AXA IM Alts’ Scemama: ‘We cannot compromise on the return’

The global head of the insurer’s alternative business said performance is the top priority as it works to decarbonize its €85bn real estate portfolio.

With real estate responsible for approximately 40 percent of carbon emissions globally, AXA IM Alts, the French insurer’s alternative investment management division, will exclude nothing in its efforts to decarbonize its €85 billion global portfolio, said Isabelle Scemama, global head of AXA IM Alts, at the inaugural PERE Decarb Forum in London yesterday.

“We consider our total responsibility to work on 100 percent of the portfolio,” said Scemama, speaking during a keynote interview with Tracy Stroh, head of European real estate at Singaporean sovereign wealth fund GIC. “Of course, when we invest at the equity level, it’s easier, we are a market maker, we decide what we do. When we are investing in a debt instrument, we have to rely on the borrower to deliver. But what we do at equity level is, of course, a reference that we use also in our debt investments.”

AXA Group has set a long-term target for its entire investment portfolio to become net zero for Scope 1 and 2 emissions by 2050. It also has set an intermediate target to reduce the carbon footprint of its general account’s assets by 50 percent by 2030.

However, with 2,500 buildings in AXA IM Alts’ real estate portfolio, Scemama acknowledged “it’s impossible to transition them [all] to net zero. We have buildings built in the 90s, we have buildings built in the 30s. They are very, very challenging, but we have a plan for each of those buildings. And what matters is the trajectory.”

She added that while AXA IM Alts will seek to reduce the carbon emissions in the portfolio as much as possible with retrofitting and active asset management, remaining emissions will be addressed through carbon offsets and credits.

But while it has set decarbonization goals, AXA IM Alts also has a fiduciary duty to more than 500 clients, which include insurers and pension plans. “We cannot compromise on the return,” Scemama asserted. “Each single euro or dollar or pound we inject in the building has to translate into additional return and so into additional cashflow.” This additional return can come from higher rents, lower vacancy rates or government subsidies, she noted.

“So we calibrate the quantum of investment, and assess what kind of additional return they will provide,” she continued. “It means that we cannot do everything. We have to be selective.”

She added that AXA IM Alts is not underwriting carbon offsets to help boost returns in real estate. However, the investor has a natural capital strategy where the return comes from the generation and trading of carbon credits.

When asked by Stroh if she addressed sustainability differently with clients depending on how much that client prioritized the issue, Scemama replied: “I have the same presentation when I’m in Texas, when I’m in Japan, or when I am in Amsterdam, so I use exactly the same paper. So I’m not changing the story. But in the end, if you are able to demonstrate that it’s accretive on the return, it’s not an issue, whether you’re in Texas, wherever you are. So that’s the sole answer I can give to this question.”

Ultimately, although real estate is a major producer of carbon emissions, Scemama advocated for a more holistic approach to decarbonization. “Of course, we can reduce carbon with what we do on real estate,” she said. “But we can also act on infrastructure, so avoiding carbon with infrastructure investment. And we do also quite a lot on natural capital and forestry.”

A large part of decarbonization in real estate, given the industry’s heavy energy usage, will also require decarbonization in energy infrastructure, she explained: “If we want to decarbonize real estate, we will have to rely on the grid that will have to be decarbonized. So it’s not just a real estate issue.”