Insurance Asset Risk Awards 2023 - UK & Europe

Driving action on climate change

Andy Ford, Head of ESG Investment Directors at Aviva Investors, explains why addressing climate risk and biodiversity loss are key priorities for the asset manager – and its achievements in these areas

What progress has Aviva Investors recently achieved on climate risk?

Andy FordThere are various elements to our work in this area. There is what we call our macro stewardship work, which involves engaging with governments, regulators and supranational organisations, such as the UN.

The aim is to put markets on a more sustainable footing. We wrote a paper at the end of last year called Act Now, which various members of our team handed out to key delegates at COP27. We were really pleased with the paper's uptake and the COP concluding statements. This reflected our argument that we need to transform the financial architecture if we are going to comprehensively tackle the climate crisis.

We are also very proud of our Climate Engagement Escalation Programme. This was launched in early 2021, is a three-year programme and covers 30 of the biggest polluters in the world.

We went to these companies with five specific requests, such as adopting a net zero 2050 scope 3 objective for their entire businesses and reporting in line with TCFD. We made real progress in the first year and significant progress last year too. If these companies do not engage with us to a sufficient degree, we move along our escalation pathway, taking measures such as voting against directors and tabling shareholder resolutions. Ultimately, we will sell every stock and bond we hold in a company if need be.

We also have a sovereign climate engagement programme. This has involved us going to finance ministers and central bank governors in 21 different countries with a range of asks. For example, we have been engaging with the Australian treasury and were delighted when they joined the Coalition of Finance Ministers for Climate Action, which we had asked them to consider doing.

In addition, we have integrated a massive amount of data and a new range of tools into our investment platform. Our portfolio managers can now access data on climate metrics, our proprietary forward-looking carbon intensity modelling and both paid-for and NGO-sourced sustainability data.

What areas of climate and sustainability risk are challenging insurers most?

Insurers are exposed to both transition and physical risks through their underwriting and investment activities. We think there is a great opportunity for insurers to identify and mitigate climate risk and in so doing make an important contribution to a sustainable transition to net-zero. This is a huge focus for Aviva, as our Net Zero 2040 ambition demonstrates.

We do a survey each year on the real assets side, and one thing that came through from the insurers we polled in 2022 was concern about greenwashing. It's something that can bite at the investment portfolio level, but also, as with all companies today, at the reputational level. Almost half of the insurers in the survey identified greenwashing as the biggest risk they face today.

Data is another challenge – we think the situation is far from perfect – take scope 3 emissions data, for example. It just isn't available for a lot of companies and where it is you have to work out what you are dealing with. There are also lots of NGOs that provide useful data with no charge. We think this data isn't being used as widely as it could be.

How concerned is Aviva Investors about biodiversity risk?

It is a massive focus for us. We are in the sixth mass extinction event – an "event" on a par with the dinosaurs being wiped out.

It's a crucial issue for investors, businesses, and everyone else – the global economy is underpinned by ecosystem services, by the natural world. Over half of global GDP depends on these services, such as crop pollination or forests for paper, but we don't value these services appropriately.

In December 2021, we set up a Natural Capital Transition Fund aiming to invest in companies that are having a positive impact on the transition to a nature positive economy. Biodiversity loss is a terrifying risk for us all, but also a phenomenal investment opportunity.