Aviva Investors UK tells company directors: Get serious on climate targets or face removal

01 Feb 2022 --- UK investment firm Aviva Investors, one of the country’s largest financial institutions, has warned all company directors managed under its £262 billion (US$353 billion) worth of assets that they face removal from their positions without “concrete action” on climate targets.

The annual letter to company chairpersons marks a milestone in financial pressure against the many businesses making promises to cut carbon emissions, improve recycling rates, and increase the use of recycled content. 

Aviva Investors says over half the world’s GDP relies on biodiversity and functioning ecosystems. Mark Versey, Aviva’s CEO, explains: “As the interests of investors and wider stakeholders are aligned over the long term, we will invest in companies that mitigate their environmental impacts while investing in their people, customers, suppliers and communities with a view to delivering sustainable long-term returns.” 

Carrot and stick 
Given the seriousness of the climate crisis, Versey says it is essential executive compensation structures and performance targets meaningfully reflect [environmental] sustainability goals, “particularly where management is required to take actions that are a significant departure from the business-as-usual environment.” 

As such, Aviva expects remuneration committees to ensure the following:

• Variable compensation plans include robust, stretching and externally validated sustainability targets that are linked to commercial strategy.
• Existing bonus and long-term targets that are fundamentally at odds with sustainability commitments should be retired.
• Total expected pay outcomes should not be inflated due to the inclusion of additional sustainability performance metrics.

Transition plans and biodiversity
Businesses will have to develop climate transition plans, and companies in higher-impact sectors will have to present them for shareholder approval. “In developing transition plans, we recommend companies comply with the six guiding principles outlined by the CDP (climate disclosure project) Framework,” says Versey. 

According to Aviva, biodiversity supports half of global GDP.“The key elements should include the following: 2050 or earlier net-zero objectives 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.” 

“Net-zero objectives should be fully integrated into the broader corporate strategy, demonstrating how the business will fund the necessary investments in the transition while remaining commercially viable during the interim period. We expect companies to ensure ‘just transition’ considerations are included in the plan.” 

The Sixth Great Extinction 
Versey references what scientists call the “Sixth Great Extinction,” with research showing an alarming 68% decrease in species in the 46 years before 2016. 

“This [mass extinction] is of serious concern as ecosystem services provided by the natural world underpin our economies and societies and will increasingly become an important driver of company valuations,” he says. 

“More than half of global GDP – around US$44 trillion – is reliant on biodiversity and our ecosystems.” 

“We expect all companies to develop biodiversity action plans, taking into account emerging best practice guidance frameworks, such as the Science Based Target Network for Nature and the Task Force on Nature-related Financial Disclosures,” Versey asserts. Species extinction due to climate change is increasing dramatically.

Human rights during COVID-19 
A further demand made by Versey’s letter covers companies’ impact on people, which he says “has rightly gained more attention over the last two years,” particularly concerning the treatment of workers during the COVID-19 pandemic. 

“While the challenges are multi-faceted and complex, all social programs need to be built upon the principle of ‘do no harm’ and the responsibility to respect internationally agreed human rights, as enshrined in the United Nations Guiding Principles on Business and Human Rights,” he adds. 

The demands of large-scale financial investment institutions like Aviva for companies to fulfill their public promises on human and environmental sustainability may ease the widespread doubt expressed by NGOs and public bodies over the reality of targets set by essential industries like packaging. 

By Louis Gore-Langton