The AXA Impact Fund: climate & biodiversity - making a difference

Give a brief overview of your project, its objectives, and why you decided to undertake it. 

Launched in July 2019, the AXA Climate and Biodiversity Impact Fund, was created in response to a joint report by AXA Group and the World Wildlife Fund that highlighted the societal, economic and financial impacts of biodiversity loss and climate change. It showcases how an asset owner, a leading conservation organisation, and an asset manager, can work together to tackle societal challenges. 

The fund is a private equity vehicle with capital of $175m. It will back credible businesses that deliver intentional, measurable and positive outcomes addressing climate change and biodiversity loss.  

The fund uses private finance to support global solutions that conserve natural capital and ecosystems, promote resource efficiency and sustainability, and protect and empower vulnerable communities whose livelihoods are affected by the challenges of climate change and ecosystem degradation. 

It has already invested in a range of solutions in developed and developing countries and, despite being in the early stages of its 12-year lifecycle, the benefits it brings are clear: 

• It is a practical illustration of how different stakeholders can work together to achieve ambitious goals. 
• It provides capital to address Sustainable Development Goals focusing on climate change and environmental degradation. 
• It demonstrates that investments in biodiversity and natural capital are a critical component of tackling climate change. 
• It provides evidence that a credible and efficient investable approach can address climate change and biodiversity loss.  
• It creates an attractive private market impact framework that gives investors flexibility to direct capital to regions with underdeveloped capital markets and to structure solutions that direct capital to the underserved challenges and people. 

Please describe the scale of the project, financially and in impact terms. 

The Fund was launched with $175m of capital from AXA Group. It forms part of an impact investing strategy established by AXA Investment Managers in 2012, where institutional investor clients have invested over $600m across four impact funds. 

The Fund’s objective is to promote mitigation, adaptation and resilience in relation to climate change and biodiversity loss.  

AXA expects to show that its investments have contributed, intentionally and at scale, to four critical Key Performance Indicators (KPIs):  

• emissions avoided 
• hectares of natural capital conserved 
• size of critical habitats protected 
• and number of vulnerable people helped. 

In less than a year since launch, AXA has allocated $41.5m of capital to a range of solutions aim to drive measurable impact alongside market-rate returns. These solutions: 

• span developing and developed markets 
• have global applications or touch on the climate and biodiversity vulnerabilities of regions 
• help protect critical habitats and address water vulnerability in climate stressed regions, support the transition to the green economy, and deliver climate-resilient products and services for some of the world’s most vulnerable people 
• will contribute to the fund’s objectives of benefiting one million vulnerable people, producing eight million Verified Carbon Units and protecting 800,000ha of critical habitats for globally important or threatened species. 

Describe the process of delivering the project, including any challenges and how these were overcome. 

The fund’s clear focus required AXA to review high quality science-based research, including reports from the IPCC, IPBES, Sustainable Development Goals and WWF, to ensure that projects are credible and relevant. Due diligence includes in-region visits to assess projects, and take on sponsors’ and other stakeholders’ views of a project and its risks. Investments qualify only if they can be proven to make a credible and material contribution to the people the fund is trying to reach, or the problem it wants to help solve. 

Key challenges that AXA has to manage include: 

• Setting precise impact KPIs and targets at a fund level was initially challenging given the blind-pool nature of capital at the fund’s outset, the sheer range of projects and assets classes that could qualify, and their geographical diversity. AXA’s experience from earlier funds, alongside detailed work with sponsors and advisers, helped it build a model to track the potential impact contribution. 
• The dual financial and impact objectives require transparency and fairness when working with stakeholders, particularly in areas such as natural capital, where projects have historically had access to philanthropic funding and investment valuation is in its infancy. 
• Diversity in both geography and investment structuring requires a focus on the non-financial risks too. AXA has a dedicated operational due diligence team working with investees and potential investees to mitigate risks 
• It is important that related ESG risks and other negative impacts on stakeholders are appropriately managed. A structured Environmental Social Action Plan is a necessary component of investments in this fund. 

How successful has the project been and how have you measured this? What have you learned from this project that can be applied more broadly? 

The fund is already delivering positive, measurable change less than a year into its expected investment lifecycle of 12 years. The full benefit of the fund has yet to be felt, but some key milestones that underline the fund’s potential impact include: 

• AXA expects to enable the avoidance of 8m tonnes of carbon emissions over the life of the fund, while producing 8m verified tradable carbon units.  
• AXA expects 800,000 hectares of land to be placed under improved management, while the same amount again will become areas of critical habitat for globally important or threatened species.  

Within a year of its launch the fund has invested almost a quarter of its capital in real-world projects that target climate change and biodiversity. Investments across developed and developing markets include: 

1. An agroforestry project that protects the unique biodiversity of Madagascar. It will provide over 2,900 hectares for biodiversity and 528 hectares of critical habitats for lemurs. This will create 120 jobs. 
2. A conservation strategy in water and climate stressed areas of California. This project is expected to address 30% of the annual groundwater overdraft; 24% of the migratory bird habitat; and 28% of the land restoration needs of the California San Joaquin Valley – a very important region for food production in the US. 
3. An investment to reduce the climate vulnerability of at least one million people in developing countries by delivering climate-resilient products and services which will mitigate the damage, disruption, risk and resource scarcity that can follow from changes to the global climate. 

The Fund is putting $175m to work on behalf of one of the world’s largest institutional investors, delivering crucial funding to address the needs identified by UN Sustainable Development Goals 7, 11, 12, 13, 14 and 15. 

The fund has shown important lessons that will help in the development of future impact strategies. It has emphasised the benefit of collaboration amongst different stakeholders; the necessity of defining a mission which guides the identify of a fund; the need to use science-based research to reinforce the credibility of the strategy and finally, to hold all the asset manager and project sponsors to account with clearly defined metrics and targets.