Introduction

The Aviva Investors Sustainable Outcomes Strategies have a clear philosophy – to allocate capital to companies that support the transition to an economy that is lower carbon and resilient to a warmer world, works towards halting and reversing nature loss, and is more socially equitable.

It is a philosophy grounded on a view of double materiality. Understanding these themes supports long-term financial objectives as well as allowing us to target companies we believe are developing solutions that can drive the transition or support it through setting best practice.

The Sustainable Outcomes Transition Strategies consider a long term time horizon in which our dual objectives work in tandem. We seek to invest in companies which we believe will have resilient business models and are primed to benefit from the transition.

Climate change, resource scarcity and social change are structural megatrends that are changing our economy – they will affect all sectors. In the face of biodiversity and climate crises and gross social inequality, we need the transition to happen quicker. We need companies to decarbonise quicker than current commitments, otherwise we will not avoid the worst impacts of climate change; we need companies to start reducing precious natural resources they consume, otherwise we will lose them; and we need companies to think harder about human rights risks in their value chains, otherwise we will continue to compound the gross inequalities in global markets and place reputational risk on our clients.

Importantly, there were positive signposts in 2022 – not least the US Inflation Reduction Act, COP15 in Montreal, and the European Commission adopting the directive on Corporate Sustainability Due Diligence (CSDD) – indications of a steepening policy regime that will bear thematic opportunities for investors.

Watch our introduction video from
Sam Tripuraneni, Head of Sustainable
Outcomes at Aviva Investors.

Watch our introduction video from
Sam Tripuraneni, Head of Sustainable Outcomes at Aviva Investors.

More needs to be done, however. This is why our Sustainable Outcomes Strategies focus on delivering against their sustainable objectives through three key areas:

Capital allocation

As an active investor, we positively select companies we believe are supporting the transition and leading their peers.

Company engagement

We take long-term views on major thematic trends. We want companies with business models that support our investment and sustainable conviction. Through engagement, we encourage them to address areas of potential weakness.

Macro stewardship

We engage with policymakers to identify and try to rectify market failures that result from these long-term risks. That way, we play our part in ensuring the structural integrity and sustainability of financial markets – supporting our clients’ long-term allocations.

Natural Capital Transition Fund

2022 was a significant year for biodiversity. A historic agreement to protect nature was reached in Montreal at COP15 - more formally known as the 15th UN Biodiversity conference on the Convention on Biological Diversity.

After four years of negotiations, countries finally reached an agreement to protect and restore 30% of the planet for nature by 2030. This agreement was better late than never: it came in a year when a comprehensive survey of nature showed a devastating 69 per cent drop in global species populations since 1970.¹ As UN Secretary General António Guterres said: “Humanity is waging war on nature. This is suicidal.”²

The world is waking up to the twin crises of biodiversity loss and climate change. We can no longer afford to focus on climate change alone, as reversing the destruction of nature can play a fundamental role in averting catastrophic climate change.

Trends like deforestation and our throwaway culture are a double whammy impact for both nature and climate. There lies, therefore, a significant opportunity in reversing these trends, as both biodiversity and climate will benefit.

How can we achieve a ceasefire on this war on nature? The financial sector has a vital role to play. One of the key targets agreed in Montreal was the mobilisation by 2030 of at least $200 billion per year in domestic and international biodiversity-related funding from public and private sources. The wider corporate sector is also critical, as recognised by the target that large and transnational companies and financial institutions should be required to monitor, assess, and transparently disclose their risks, dependencies and impacts on biodiversity through their operations, supply and value chains and portfolios.

¹The Living Planet Report 2022, WWF & ZSL
² UN Secretary General Antonio Guterres, Leaders Summit of the United Nations Biodiversity Conference, in Kunming, China, 11 October 2021

However, national action on these targets will likely be slow, possibly too slow given the urgency and magnitude of the issue. We can contribute to speeding up this change by investing in natural capital solutions and in companies taking significant steps to reduce their own impacts.

Compared to climate change, many of the solutions to reduce human impact on nature are in their infancy, either unproven at scale, dependent on governments for incentives, or operating at small scale within larger companies. Investing in nature-positive solutions is challenging, but we fundamentally believe companies whose products and services reduce human impacts on nature, or who are ambitious in leading their sector in reducing their own impacts on nature, will outperform in the medium to long term.

The increase in public awareness, spread of regulation on biodiversity issues such as deforestation, single use plastic and hazardous chemicals, and the increasingly evident physical risks of biodiversity loss such as loss of pollinators will all have an impact on corporate profitability.

Our Natural Capital Transition Fund aims not only to provide clients with long-term capital growth, but also drive change through our engagement with all the companies we invest in for better performance on biodiversity, and also with governments through our macro stewardship work. We hope we and our clients can play our part in making sure that when the next major biodiversity COP in 2030 takes place, we will no longer face such a devastating trend in loss of biodiversity.

Funding restoration of mangroves in the Philippines

We committed to donate five basis points of the Natural Capital Transition Fund portfolio’s asset under management to fund ecosystem restoration projects.

Our 2022 donation funded mangrove restoration in the Philippines, run by the conservation charity ZSL. Mangroves provide vital services to humanity including coastal protection, carbon sequestration, erosion control, source of raw materials and maintenance of fisheries among others. However, they are estimated to have declined by over 50 per cent in the last century, due to the conversion to built infrastructure or aquaculture. ZSL has pioneered a series of mangrove rehabilitation protocols that are science-based but community managed and implemented.

ZSL is also advocating for policy change to unlock larger areas for active restoration, via the National Coastal Green Belt bill and the guidance for reversion of abandoned fishponds. Our funding will support ZSL’s aim to plant 100,000 mangrove plants for the restoration of ten hectares of degraded mangroves.

Mangrove restoration by ZSL in the Philippines

Key risks

Investment risk & currency risk

The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency and exchange rates. Investors may not get back the original amount invested.

Emerging market risk

Emerging market risk Investments can be made in emerging markets. These markets may be volatile and carry higher risk than developed markets.

Sustainability risk

The level of sustainability risk may fluctuate depending on which investment opportunities the Investment Manager identifies. This means that the fund is exposed to Sustainability Risk which may impact the value of investments over the long term.