next decade, while also fines and levies. Costs for businesses depend on The report also presents a heat map showing spread within the sector. 04 Climate-related identifying opportunities for a variety of sectors. emissions’ costs, regulation and policy dynamics. transition risk severity for the next twenty Results financial disclosure The ultimate risk is a complete loss of value of years and drivers and mitigating factors for 04.1 Highlights certain assets or entire businesses. different sub-sectors. An extract of the results is Mapping listed investments to the heatmap 04.2 Governance shown below.1 provides a first indication in which sectors the 04.3 Strategy main exposures to transition risk are concentrated 04.4 Strategy resilience, stress-tests and in and how these exposures evolve over time on climate scenario analysis Assets and business impact under transition scenarios (source: Allianz, excerpt) the assumption of a static portfolio. Using this 04.5 Risk and opportunity management approach, less than 4 percent of our combined 04.6 Targets and metrics Global 2ºC 1.5ºC listed equity portfolio and listed corporate bond 05 Our universal principles 2020 2025 2030 2035 2040 2020 2025 2030 2035 2040 portfolio would fall in the category of being prone Energy Integrated oil and gas (M) (M) (M) T to high or very high climate change risk in a 1.5°C Oil and gas storage scenario considering the 2020 risk landscape. Energy and transportation This is mainly driven by the utilities exposure in Energy Coal and consumable fuels T, P T, P T, P T, P the corporate bonds portfolio. Over time this Fertilizers and share grows, led by exposures to energy intensive Materials agricultural chemicals (T) (T) (T) (T) (T) (T) (T) (T) P industries in the materials and industrials sectors. Materials Aluminum According to the heatmap, a step change in the Materials Steel exposures to high and very high climate change risk is to be expected after 2030 due to policy Industrials Industrial conglomerates tightening, particularly affecting the oil and gas Industrials Airlines (T) P (T) P related energy sectors. The share of sectors at Consumer discretionary Auto components high or very high risk would increase to around Consumer discretionary Automobiles P P, T T P P P, T P, T 18 percent by 2040. Utilities Electric utilities P (M) P P P (M) P P Naturally, our investment portfolio will not remain Utilities Renewable electricity T T T T static over this time horizon. Implementing our Risk enhancer: Risk mitigator: Risk: decarbonization strategy and the corresponding P = policy (P) = policy Low targets will also adapt both inter- and intra-sector T = substitution technology (T) = little substitution technology Medium allocation to provide effective mitigation against M = related market forces (M) = countering market forces High this exposure increase – our strategic response to identified risks is summarized in section 04.4.6. Very high 1 The heatmap was not updated in the last year. If it was updated, results might change. 75