Understanding how economies transition to a sustainable future is more than just an ESG score. Our ESG insights are developed through connected thinking across asset classes: from the macro view to a company profile, and from how we see the world to how we view a sovereign, a sector or a company.
As a long-term investor, we are convinced that the investments we make on our clients’ behalf will be more successful if we understand how the companies and projects we invest in perform on issues like board diversity, governance, climate change and labour relations.
Understanding environmental, social and governance (ESG) issues and trends helps us both mitigate the risks that could impact our investments and identify investment opportunities.
Supported by the Global Responsible Investment Team, our analysts and portfolio managers across all asset classes integrate these insights into the investment analysis and decision-making process. Through our Global Reward Framework, all investment employees are expected to support responsible investment and integrate ESG issues into their investment processes.
As an investor we need to consider all relevant, material risks and opportunities that might impact the investments we make. Our belief is that environmental issues like climate change, governance issues like corruption or social issues such as greater automation will transform economies around the world, creating leaders and laggards. This is why we embed ESG insights across our investment process, making sure our investments are on the right side of that change.
Shaping the macro view
We have an intra‑departmental approach toward forming forward-looking positions on key political, economic and social trends and expected outcomes. Quarterly meetings of representatives from across the business culminate in the publication of Aviva Investors’ House View, which cascades back through the organisation and helps guide medium to long-term investment positions as well as asset allocation for multi-asset strategies. The GRI Team is a key component in this process and ensures that material ESG factors are considered when determining the firm-wide macro outlook. As a result, themes such as the implications of global climate negotiations, populism and nationalism, and governance and social reform across key markets have helped form the base-case outlook.
Shaping the sovereign view
Our Sovereign Debt Team has developed a robust analytical model to evaluate the forward-looking prospects of sovereign debt issuers. The model is based on an assessment against six key data themes including growth, the monetary and fiscal environment, the current account, and political conditions. The GRI Team has been instrumental in identifying factors and data inputs to support the assessment of a country’s political condition. Factors that have been fully integrated into the sovereign rating model include measures of corruption control, rule of law, freedom of press, and accountability of government. The Sovereign Debt Team also reviews specific ESG data and analysis on sovereign issuers which are embedded in the risk and valuation framework for government debt securities.
Shaping the sector view
We provide both equity and debt finance to support companies across global markets. Consequently, we have fostered an integrated research philosophy and platform to assist in the evaluation of sector-specific risks and opportunities. Dedicated research specialists for each super-sector participate in the investment process across credit and equities to update the industry outlook and share conclusions with fund managers and evaluate portfolio positions.
The GRI Team formally contributes to the sector assessments by leveraging ESG insights from internal and external research, proxy voting records and experience from company engagements. During 2018 we introduced bi-monthly workshops, run in partnership with the credit and equity teams. Each workshop takes a deep dive into individual sectors by looking at how and why ESG factors are relevant to financial performance. The sector analysts evaluate the key ESG risks and opportunities to be factored into their analysis and present specific company case studies. Sessions so far have included industrials, financial services, technology, media and telecoms and the auto sector.
Shaping the company view
Our ESG Analysts provide analysis of corporate sectors, industries, and issuers. This analysis is performed at the corporate level, independent of the capital structure sleeve applicable to a specific investment strategy. Our ESG Heatmap is a core part of this integration. The dashboard aggregates the ratings of the different types of ESG risks of each counterparty in the investment universe. We use the ESG data from MSCI ESG Research, in addition to data directly from company disclosures as well as information about the quality of corporate governance and the voting history of our team to form a final ESG score, the Aviva Heatmap Algorithm (AHA) score. The restated data is made available to the investment managers via the Bloomberg platform. Some raw ESG data and the AHA score are also included in our Aladdin front-to-back tool. Similarly, we have data on carbon intensity to assess the carbon trajectory of the company over time.
The ESG Heat map is supplemented by additional fund manager and analyst briefings, provided before company meetings, votes or investment decisions. These briefings draw on our Heat map and more detailed independent ESG data and research. We leverage the expertise of the GRI Team, bespoke research commissioned from brokers and research organisations, and additional information from less conventional sources such as NGOs and civil society to build a rich picture of ESG impacts and risks.
The GRI Team has a seat at the table throughout the investment process.
Related content is communicated through mediums including, but not limited to, notes and reports published on the Aviva Investors Internal Research Hub (IRH, which is housed on Bloomberg) and participation in various investment forums.
Note: Company names shown are for informational purposes only. This is not an offer to sell, nor a solicitation to buy, securities.