Global asset manager Aviva Investors has announced its Climate Engagement Escalation Programme which will focus on its investments in 30 “systemically important carbon emitters”.
The investment firm would require these companies to deliver net zero scope three emissions by 2050 and to establish transition roadmaps to demonstrate commitment to immediate climate change action.
The programme would run for between one and three years, depending on individual company circumstances, and incorporate clear escalation measures for non-responsive businesses or those that do not act quickly enough.
The firm would commit to full divestment of targeted companies that failed to meet its climate expectations and divestments would apply across the firm’s equity and debt exposures.
The engagement programme included companies from the oil and gas, metals and mining, and utilities sectors that substantially contribute to total global carbon emissions.
Key actions expected by companies as part of the framework included:
- Adopt net zero goal by 2050;
- Commit to Science Based Targets Initiative framework;
- Integrate climate goals into business strategy including capex framework;
- Set short and medium-term climate targets and milestones;
- Align management incentives to climate goals;
- Report on progress using the Task Force on Climate-related Financial Disclosures (TCFD) framework; and
- Prohibit direct and indirect lobbying deemed contrary to the company’s public climate commitments.
Mirza Baig, Aviva global head of environmental, social and governance (ESG) research and stewardship, said the firm’s ESG philosophy promoted the relative merits of engagement over divestment as the more effective mechanism to deliver change.
“Engagement provides us the opportunity to partner with companies as they navigate the challenges of transition,” Baig said.
“However, for our engagement approach to have impact, it must be accompanied by a robust escalation process, including the ultimate sanction of divestment.”
David Cumming, Aviva chief investment officer for equities (CIO), said active investment and engagement were key to promoting company transition and solutions to the climate crisis, which had the backing of the firm’s investment teams.
“By fully integrating our approach across stewardship and the investment teams, we will be able to maximise our ability to influence the companies we have targeted towards positive climate strategies,” Cumming said.
Colin Purdie, Aviva CIO for credit, said creditors had an increasingly important role to play in helping to deliver climate change mitigation and transition, as well as addressing wider ESG concerns.
“Pockets of green finance do not go far enough – creditors must act decisively and collaboratively to embed sustainable principles across the market, from large public companies to smaller, private high-yield issuers,” Purdie said.
“Credit markets are a potentially powerful but largely untapped force that could exert significant influence on companies through the billions of dollars of debt financing they provide.
“Cases where creditors can act together with shareholders, as we do at Aviva Investors, can be particularly powerful.”