ESG, or the vast array of non-financial aspects of a company that contributes to the experience of investing in a company (for example, how it is addressing greenhouse gas emissions or its labour standards), continues to be an important investment consideration. In fact, the importance is ever-increasing.
The FCA clearly believes likewise as they have extended the remit of IGCs who will, from 2021, be required to report on a firm’s policies on how it takes account of ESG risks and member concerns in investment decision making. IGCs will also be required to report on the firm’s stewardship policy. At its simplest level, stewardship is the careful and responsible management of something entrusted to one’s care (including the process of voting at company meetings), so in this case it relates to your money and how it is invested.
We have commented on Aviva’s ESG credentials in our previous reports, and they continue to be market leading in their activity. They have shared with us details of further work Aviva is doing now and their aspirations for the future. These include:
As an asset owner committing to be net zero carbon by 2050; working with the UN Net Zero Asset Owners Alliance;
Stopping investment in companies who are developing new thermal coal plants, or who generate more than 30% of their revenue from thermal coal mining or power generation as per the Powering Past Coal Alliance Finance Principles1;
Already investing £6bn in green assets since 2015. This includes £3.8bn in low-carbon infrastructure e.g. wind farms, solar panels etc. and are planning further investment;
Integrating consideration of long-term climate-related issues into the products and services offered (for example continuing to develop a customer Environmental, Social and Governance (ESG) strategy, both in terms of strengthening climate engagement and by voting at company meetings and offering further climate friendly funds);
Replacing all company vehicles with hybrid or fully electric models by 2022;
Aligning their charity activity and community investments to climate action;
1 The UK Government created a national commitment for countries to ‘Power Past Coal’ which was launched at the UN Climate Change Conference (COP23) in 2017. Aviva has signed up to these principles to cease supporting thermal coal power investments and underwriting by 2030.
Working closely with governments, policymakers and regulators to push for more regulation and to incentivise sustainable investments while removing incentives for unsustainable investment.
Continuing to send zero waste to landfill across their UK offices, and being single use plastic free across all of their markets with the exception of Italy which will follow later this year.
Voting at many company meetings in support of greater disclosure of ESG and climate related issues
In addition to this corporate activity, we have seen some good progress by Aviva to offer a wider range of investments that incorporate consideration of ESG matters. Their range of Stewardship funds, which incorporate both more traditional ethical exclusions and ESG factors in selecting the companies in which they invest, is now available to many more customers. They have also introduced a lifestyle strategy using these funds, which employers can choose as their default fund.
Consideration of ESG factors is also integrated into the My Future Focus default investment solution. Part of this integration includes a “tilt” on the passively managed regional equity funds, such as the UK Equity Index Tracker fund, used within My Future Focus. This sees the fund’s investments tilted towards companies with higher ESG scores, based on an in-house ESG score developed by Aviva Investors’ global responsible investment team, by discarding those ranked in the lowest 10%. The funds also make extensive use of the Aviva Investors voting policies in support of such considerations. The My Future default funds also make use of the voting policies but do not incorporate any investment tilts within the portfolios currently.
Aviva is continuing to expand the range of climate friendly funds on all of their platforms and across a wider product range. They are also looking to deliver climate friendly default funds by the end of 2021 to make responsible investing simple and easy for their customers.
We will continue to monitor progress in this area, where Aviva continue to look at many potential developments, and will report more broadly in our next report.
