It is only by working with multiple stakeholders that you can deliver a positive impact – be they governments and central banks to charities and customers. Our work to tackle the climate emergency is one of the examples of how we do that.
Climate change is a strategic issue for the financial sector in general and the insurance sector in particular. Left unchecked, climate change will continue to affect the actuarial assumptions underpinning the insurance products that our industry provides. It will also render significant proportions of the economy uninsurable, shrinking our addressable market. It is also material to the long-term success of many of the companies and economies in which we invest. Over coming decades, climate change presents solvency issues to businesses in many different industries, including our own.
Improving the information on climate change
Since 2001 we have included a policy to withhold support for a company if its disclosure on ESG issues is absent or non-existent; this would include an analysis of disclosure on climate-related issues. One of the main drivers for climate disclosure has been the CDP (previously known as the Carbon Disclosure Project), which issues an annual climate disclosure request on behalf of investors to over 6000 companies. Aviva was one of the original investor members of CDP and has supported it since its inception in 2002. We therefore include a consideration of CDP disclosure in our voting analysis.
Stock exchanges are a key element of the solution in incentivising climate disclosures. For this reason we played a prominent role in helping to establish the Sustainable Stock Exchanges (SSE) Initiative in 2009. The SSE initiative is a peer-to-peer learning platform for exploring how exchanges, in collaboration with investors, regulators, and companies, can enhance corporate transparency — and ultimately performance — on ESG issues including climate change. In 2017 we sponsored the publication of the 2017 Sustainable Stock Exchange report, which tracks corporate disclosure against seven sustainability indicators including energy use and carbon emissions.
Putting a value on climate risk
In our continuing response to understand climate risk and the economic implications to our customers, business and society as a whole, Aviva commissioned research from the Economist Intelligence Unit in 2015 on the value-at-risk of climate change to investment, pensions and long-term savings.
The report “The cost of inaction: recognising the value at risk from climate change” highlights the significant value-at-risk. Asset managers cannot simply avoid climate risks by moving out of vulnerable assets and asset classes. The full impact of climate change has the potential to affect the value of our entire portfolio of assets.
Pushing for regulatory change
Since that report was published, several significant events have taken place including the historic agreement on a global warming limit at the Paris Climate Conference (officially known as the 21st Conference of the Parties, or COP21), its early adoption by 55 countries and the European Union (the US administration has subsequently decided to withdraw its support from the agreement).
In a follow up report in 2017 we reviewed the issues relating to climate-related financial disclosure and investigate the mandates of ten different international, EU and UK financial institutions, all with very different focuses and mandates, to consider what role they play, or could play, in supporting climate-related financial risk reporting. The report “The Road to Action: Financial Regulation Addressing Climate Change” proposed how existing financial institutions could better take up the challenge to address climate change through better regulation.
In addition, we are strong supporters of the recommendations of the UK’s Financial Stability Board Taskforce on Climate-Related Financial Disclosures (TCFD).9 This includes a requirement to stress-test business models against 2°C policy scenarios. We are also involved with the Climate Action 100+ initiative, an investor coalition targeting the world’s largest corporate greenhouse gas emitters to take necessary action on climate change. On behalf of Climate Action 100+, Aviva Investors took on the responsibility to engage with BP, Centrica, Hon Hai Precision Industry, National Grid and Royal Dutch Shell.
Ranking climate leaders and laggards
During the 2019 COP25 climate negotiations the World Benchmarking Alliance, which we set up and fund through Aviva’s Foundation, launched its first climate ranking with a spotlight on how the automotive sector is transitioning to a low carbon future.
The ranking of 25 of the worlds’ biggest automotive companies found that most firms still have the brakes on – they’re not investing enough in low-carbon vehicles, not setting clear enough targets to transition their business and do not have the right climate experience on their boards to deal with what is and will be a huge disruption of the sector as the world moves to a low carbon future.
The ranking has valuable information for us as an investor and we are committed to embed the insights from the rankings into our analysis and engage with companies to encourage them to do more.
Note: Company names shown are for informational purposes only. This is not an offer to sell, nor a solicitation to buy, securities.