Aviva emboldens its ESG enforcement for good... what’s the key messaging and what might its impacts be?

Aviva emboldens its ESG enforcement for good (and how it will drive change)

Aviva’s latest letter to 1,500 companies confirms today’s investor community is categorically driving business for better. What’s the key messaging and what might its impacts be?

Aviva, if you didn’t already know, has some £260 billion of assets under management. That’s some serious clout when it comes to influence and direction on sustainable business.

As 2022 opens, Aviva is markedly toughening its approach. Green Biz reports Aviva CEO Mark Versey is ushering in a new age of accountability; asking firms step up action on biodiversity and human rights, as well as climate change.

“We will hold boards and individual directors accountable where the pace of change does not reflect the urgency required,” he warned in his letter.

Aviva’s new sustainable demands in detail

To be honest, holding poor performance accountable is something we have read before in many corporate manifestos. But the difference here has been spotted by Green Biz.

It writes that Aviva insists its engagement with carbon intensive firms now has teeth. The company said it undertook 1,277 substantive engagements with investee companies in 2021, voted at 6,648 shareholder meetings and voted against 26 per cent of management proposals tabled.

It also stressed that it wanted to see all executive compensation structures and performance targets reflect sustainability goals and would divest in cases where companies consistently fail to meet its requirements.

This is the vital point. When major investors threaten to withdraw cash, that gets results; period. It’s the most powerful tool in the investment ESG armoury and it’s historically been the one investors are least keen to use. This may no longer be the case through 2022.

The minutiae of Aviva’s demands

In order to prevent divestment, Aviva is calling for a number of actions. They include expecting all companies to work towards achieving science-based targets validation of their climate targets and plans.

Climate transition plans must be presented to shareholders, working to CDP Frameworks. 2050 or earlier Net Zero objectives must be in place, augmented with interim targets aligned with the need to at least halve absolute global greenhouse emissions by 2030. Targets must be set for Scope 1, 2 and 3 emissions.

Additionally, climate reporting and related risk assurance must be included within the annual audit plan of external auditors.

Further, human rights due diligence; identifying and assessing the actual and potential human rights risks and impacts of business activities is now a must to avoid divestment. The scope of due diligence activities should extend through the value chain.

In another shake up, executive compensation structures and performance targets must now meaningfully reflect sustainability goals, particularly where management is required to take actions that are a significant departure from the business-as-usual environment. Existing bonus and long-term targets that are fundamentally at odds with sustainability commitments should be retired.

At Content Coms, we work with listed and un-listed businesses to define and communicate their ESG and sustainability goals (and progress towards them). If your organisation has a need for ‘roadmapping’, materiality analysis, or sustainability communications, please do drop us a line.

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