Active
ownership

Active Ownership

Effective and responsible active ownership is part of our fundamental investment approach.

We believe persistent and constructive dialogue with issuers and corporates is vital to preserve and enhance the value of assets on behalf of our beneficiaries and clients. This is achieved through voicing our support for more sustainable practices and gathering insights to inform investment decisions.

The climate Transition Engagement Program (CTEP) is our bespoke engagement programme targeting all companies invested in our Climate Transition franchise. Its objective is to help the Fund achieve its aim of positively influencing climate-related behaviour and help generate competitive returns.

Any companies mentioned are for illustrative purposes only, not intended to be an investment recommendation.

Watch our video interview with Luisa Jobson, Sustainable Investing Analyst at Aviva Investors.

We will measure success based on company alignment with our expectations. Within three years of inclusion in the portfolio, companies should evidence progress against two expectations:

Set near-term SBTs validated by the Science-Based Targets initiative ("SBTi")¹⁴, consistent with a 1.5°C pathway. The Intergovernmental Panel on Climate Change’s Sixth Assessment report calls for net global emissions to decline by about 45 per cent from 2010 levels by 2030 to comply with a 1.5°C pathway. In our view, SBTi-validated SBTs provide a clearly defined pathway for companies to reduce GHGs in line with Paris Agreement goals.

Provide annual public disclosure to The CDP’s climate change questionnaire¹⁵ and strive to continuously improve performance. CDP’s data set and resulting scores are a key resource in identifying and managing ESG and climate-related risks within our portfolios. It is the most complete source of self-reported corporate environmental data in a standardised and comparable format, widely used throughout financial markets.

¹⁴Business Ambition for 1.5°C - Science Based Targets
¹⁵ What we do - CDP
¹⁶Link to Responsible Investment Review

Monitoring progress

Company performance against these expectations will be determined by an annual qualitative assessment. Although all companies are regarded as demonstrating leadership relative to peers in one or more aspect of their climate transition strategies, all companies have further to go. As such, companies are categorised across five grades from Level 1 (most aligned) to Level 5 (least aligned) to indicate the extent to which they meet our expectations. A supplementary bonus-malus overlay is added to reflect our views on the company’s sustainability performance and culture of engagement.

Escalation approach

We hope to maintain an open dialogue and partnership with companies as they evolve and strengthen their respective strategies, management and reporting in alignment with our asks. There will be times, however, when our concerns have not been adequately addressed. In these circumstances, we are prepared to escalate specific areas of concern to effect the change we seek. Ultimately, our willingness to stay invested and/or provide future capital will be determined by the extent and pace to which companies demonstrate meaningful progress over time. Where escalation has been unsuccessful in delivering the changes requested, we are committed to divest.

A sample of our approach to escalation and the tools available to us is provided below and can be found in our annual Responsible Investment Review¹⁶. Note that the escalation pathway for each company will be decided on a case-by-case basis.

Intensified dialogue

Increase frequency of engagement and communications of expectations
Increase formality of engagement (e.g request meeting with more senior roles - Chair, CEO)
Engage with company brokers or advisors

Collaboration

Create or join a collaborative investor engagement
Consult or partner with other stakeholders (e.g. banks, creditors, customers, suppliers, NGOs) to increase influence

Voting

Support relevant shareholder resolutions
Vote against appropriate management resolutions
File/co-file shareholder resolutions
Nominate new board directors

Public pressure

Public statements and press
Attendants speak at general meetings
Pre-declare votes/publish more detailed vote rationales

Macro reform

Engage with legislators, regulators and other standard setters to galvanise systems change

Portfolio allocation decisions

Threaten divestment or take steps to reduce or sell holdings

Sample of escalation options available when engagement is not resulting in desired change at expected pace

2023 Evaluation Results

Below is a snapshot of how companies currently score against our alignment framework and specific requests for change. This analysis is of all holdings held over the course of 2023:

Click to interact with charts

Progress against Ask 1:

SBTi alignment

Progress against Ask 2:

CDP alignment¹⁷:

¹⁷ Due to CDP delaying the release of its 2023 Climate Change Disclosure dataset, the CDP data presented here is 2022 Climate Change Disclosure scores.

Engagement progress in 2023

During the second year of the engagement programme, we continued to cultivate relationships with holdings held in the Climate Transition Global Credit portfolio and influenced change across multiple organisations.

	CTGC Engagement Programme	Total Aviva Investor Engagements
Number of engagements	45	3783
Percent of substantive engagements Substantive engagement is defined as engagement typically involving active, in-depth, bespoke dialogue with the corporate.	82%	43.7%
Number of wins	17	281
Percent of wins that are material A material win is classified as the observed change being meaningful in terms of financial and/or sustainability materiality.	100%	54.8%

While in 2022 our focus had been on meeting with as many holdings as possible to explain our expectations to them, our focus in 2023 shifted slightly to those companies that had not yet made significant progress and that were classed as Level 4 or Level 5, based on our assessment. In particular, we decided to exercise our voting power and voted against the re-election of relevant directors at two companies that we felt had provided us with particularly poor responses and slow progress. For the other target companies, we focused on setting up in-depth follow-up meetings.

Over the course of the year, we observed some encouraging progress on our specific asks as 17 wins¹⁸ were logged. The progress we have seen was generated solely from companies either committing or validating SBT targets. This is due to the CDP organisation delaying the release of its 2023 Climate Change Disclosure dataset; therefore, we were unable to track progress against this engagement ask in 2023.

47% of holdings in the Climate Transition Global Credit Fund have now set a near-term SBT (by 2030), up from 30% at the beginning of the programme. We view SBTi validation as a key indicator of the company’s commitment to drive the ambitious and rapid transition of its business profile. The materiality of this progress is significant as when a company sets an SBT, pressures from the target will proliferate throughout a company’s value chain, encouraging better climate practice among companies outside the scope of the Funds. This is particularly significant in terms of real-world emission reduction as 59% of SBT wins observed have come from companies in high impact sectors¹⁹.

¹⁸This is where companies have either achieved our asks or made significant progress towards achievement.
¹⁹High impact sectors are classified as the sectors which cumulatively generate 80% of either scope 1, scope 2, scope 3 upstream, or scope 3 downstream emissions. We believe implementing change in the few most impactful sectors will bring about the greatest change.

Key Challenges

While we were pleased to see some progress by companies over the past year, many of the same challenges as last year still remain pertinent however we also note areas in which our views have evolved:

We engaged with CDP in 2023 to understand what the organisation was doing to address companies that recently declined to participate in the initiative, however we concluded that the onus on disclosing relies solely with companies which is why we participated as a co-signatory in CDP’s 2023 Non-Disclosure campaign. With increasing requests from investors to participate in various initiatives, we understand a streamlining of reporting may be required however we remain confident that CDP is an example of best practice with regards to disclosing on climate governance and transition strategies, so we intend to continue to support its disclosure as we enter the third year of the engagement programme.

As CDP is the main metric used to track progress against a company’s disclosure on climate, we were unable to identify what companies had improved over 2023 due to the CDP dataset being released in March 2024 rather than December 2023. This resulted in no wins being logged against holdings for improved climate disclosure in 2023 which is disappointing as we have engaged with holdings which demonstrated promising actions to ensure an improvement in CDP grade for 2023.

Last year we identified companies, particularly in the chemicals and oil & gas sectors, that often cite the lack of SBT sectoral pathways as a reason for not committing targets to the SBTi. Whilst this has persisted, we have engaged with holdings in this sector and acknowledge the challenges such companies are encountering. As a result, we have taken this learning and evolved our approach to escalation in 2024 and decided not to escalate against holdings specifically for not having an SBT if there is no sector specific guidance available.

Case Study on SBT

Issue

The CTEP aims to encourage a pathway to commit a SBT and get it validated, a high engagement priority throughout 2023 was to engage with holdings to assess the extent and pace to which they can align with our asks. Broadly speaking European companies demonstrate closer alignment to our asks, over their American counterparts so it is insightful for us to engage with American holdings to determine potential barriers to alignment of climate action.

Action

As part of the CTEP, Waste Connection was initially targeted in August 2022, when it was categorised as demonstrating level 5 alignment due to not disclosing to CDP’s Climate Change disclosure and not having committed a SBT.

Outcome

Since its inception in the Fund and throughout 2023 we engaged with Waste Connections on four occasions outlining the asks of the CTEP, specifically highlighting the importance of externally validated science-based targets. During our initial engagements Waste Connection outlined that committing a target with the SBTi was not something the organisation would pursue in the near-term due to the fact the company is a growth orientated business and the ambiguity around the SBTi’s baselining frameworks.

Despite this, peers in the American waste management sector such as Republic Services and Waste Management have both attained validated near-term targets from the SBTi, therefore we remained persistent with our requests. In Q4 2023 we welcomed progress against our ask as Waste Connections committed a near-term target with the SBTi. Our engagements with the company will continue into 2024 to monitor continued progress and begin to explore other topical themes such as carbon accounting in the waste management sector.

Case Study on CDP

As previously mentioned, CDP did not release its dataset consisting of the Climate Change disclosure scores until March 2024, so therefore no wins against this ask were recorded in 2023.

Other engagement highlights

As the engagement programme enters its third year, we can appreciate the positive progress many companies have made against our asks since our initial engagement request.

We initially engaged with GSK in March 2023, outlining the two asks of our engagement programme, requesting alignment with these at the earliest opportunity. GSK is a priority name due to it operating in a high impact sector, so therefore is exposed to carbon intensive activities throughout its value chain. During 2023, GSK improved its alignment category from level 3 to level 1 as in H2 the company attained its near-term, long-term, and net-zero targets validated by the SBTi. Additionally, the company has ambitions to be net-zero throughout its value chain by 2045, five years ahead of the Paris Agreement objective of achieving carbon neutrality by 2050 to limit global warming to 1.5°C.

In February 2022, Tesco’s was contacted as part of the CTEP, where it received correspondence outlining the two key asks of our engagement programme, since then a range of multifaceted engagements have been conducted by both the ESG and investment teams. Therefore, it was extremely positive that during 2023, Tesco became one of the first retailers globally to have its net-zero science-based targets validated by the SBTi. These validated targets will see Tesco work towards its public commitments to become carbon neutral across its own operations by 2035 and across its value chain by 2050. In addition, it has also become one of the first retailers to set SBTi-validated Scope 3 reduction targets for its forests, land, and agriculture (FLAG) emissions and non-FLAG (energy and industrial sources) emissions, the details of which are in the announcement.

Priorities ahead

We will continue to increase pressure on CTEP companies, particularly those that are currently making slow progress against our asks and those that are deemed to potentially have a climate impact.

As 2024 will mark the third and final year of most holdings’ inclusion in CTEP, we intend to ramp up our voting and other escalation activity during the upcoming AGM season and beyond to demand greater progress from slow movers and to remind them of the risk of divestment if they fail to act.

Our global voting policy provides more details on our approach and perspectives on governance and sustainability best practice. Our annual Responsible Investment Review provides more details on our approach to escalation. These documents are available on our website.

View these documents