Introduction
This is the second iteration of the outcomes reports that Aviva Investors has produced for the Sustainable Transition range, comprising our Climate Transition, Natural Capital Transition and Social Transition funds. The reports cover the investments, engagement, and actions we have undertaken in pursuit of our objectives over the course of 2023.
In 2023, we witnessed a significant discourse around ESG funds. The term ESG has become heavily politicised, where the purist definition from an investing standpoint has been forgotten – to understand how environmental, social and governance issues might affect a company’s long-term value. This is a crucial consideration for all investments. Alongside this, there has been a proactive regulatory push to distinguish between ESG funds and Sustainable funds. While ESG focuses on the integration of environmental, social, and governance issues in portfolio risk management, sustainable strategies seek to deliver real-world sustainable outcomes.
This year marked a significant milestone for our Sustainable Transitions range, with the three equity Funds now disclosing under Article 9 of the EU’s Sustainable Finance Disclosure Regime. The key foundation of this is the requirement that every company held is a “sustainable investment” at the point of investment and throughout its holding. While much of the industry has scaled back from such commitments, Aviva Investors has consistently upheld its belief in supporting the transition to a more sustainable economy. Within the set of companies we invest in across the Sustainable Transition range, we maintain the principle of allocating capital to those companies that facilitate the transition to a lower-carbon and climate-resilient economy, work towards halting and reversing nature loss, and promote greater social equality. We also continue to engage with not only these companies but also with policy makers to drive real world outcomes.
Despite challenges, we remain optimistic about the future. The UN’s Sustainable Development Goals face funding gaps, and policy progress is stalling as political focus shifts. However, we are determined to ensure that the decade of action does not become one of procrastination. This is why these reports focus on the tangible actions and outcomes at the company level, allowing our clients to see the progress we are making towards our sustainability goals.
More than half of global GDP is moderately or highly dependent on nature1, underscoring the urgent need for immediate action. Delaying biodiversity efforts by just ten years could double the economic costs2, highlighting the substantial financial stakes involved.
Human activities, especially in food production, infrastructure, energy, and mining, have inflicted severe damage on nature. Nearly 80% of threatened species are impacted by these economic activities, with about 40% of Earth's land now degraded3.
The United Kingdom's "State of Nature" report for 2023 revealed a grim reality: one in six species is at risk of extinction4. The situation is particularly dire for certain groups, with 43% of birds, 31% of amphibians and reptiles, 28% of fungi and lichen, and 26% of terrestrial mammals facing threats. Additionally, over half of the UK's flowering plants, including species like Heather and Harebell, have experienced declines since 1970. On average, species abundance has decreased by 19% over the past five decades.
Globally, the financial toll of activities that harm nature is staggering. Each year, subsidies that damage the environment amount to approximately $1.8 trillion, equivalent to the GDP of Canada. Within the European Union, annual spending on such subsidies ranges from €34-48 billion5.
1 https://www3.weforum.org/docs/WEF_New_Nature_Economy_Report_2020.pdf2 Delaying action on biodiversity by just 10 years will be twice as expensive as acting immediately, reveal Natural History Museum & Vivid Economics | Natural History Museum (nhm.ac.uk)3 https://www.weforum.org/agenda/2023/02/biodiversity-nature-loss-cop15/4 https://nbn.org.uk/news/state-of-nature-2023/5 https://www.carbonbrief.org/eu-spending-up-to-e48bn-on-nature-harming-activities-each-year-report-says/?utm_source=cbnewsletter&utm_medium=email&utm_term=2024-05-14&utm_campaign=Daily+Briefing+14+05+2024
2023 marked the first year of the Global Biodiversity Framework (GBF).6 7 Countries began revising their national biodiversity strategies, aiming for completion by the COP16 summit in 2024. Japan and the EU were among the first to submit updated plans. In September, the GBF Fund was launched to support conservation efforts in developing countries. However, many nations still need to finalise their strategies, and new funding announcements have been limited despite ambitious pledges made at COP15.
In September, the Taskforce on Nature-related Financial Disclosures (TNFD) released its final recommendations, providing guidelines for businesses and financial institutions to assess and act on their impacts and dependencies on nature.8
Europe saw significant progress with the Nature Restoration Law, which aims to restore at least 20% of its land and sea areas by 2030. While the law was provisionally agreed upon, its formal adoption in 2024 may face delays due to concerns from some member states.9 10 Additionally, the EU introduced regulations to halt imports of products linked to deforestation, placing the burden on companies to ensure their supply chains are deforestation-free.11 Despite these advances, other critical regulations, such as the Sustainable Use of Pesticide Regulation and the Sustainable Food Systems Law, faced setbacks.12 13
6 Countries need to get out of first gear on nature, says WWF on one year anniversary of the Global Biodiversity Framework | WWF (panda.org)7 Launch of the Global Biodiversity Framework Fund | Convention on Biological Diversity (cbd.int)8 The Taskforce on Nature-related Financial Disclosures (tnfd.global)9 Nature restoration: Council and Parliament reach agreement on new rules to restore and preserve degraded habitats in the EU (europa.eu)10 Von der Leyen finally stands up for nature law — just as it may fall – POLITICO11 Parliament adopts new law to fight global deforestation | News | European Parliament (europa.eu)12 Conservative backlash kills off EU’s Green Deal push to slash pesticide use – POLITICO13 NGOs urge EU not to abandon flagship sustainable food systems law – Euractiv
A landmark achievement in 2023 was the UN's High Seas Treaty, the first treaty to protect international waters. This treaty aims to designate 30% of the world's oceans as protected areas by 2030. Given that nearly 10% of marine species are at risk of extinction, this treaty is a vital step forward. As UN Secretary-General António Guterres stated, "You have pumped new life and hope to give the ocean a fighting chance".14 15 16
In Brazil, the new government pledged to end deforestation in the Amazon rainforest by 2030, leading to a significant reduction in deforestation rates. The country intensified efforts to combat illegal activities like logging, crucial for preserving one of the planet's most vital ecosystems.17 18 19
The battle against plastic pollution also advanced significantly. The Intergovernmental Negotiating Committee on Plastic Pollution released a draft of a legally binding global agreement to address plastic pollution throughout its lifecycle.20
As we reflect on 2023, it is evident that while substantial progress has been made, significant challenges remain. The close relationship of our economy and the environment requires continued and unified efforts. By recognising and valuing our natural resources, we can safeguard a sustainable future for generations to come.
14 Beyond borders: Why new 'high seas' treaty is critical for the world | UN News15 Human activity devastating marine species from mammals to corals - IUCN Red List - Press release | IUCN16 What is the UN High Seas Treaty and why is it needed? - BBC News17 Politics and the environment collide in Brazil: Lula’s first year back in office (nature.com)18 Brazil's Lula unveils plan to stop deforestation in Amazon by 2030 | Reuters19 Amazon rainforest: Deforestation rate halved in 2023 - BBC News20 Moving towards the end of plastic pollution (unep.org)
