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Greening the investment portfolio

Sustainable Investment Leaders webinar series

Five years on from the Paris Accord, and the wide-ranging implications of climate change are becoming clearer and increased social activism is beginning to influence public policy and decision making. Investors and the companies they invest in are coming under growing pressure from a range of stakeholders to address climate risks. Climate experts Steve Waygood, Chief Responsible Investment Officer, Aviva Investors and Ben Carr, Analytics and Modelling Director, Aviva share the latest thinking on the micro – greening your investment portfolios to the macro – where do our individual efforts fit into the big picture regarding the Paris commitments.

During this webinar, Steve and Ben also share information on what ICMIF members can do to start this transition for those about to embark on this journey.


  • Steve Waygood, Chief Responsible Investment Officer, Aviva Investors
  • Ben Carr, Analytics and Modelling Director, Aviva

Shaun Tarbuck: 

Good afternoon, everyone. I hope you’re all safe and well. For those that don’t know me my name is Shaun Tarbuck, currently CEO of ICMIF. And I’m delighted to welcome you to this the third of our webinars this week around sustainable investment for leaders. We’re delighted to be joined by Steve Waygood and Ben Carr from Aviva to leading proponents in this area. For those of you that might not know, Aviva Investors joined ICMIF this year as a supporting member and they’ve been extremely supportive in the first nine months of our partnership together. A lot of great discussions going on, including one around greening the investment portfolio which is what today’s webinar is about. 

Five years on from the Paris Accord and wide ranging implications of climate change, it’s becoming clearer and increase social activism is beginning to influence public policy in decision making. Now investors and companies they invest in are coming under growing pressure from a range of stakeholders to address climate risks. So our experts, Steve Waygood and Ben Carr, are here to share the latest thinking on both the macro side, what you can do when you’re greening your investment portfolio and on the micro side and on the macro side, where we do our own individual efforts, but collectively for the big picture in trying to help towards the Paris Climate Agreements. So without further ado, I’ll hand you over to Steve Waygood who’s going to kick us off. 

Steve Waygood: 

Shaun, thank you so much for the introduction and also for saying how supportive we’ve been already that’s very nice of you. I should also apologize to those of you that can’t see my colleague, Ben. We’ve had one or two technical snafus so Ben you can hear in due course, but you’ll have to watch me while Ben’s speaking and put up with that I’m afraid. But to put this into further context so Shaun was absolutely right that climate change is an enormous issue and we all need to look at both the micro and the macro picture. But if you look at the really, really big picture, they’re kind of the key messages that I want to get across in this presentation. And I’ll go through the agenda in a second, there’s, firstly, properly understood climate change is the world’s biggest market failure. That means that the markets are not currently structured in a way that optimizes, if you like societal outcomes. That’s the very definition of where governments need to intervene to correct market. So that’s the first point, markets are failing society, we have not aligned them with the long term interests around climate change. 

Secondly, most people don’t really fully appreciate just how catastrophic business as usual looks by the end of the century. And there’s some slides we’ve got in a minute that will show you they’ll take you through just the scale of the damage that the current science tells us that we’re currently heading towards and I don’t want to be glib and I certainly don’t want to be alarmist but this is an emergency. And unless someone rings the alarm in an emergency, people tend not to do very much. So there is a lot going on now but it’s nowhere near enough and that’s a kind of another key message. 

So whilst that is perhaps not the best news you’ve had all week, the good news is we have more than enough in terms of the available capital to put to work to deal with this challenge. We certainly also have the technology and with the right kind of political will and momentum behind the markets this problem is definitely something that we can deal with, with the right kind of preparation. But in order for that to happen, and this is perhaps the most important message that I’d like you all to take away. We all have a duty to challenge the governments and the policymakers to deliver what they said they would when they set up the Paris Agreement. It is a really startling observation to my mind that now, some five years after the Paris Agreement as Shaun described, we still can’t say with conviction, precisely how much money is needed to finance the transition towards a lower carbon economy, there’s various estimates and I’m going to take you through one of them. But it is an estimate. We also can’t say where that money is going to come from, or how it’s going to be mobilized. And yet, we are talking about tens of trillions being required. So this is big, big stuff. 

So our duty, if you like as market participants, is to ensure that the politicians and policymakers have their feet held to the fire to ensure they do deliver what they said they would when they signed the Paris Agreement. It isn’t just in society and the environments best interests that happens crucially important though that is, it’s also in the interest of our clients and our shareholders. I know that Aviva is unusual in this audience and as being listed, but we believe we have a fiduciary duty to our shareholders and to our beneficiaries to do this work. Because after all, some scenarios the climate crisis represents an existential crisis to us as insurers not because we’ve mispriced the security, but because the price that the insurance product ends up costing is simply too much to be affordable in the broader market, because one in 200 becomes a one in 100 becomes a one in 20 type event and at some point, the product becomes unaffordable. 

So those are the key, if you like concepts, the key messages, the key points. So what we’re now going to do between Ben and I is take you through, as I say the scale of the problem, a bit more about our own strategic approach, which Ben will lead. And then we’re going to talk about the whole concept of whether investing in a green way enhances or undermines returns and over current investment time horizons, not just overcoming decades, which is, of course, the claim I’m making most significantly here. And then we’re going to spend quite a bit of time hopefully for a Q&A, which Shaun’s going to drive. So that’s the kind of narrative arc.

So as I say, we’re going to talk about the scale of the problem now. And you can all read, and you can all see the slide pretty close at hand and that’s one of the great benefits of this new environment, you haven’t got to stay at 20 meters to the front of the auditorium. So I’ll let you read but I will draw a few things to your attention. Pre the Industrial Revolution, the global average temperature was one degree cooler than it is already today. So global warming isn’t just a future phenomenon it’s happened already. 

In addition, the CO2 concentration, as it says 410 parts per million. Now I remember, when I first started looking at this, it was near 300 and at the beginning of the Industrial Revolution it was 270. And the reason why that matters, of course, is that CO2 is one of many, but one of the most significant greenhouse gases, it’s the most prevalent, it’s not the most damaging in terms of per ton. Methane is actually amongst those that are more damaging and actually there are various other coolants like HFC 1348, which is actually 1700 times worse than CO2 but let’s not getting lost on that. CO2 concentrations have gone up enormously and that is because of man-made activities, Industrial Revolution era use of coal and the fossil fuels at such an incredible scale that we’ve released the carbon that was locked into the core of the planet via the fossilization process. 

So those are two things that I liked and then the third, the oceans are already 30% more acidified by the CO2 emissions. And some of you will notice already, forgive me for those of you that do but since 1980, we’ve already lost half of the world’s coral reefs in bleaching incidents and bleaching happens all the time in coral reefs, and it’s around the temperature of the sea and as well as how acidified it is. And the barrier reef is I imagine many of you have seen hasn’t been under such threat for millennia now, and people are acutely worried, I’m going to come back to the coral situation soon. 

So on this slide, you’ll see various projections, of course, time is at the bottom, global greenhouse emissions are on the left hand side, and the various colors that you can see the different scenarios around where we go from here. So from 2020 onwards, if we continue business as usual, we’re going to be at least four degrees warmer globally if we don’t divert and don’t deliver the Paris Agreements. The current policies, even though the Paris Agreement says we won’t get warmer than two degrees and ideally one and a half, the current policy framework that the member states have set takes us to between 2.8 and 3.2, even optimistically, 2.8 degrees. And then the actual pledges within what’s called nationally determined contributions of all the member states, take us to around about two and a half degrees. So what I’m essentially saying here is that even the member states that signed Paris, even in their best, most ambitious plans are not getting us anywhere near one and a half degrees. That’s the main takeaway from this slide. 

Furthermore, business as usual is pretty catastrophic and if I can just give you in the next slide, a sense of just what all these degrees of change mean, because I’m not pretending to be a climate scientist, even though I’ve been looking at this stuff for now 25 years. I’m an economist and a finance professional but if you map the fight the climate science on to this small, perhaps readily understandable chart. I’m going to start at the bottom at the moment, because one and a half degrees is the ambition. Now at one and a half degrees, as I said I’d come back to the coral reef situation, we’ll see a decline of up to 90% of the coral reefs, even at one and a half degrees. And remember, the ambition at best of the Paris Agreement is to get there. 

We’ll see something like almost a half of the world’s population exposed to more than 20 days a year of deadly heat. It takes a little while to get your head around that, but the core temperature of your body can’t rise more than six degrees on a sustained basis. So there are already places for example, Dubai, and some places or some other equatorial places where you can’t live there during the main heat of the midday without being in air conditioned environments. What that is telling you is that the increase of from where we are today to where we will be more than half or up to another half of the world’s population will be exposed. So that’s just a one and a half degrees and bear in mind, that’s the ambition. 

The reason why two degrees is often cited as the kind of upper threshold, it’s worth bearing in mind that this was the level at which science said that we should hopefully stay south of the feedback loops which would then cause runaway uncontrollable climate change by which they referring to things like, for example, the Siberian tundra melting. So what’s currently underneath permanently frozen permafrost that melts, that releases an enormous amount of methane from underneath it. And as I mentioned, CO2 isn’t the only greenhouse gas, methane is 21 times worse per tonne of gas. And there are millions of tons of methane frozen underneath the Siberian tundra. If that melts and gets released and it takes about 21 years for the atmosphere to process it, it will never… it won’t be able to process that amount of methane and you’ll start to see runaway feedback loops, there are plenty of others. Another one I could point to is as forests no longer can survive as you can see rain forests are beginning to be significantly disrupted already and stand likely to be eroded completely. Rain forest died back at three degrees. 

Of course, the rainforest are the lungs of the planet and process the CO2. So if the rainforest has died back as well, you have a problem. And I could carry on there are other feedback loops but the point is two degrees isn’t a nice to have nice summer holiday. Two degrees itself is pretty catastrophic and we’re heading a long way north of that. And just to reemphasize that point, as I will on the next slide, please. This slide is a projection, in fact, is many projections. The bubble is the thing I’m going to point to first, the remaining carbon budget is inside the Venn blue circle. So we have 565 billion tons of CO2 that we can spend if you like or that we can burn that amount of fossil fuel that creates it without it being sequestered or captured and stored. Now the actual amount of emissions implied if we burn all the known fossil fuel reserves, as you can see are closer to three billion. 

Now, let’s just pause for a second on that because there’s a concept called transition risk. Transition risk is as the market wakes up to the fact that not all the oil, gas and coal that’s currently in the proven and probable reserves of the fossil fuel sector can actually be consumed. There could be what’s known as a rapid readjustment of prices and that kind of an effect would see a major erosion in value. I’ve seen various estimates of this but there was one in the Financial Times estimating that roughly a trillion in terms of the value was at risk to this kind of a phenomenon. And these are financial stability moments which is of course, why the Financial Stability Board has become so interested in this championed by the Bank of England for the last six or seven years under Mark Carney, the previous governor. 

And the FSB globally has now been looking at climate risk and transition risk as one of the big, significant events. And they think of this as a Minsky moment in the economic jargon a rapid readjustment of prices and that this is the particular problem from a financial stability issue. I’m going to come back to that towards the end of this. But that’s the budget those are what sometimes referred to as potentially stranded assets. The fact that all of Exxon’s reserves can’t be used, all of Saudi Aramco reserves can’t be used and stay south of the two degrees worth of change. 

Now, if you look on the left the diagram, black bar is really what we need to do now, the blue bars are really what we should have been doing and the orange ones you can see the scale of the transition and the speed of the Delta and that’s if we are to deliver one and a half degrees. And that’s gives you a sense of the scale of reduction in our CO2 emissions that’s required. And if I can have the next slide, so this is all about reallocating capital to a lower carbon future. Now, those first sort of three or four slides have given you a sense of the scale, not just at the science of what’s happened in the real world. And hopefully, I’ve given you a sense of what the difference is in real terms between one, two, three and four degrees in terms of the global warming potential. 

And one of the most significant estimates here is that we need roughly 100 and 10 trillion so 15 trillion more, as you can see from these slides, to move our energy infrastructure onto a one and a half degrees footing. And you can see this isn’t just about an increase in investment capital or new capex. This is about a refocus of the capex away from fossil fuels, obviously, much more heavily towards renewables. But it’s not just about energy generation, in terms of how we source it. It’s also about how we electrify the entire grid and how do we deploy it through various forms of different kinds of infrastructure. So that’s an enormous amount of money. 

The reality, though, is the global markets are much closer to 400 trillion today and they will grow significantly up to 2050. Some would estimate them to double in size by the time you get to 2050. So that the lack of capital itself isn’t a problem we have enough capital, what we need is to move it and have a plan of how do we finance the Paris Agreement. And as I said at the beginning, we collectively have been looking at this, Ben and I for some years together, personally I’ve been looking at climate change since 1995. The first Conference of Parties I went to on climate change was back in 1999, COP-6 which was in Bonn. COP-21 was the Paris Agreement, COP-26 is what we’ll see in Glasgow next year. 

Now, over that time I’ve seen the debate evolve massively and the fact that we got any kind of international agreement was incredible. It was ambitious Christiana Figueres deserves huge plaudits for what she’s managed to achieve as does Laurent Fabius who worked with her as the two co-leads on the Paris Agreement. But still five years later, despite the Task Force on climate related financial disclosure, which Ben and I have talked in this forum about before, despite the very welcome development of that guidance, the TCFD is a better thermometer. It doesn’t turn the heat down in the system and it doesn’t change the flow of capital. All it does is tell us where the risks are, whether they’re transition risks, which I’ve described, or physical risks which are as the climate changes how does flood risk change? How does fire and drought and how does that change? What about crop damage and obviously, as an insurance sector, we are in the front line, we are the canaries in the coal mine when it comes to physical risk. 

So we need a lot of money. We have a plan called the Paris Agreement but we have no idea where the money is going to come from. There’s no top down plan, no vision from the government’s around how the money is going to be mobilized. And what we’re suggesting as Aviva and I’m going to come to talk to it in the closing slides in more detail. But we believe it’s time to take the COP-26 process and increase the vision beyond just making TCFD mandatory. And that’s all about as you all know, disclosure of climate risk. We think it’s time to create a plan for mobilizing money and think of that as a Marshall Plan for the planet if you like and I’m going to describe it in a bit more detail shortly how we’re proposing that we get the politicians and the policymakers to do that. 

The last slide before I hand over to Ben, I just want to give you a flavor of our own strategic approach. That is a few introductory sort of cover letter covering the images of the covers of the various reports that we’ve done. Our first climate change strategy was in 1995, we did a stock taking in 2008. I’m so sorry the first time our board discussed climate change was in 1994. The first time that we actually brought that together into a specific climate policy was in 2001, where we put it into a voting approach. We then built it into a climate change strategy in 2015, we were among the first insurers to do that. And we did a stock taking 2018 and we’re currently working on a 2020 version which Ben can give you a bit more of a flavour about, but the most spectacularly worrying fact for me when we were doing a TCFD report and Ben led them was to discover that the London Stock Exchange is currently at 3.8 degrees. 

If you buy a tracker fund, you’re capitalizing a 3.8 degree future, not two not even one and a half, and 3.8 degrees as you recall waiting for us to collapsing the Siberian tundra has thawed and we’re into runaway climate change feedback loops. We have to change this, this is an emergency. So then with that kind of setup over to you to take us through some of the other things that we went through our TCFD approach and how we manage it and govern it within Aviva from a risk perspective. 

Ben Carr: 

Thanks, Steve. So how are we going about this at Aviva? You know how we think about playing our part in order to meet this enormous challenge? But I think the first thing to say the short answer is you need to take and we are taking a strategic approach that looks across all of our businesses, functions and activities. You can’t focus in one particular area, you have to look at how your whole business is going to support and play its part in meeting the global challenge. And when looking across all those business, what we’re trying to do is identify, assess, measure and manage the risks from the climate crisis, but also to grasp the opportunities to support the transition to a low carbon economy. And that includes and very importantly includes developing new customer products and propositions that help them to understand how their money’s invested and to make more informed investment decisions. And what we’ve done in order to do that and to take a strategic approach, we’ve developed a multi-disciplinary project team across our global operations, there’s over 30 people involved in that team and looking at how we’re going to embed and take into account these risks in all aspects of our business. 

And I wanted just to start with sort of one of the key learnings from the work we’ve done to date and you know, from our disclosures to date for our TCFD disclosures and that is that we’ve developed a sort of metric, which looks at how well aligned we are with the Paris Agreement. We’ve done that in conjunction with the United Nations Environment Programme Finance Initiative they had a sort of pilot exercise to develop some metrics. And this was one of the things coming out of that and that pilot was about 30 large global investors, as well as with MSCI Carbon Delta. And if you look at this, what we can use with this tool is we can basically take our portfolio of investments and we can assess how aligned it is to the Paris Agreement. And as you can see from this chart here, Aviva’s portfolio today it is currently has a sort of implied temperature rise of 2.9 degrees. 

Now, that’s quite good actually compared to the business as usual scenario that Steve Waygood just talked about, which is heading for four degrees at present and it’s actually pretty good again against a global market benchmark. So just looking at a global diversified benchmark of equities, which is near three and a half degree. So we’ve made good progress in all the work that we’ve been doing at Aviva to try and get a line to Paris. But notwithstanding that it demonstrates the scale of the challenge so we’re still at 2.9 degrees, so we’re well above Paris, well above two degrees let alone one and a half degrees. And there’s still an enormous amount of work for us to do in order to get our investment portfolio aligned and that’s really I think this type of measure really helps you to see the bigger picture. And it helps internally to get people engaged with this process and to think about how we can make sure that our business is aligned and that we’re taking the actions that we need to take in order to get the business aligned, going forward. 

It’s hardly surprising given that, that there’s increased regulatory focus in this space. So Steve Waygood mentioned the Bank of England, so the Prudential Regulation Authority, which is just the bank by another name, you know they’ve now issued a supervisory statement in the UK setting out how they expect firms and what their expectations with firms are around managing climate change and embedding that into the way they manage their business and risk management frameworks in particular and board responsibilities. They’ve also published a Dear CEO letter setting out their expectations. 

We’ve seen the Financial Conduct Authority in the UK, publish statements around what it expects from listed companies in terms of their climate related disclosures looking to make those mandatory by 2022. And similarly, we’ve seen the Department of Work and Pensions in the UK share consultation on mandatory TCFD disclosures for Occupational pension schemes. In addition to that, the PRA and the FCA have also created something called the Climate Financial Risk Forum which we’re a member of, UK live CEOs sits on the forum and chairs one of the main working groups of that forum and they published a guide at the end of June this year which provides assistance to firms in thinking about how to manage these risks. 

In Europe, we’re also seeing significant activity. So we’ve seen the non-financial reporting directive published so that’s setting out guidelines for listed companies in Europe around climate related risks. There’s also something called the Sustainable Finance Disclosure Regulation coming down the track very fast which is going to have a major impact in terms of requirements for firms. And in addition, there’s something called the EU taxonomy which is going to set out a taxonomy will help to identify green activities that can be invested in. So huge amount of activity in this space, a lot of that European activity stemmed from a report on sustainable finance by a high level expert group which Steve Waygood was on and that’s really driving forward change in Europe as well as the train changes we’re seeing in the UK. And that’s clearly having a big impact on us as well as a regulated firm. 

So what does that mean for our strategy? Well, as Steve Waygood said in 2015, we introduced our first strategic response to climate change and that was quite focused on investment. So very much focused on the investment side of our business and our balance sheet. And we updated that with a stock take in 2018 and now we’re looking to refresh the strategy in 2020. And that’s in line with the Paris Agreement and the requirements on countries with respect to their nationally determined contribution. So they have a very similar line that had to come up with their first proposals in 2015, they then had to do a stock take in ’18 and now looking to refresh those in 2020, head of the next COP. So we’re looking at Aviva to really follow that approach to make sure that we are tracking the global developments in the global fight against climate change. 

In terms of the new strategy, I think there’s two key things we’ll certainly be committing to align our business to the one and a half degree Paris targets that’s the first thing. We want to do that in a pragmatic, commercially smart way and we want to become a net zero asset owner by 2050. So that net zero requirement to some extent is a bit of a shorthand for saying the one and a half degree Paris target. So the IPCC report on the 1.5 degree world, published last year really set out a clear view that you had to get net zero by 2050 in order to meet that one and a half degree target. 

As part of that we’ve joined something called the United Nations Net-Zero Assets Owners Alliance so we’re doing a lot of work in that space with many other large investors, looking to develop methodologies and targets that will make that sort of net zero commitment very tangible. So not targets over the next 30 years, but actually setting up the targets that we want to meet over the next five to 10, 15 years, in order to make sure that we’re going to get to net zero by 2050. 

So there’s certainly more ambition with respect to our 2020 refresh and climate strategy is going to be more ambition on the investment side than it was in 2015. But perhaps equally importantly, we’re building out the scope of our climate strategy. So now recognizing that climate change impacts all aspects of our business and we need to focus on having a strategy for all aspects of those business that are aligned to Paris. So we’re looking at the insurance side of the business so underwriting, whether that be commercial underwriting and have sort of carbon intensive sectors, for example or whether it’s looking at actually our retail insurance offerings and thinking about how we’re supporting the transition and helping customers to make sort of climates environmentally appropriate choices around their homes, their transportation, their cars, etc.

We’re also looking at operations and looking to make sure that our operations are also aligned to that net zero target. And then very importantly, I think in addition to those three elements, we’re looking at influence, we think and ultimately there’s going to be governments have got to play a key role in supporting the transition in setting the policy framework that will enable this to happen. And so we’re looking very hard and working very hard and actively sort of advocating for very ambitious and rapid targets to meet the Paris goal as part of the strategy. And then finally, on disclosure, we are very supportive of disclosure, we’ve been disclosing for a number of years now on climate related risks. And we know are a strong supporter of mandatory disclosure across the piece. So that’s how the strategy is evolving and developing as part of the refresh and you know, there’ll be more to come in that space shortly, in terms of our plans on this front. 

In terms of that sort of Net-Zero Asset Owner Alliance commitment and the net zero. So how do you go about doing that in practice? How do you really make this real? Well, you need to come up with a metric, first of all, to assess how carbon intensive or how aligned your portfolio is. So you saw earlier on we had the portfolio warming measure so that’s an important measure that we’re looking at. That’s a forward looking measure and it’s a really helpful communication tool and it really helps to set the scene at a high level, in order to sort of make sure that you’re on track. But you also I think you needed sort of more to some extent, you need more tangible measures as well that really help you look at sort of concrete data today to think about how you’re going to adjust or reallocate your portfolio going forward and to make sure that you can tie directly back to sort of emission reductions in the broader economy. 

One of the measures that’s recommended by the TCFD is sort of for investors is a weighted average carbon intensity measure. So effectively, what you do with that is you look at the carbon emissions of company, you then sort of divide the number of tonnes of CO2 Produced by that company and by its revenue or sales and you come up with a carbon intensity measure. And you can get data now on these revenue measures from a wide number of sources and you can then look and track progress and your portfolio against those measures. So from an Aviva perspective we’ve been producing results for the last couple of years on the carbon intensity measure. We’ve seen our carbon intensity come down both for credit and equities as well as overall from a figure of somewhere around 170 about 175 tons to something near 155 to 260 tons of CO2 per million dollars of revenue over the last two years. And actually if we look back further, we can see that we’ve seen no significant decreases year on year before that as well. 

So this is really a very concrete measure that can help us to think about how we’re meeting that net zero or how well aligned we are with that net zero target. And to start to set metrics and targets internally in our business to manage that risk and we found this really powerful and again, though, if you look at on the right hand side, one of the key things is to then look at how different sectors are contributing to that target measure. And it’s remarkable how concentrated the emissions are. So utilities only constitute about 9% of our portfolio but they contribute over 60% of our just around 60% of our actual weighted average carbon intensity. 

Oil and gas are another big contributor but it very quickly falls away after that. So it helps you to see that if through various strategies, whether it’s engagement with companies, or whether it’s through looking at those sector leaders who are really innovating and looking to drive the change to a low carbon economy or ultimately divesting from for example, coal or very carbon intensive sectors where you’re not seeing appropriate movement. Then you can sort of, you can very quickly and rapidly look at reducing that carbon intensity measurement. 

Now, you need to be careful with some of these measures. So there are definitely pitfalls. So they tend to be backward looking, they’re looking at what emissions have currently been produced, they’re not telling you about necessarily a firm strategy going forward which one of the reasons why we use the portfolio warming as well because it’s more of a forward looking element to it. But they are very, very useful at least in having that sort of concrete yardstick you can measure firms against and you can see over time what progress you’re making. We’re currently as part of the net zero asset owners Alliance testing a number of different measures to see which would be the most appropriate for setting the sort of medium term targets. So it’s quite a lot of work being done. There’s devil in the detail in terms of exactly what measures you might want to use, whether you use revenue or enterprise value as a denominator in these measures. 

You know there are questions around to what extent you want to include all scopes in these measures in order to make sure that they’re appropriate and you’re doing an apples to apples comparison. So you know there is detail here that you need to get into in order to come up with an appropriate measure. But overall, we see carbon foot-printing investments is a really, really valuable tool for steering the business and making sure you’re on track and supporting the transition. 

Ultimately what’s the challenge for actually really embedding this in your business? So not just having a high level strategy and having I guess good sort of public pronouncements this is actually really making sure that you are delivering on this and you are reducing the carbon intensity of your carbon footprint of your business overall and supporting the transition. But I think for us the key is to really embed this into your processes, into your risk management framework, into your decision making, into your governance. And that’s why we have this big project in order to do that and that’s how we see that we can really deliver on this. 

We’ve identified climate change as a material, long term risk for our business, we all also see it as approximate risk because it’s impacting our business already. And as a result of that we’re taking action today to mitigate the effects in the future, as well as immediately on our activities. And we’re looking at transition physical and litigation risks when looking at that. So we’re thinking hard about not just to the physical impacts of climate change in our business but also what are the transition risks as Steve Waygood’s talked about, if you have a sort of Minsky moment what could that do to investments? What impact might that have on our note that the profile of our insurance business going forward because transition risk could also impact the markets that we’re underwriting and insuring the assets we underwrite and insure whether it be cars, homes, or our company’s liability risks. 

We’ve been doing quite a lot of work to try and embed this into our risk management framework, in particular starting to bring and think about how we incorporate into our risk appetite and risk preferences frameworks which is ultimately how we drive the business and make sure that the climate strategy that we’re articulating is actually implemented on the ground and that we’re taking concrete actions throughout our activities to deliver on this. And in some ways, climate risk for us is not different from other risks in that sense, you know you’ve got the same framework, you can apply the same principles to climate risk management as to other risks. But there are clearly very specific elements to the climate change risks. So we certainly see the time horizons as a challenge as well as some of the… also quite a lot of uncertainty around some of the science in terms of the predictions around how rapidly how many degrees of rise we likely to see, et cetera. So there’s a long term nature of these risks and some of the uncertainty in the assessments and the lots of moving parts in terms of not just sort of climate science, but also what policy actions will be taken? How will governments respond when action be coordinated or not. That mean that this risk is more challenging in some ways than others. 

We certainly are finding the more we look at it and explore it and discuss it in the business everybody gets, is getting why it matters, why it’s important for our business and why we need to manage this. And also starting to build up some consensus around what the right metrics, targets, and methods are to actually manage this risk. So you’ve got a few enemies here on this board, I mean essentially you’ve got the strategy ultimately, and then you want that need to tie into the risk assessments I say. You also then need to have clear governance around that so you can see how you’re actively managing that risk. And it’s a challenge as well, in terms of it brings together both elements across the business that traditionally perhaps you wouldn’t have thought us together. So in particular, the act of stewardship and engagement that we need to apply to companies externally and bringing that together with your internal risk management is a really important element to this and capturing that is extremely important. And again, bringing all of this into thinking about your operational carbon emissions, whether it be your travel or the efficiency of your buildings, again there’s a new element in trying to think bring all these elements together when managing these risks. 

It’s challenging, but I think what we’re seeing is in the business Aviva, the more we talk about this more embedded the more sort of consensus and the more that we get people get it and they understand that this is a key risk for the business and that we really need to embed and think hard about how we’re going to make sure that our strategy is aligned to that Paris Agreement and that Paris trajectory.

Steve Waygood: 

Great. Ben, thank you and very, very good to hear you again, go through that. I just consciously we’ve talked about litigation risk a few times and I just thought it’s worth sharing something I was reading this last week, Kingston University have just been working with the London School for Economics, the Grantham Center there. And I was amazed to read that they found… they looked around the world for different regulation, and different litigation all motivated by climate. And they found 1,800 bits of regulation, even though it remains the world’s biggest market failure. There are 1,800 bits of different regulation at the moment, 38 different laws in Spain alone. Now having them fit together into some kind of framework that makes sense is missing. But nevertheless, that’s the 1,800 regulations already and that’s in fact helped build momentum both up to and then after Paris. 

And then on litigation they found 1,500 cases, unsurprisingly the vast majority of them were in the U.S. but not all of them, about three quarters were in the U.S. and known facts approaching half of them much have concluded have found in favour, if you like of those that were raising climate concerns and they fall into various camps. But among those that insurer should be worried about particularly if you do direct as officers insurance, if you’ve underwritten trustees or pension schemes, you might be sued. Or if you’ve underwritten the personal liabilities for the board members and directors and executives of fossil fuel firms they’re increasingly being challenged. And if you’ve underwritten them, obviously, you carry the risk. 

So whilst physical risk is the big, long term risk we need to avoid and transition risk is the Minsky moment that we obviously need to manage away from. Litigation isn’t just something we need to worry about in five to seven years. Litigation is happening, as some of you will know already in abundance in certain markets, particularly, unsurprisingly, North America. So I just, Ben wanted to build on your point around litigation and bring it home making sure that people realized it was real now. You also talked a little bit about what we’ve been doing about customer products and propositions. 

Something to just leave you will with as an invitation is we’re building with many clients at the moment an approach to climate transition which covers all the key asset classes and looks at how do we use our influence as investors and as providers of capital, how do we use that influence to mobilize change whilst also deploying capital to secure the alpha that will be generated not just is being generated today, but is of course predicted as the all of the scenarios that I pointed to you on file. So I’ve talked about this as the inevitable policy response and how do we position portfolios to make sure that that inevitable policy response is something that we can capture. 

Now, the funds that we’ve launched in the climate transition range at the moment they’re no more than most about 18 months old. So they’re too young to show an outperformance job, but I’m very pleased to say that they’ve beaten their benchmark since inception already. And in one case, they have beaten it by more than 10% which as you know, is an incredibly impressive initial indication that this kind of investment is you don’t have to suffer a reduction in performance in fact, quite the opposite, if done properly, investing in solutions providers and then also using your influence to power the transition across credit equities and real assets that can be done. So I’m not going to dwell on this, if any of you are interested in hearing more about that, by all means, let me know via Rick Smith and we’d be very happy to give you a more detailed presentation about any of that. But the more perhaps pertinent slide for us to finish up on is the next one. And it will be the second time you’ve seen the slide and that’s intentional. 

What we are essentially suggesting is that we as an industry, need to challenge governments and the policymakers to power this transition. That’s an enormous amount of capital that’s needed, we need to use COP-26, as the opportunity to do that, we should be asking all member states to give us a sense of just how they’re going to change their policy framework. So that if the right investment grade policy convinces us they’ll transition their real economy, we also need to see a capital raising plan that enables us to deploy capital into infrastructure investments that are climate adaptation or mitigation friendly. 

We’d like to see this all come together as an international platform for climate finance that doesn’t just do what the TCFD has done in terms of measuring risk, but actually powers capital towards financing this transition. And I said to Shaun that we’d leave 10 minutes for Q&A but the main question I have for you all, is will you join us in challenging all the politicians or policymakers in the run up to COP so that they actually mobilize investment grade policy that mobilizes that volume of capital. After all, it’s orders of magnitude more than the Apollo program and the Marshall Plan combined. Shaun, back to you for any questions that have come up? 

Shaun Tarbuck: 

Thank you, Steve. That is a great challenge and thank you, Ben. I think it’s split perfectly between the macro side and the micro side and we’ve got some great questions here. And I’m going to follow up on that challenge because it’s worth saying again, what Steve Waygood mentioned then this isn’t just a challenge for individual, large organizations, this is a challenge we face that collectively, the industry can work with. And this is why we’re very excited to be working with Aviva Investors who are driving the terminology you will see coming out TCFD is absolutely crucial. But the IPCF [International Panel on Climate Finance] is going to be the new word on everyone’s lips coming up to the COP-26 because that is where we want ICMIF members, we want all industry participants to get behind and show what businesses can do and should influence the governments of this world and the UN to actually make the change rather than talk about it, but actually make it. 

So maybe Steve, if you just want to expand a little bit more on what the IPCF is as this is your brainchild. We fully supported ICMIF has signed up to it. But individually, we’d love our members to also sign up and make it even more powerful. It is an easy commitment to make but absolutely crucial one to hold as you set hold of feet to the fire of the governments and the UN bodies that are putting the policies. 

Steve Waygood: 

Shaun, thank you. So just very briefly, there is a coalition of now approaching 60 people and Shaun thank you very much for committing to join and for being such an active participant. But about 60 of us get together on a call every couple of months to talk about exactly what we collectively feel is required to come out of the policy process. We’ve produced a white paper and I’d be very happy to share it with any of you who are interested. And it sets out what we expect to countries and what we’re willing to provide in return in terms of our own capital and our own assets and the management. It also suggests that we as institutions should be offering our own institutionally determined contributions, such as the reports that we’ve taking you through that we do which tell the politicians and policymakers how much money we wish to allocate to climate adaptation and solutions technology. 

Now, there is a world of jargon in the world of private finance, just as there’s in so many other places. But very, very briefly what we’re trying to do with the IPCF how much money is needed? Where’s it going to come from? And how are we going to mobilize it? And what we need as a group is to get the policymakers to build this institution, we’re not proposing to be the institution, it’s a bit of the ecosystem, the global governance infrastructure that’s currently badly missing and the UN with the best one in the world, the UN is not the right place to build that capital raising plan and they’re just not sufficiently literate when it comes to how markets work. They do an enormous amount of good stuff elsewhere but that isn’t their job. It is ours so we need to build that we need to help encourage the institutions to build that Shaun thank you for the opportunity to do that. 

Shaun Tarbuck: 

Yeah, and just to reiterate that I think I’ve been on this journey as similar time as Steve. But I’ve been nowhere near as influential as Steve has been on this journey around sustainability but we certainly hear when I speak to our members around the world, they’re looking for the rights initiative to support. And I would put it to you, this is the right initiative because this does have the capability for business that they dictate and I mean business I’m talking about the whole insurance industry, to dictate through governments as to how they should be spending the money. And putting hours up front, as well as saying this is the way it’s going to be it is the first five years of the UN 2030 Agenda has been driven by the politics but the next five years has got to be driven by business, otherwise we won’t get it done. And we know where the problems are Steve has alluded to those perfectly. 

So that’s adding my kind of work but I certainly do. Number of members that can support it, the better. And Ben just turning to yourself you showed absolutely brilliantly how your journey within Aviva had moved to where you are. And still there is, as you say, a long way to go. Just putting into the macro terms for our members and they all have because they’re all mutuals they will have a lot more capital of their own funds, as well as managing other people’s as well. But there’s a lot of their own capital in there which they can probably move more readily into greening their portfolios. How long do you think it would take, on average, say to follow your learned rules into what you’ve done? And to move that needle from as you say, 2.9% for Aviva but into getting to that 2% and maybe in that one and a half percent of portfolio warming. How long do you think that might take? And what sort of commitments governance-wise do you think people need in their insurance businesses? 

Ben Carr: 

In terms of getting yourself set up from a governance risk management strategy perspective, I guess we’ve been Aviva investors and Aviva have been quite active in this space for a number of years. So I guess we had a bit of a head start but I think in terms of rolling that out to the broader business, we’ve probably been actively doing that over the last two to three years. And I don’t think that we’ve fully embedded and integrated this across the business yet but now the project we’re currently running is due to run until the end of next year. And the PRA have also set that target as for all businesses actually implementing their expectation. So they’re expecting everybody to have fully integrated climate related risks and opportunities to their business by the end of next year. So I think in terms of getting that framework and that your business set up to do this, then that’s the sort of timeframe I would give yourself. It’s probably three to four years. But in terms of actually getting yourself aligned to Paris, then that’s probably a heavier lift, I would say. 

The targets that we’re currently looking at setting in terms of the Net-Zero Asset Owners Alliance, if you look at the science they’re saying if you want to be net zero by 2050, then you probably need to reduce your carbon footprint of your investments by potentially in excess of 25% over the next five years, so by 2025, and then you have to be sort of lifting similar levels and similar levels of reduction every five years beyond that. And that’s quite challenging. So you may be if the more you can do that through engagement and you can see the economy, the broader economy transitioning and getting aligned then the easier it’s going to be essentially your investees could do it for you. And you can help them through your engagement processes. And by encouraging them to adopt net zero align strategies, where they’re not doing that, clearly then it becomes harder and you’ve got to start thinking about selecting leaders in terms of this space, and thinking about how you transition your portfolio and that’s depending on your business will depend on how easy it is for you to update your allocations in that context. 

I mean, ideally, you want to do that, as you naturally churn, turn over your book over time as investments mature, if you can but depending upon how rapidly you have to reduce those emissions and depending on the nature of your business, that will be more or less of as a lift for different companies. But I certainly not see this is easy, it’s going to be challenging for everybody. But the more the wider economy is aligned and doing it’s part then the easier it’s going to be for the financial community to meet the target. 

Shaun Tarbuck: 

Thank you, Ben. And so if I’m hearing correctly there is a job to do on the macro side which we are very happy with our partnership with Aviva and jumping in behind Net-Zero Asset Owners Alliance which you helped set up in the IPCF, I know some are already behind the Net-Zero Alliance is one of the original founders there as well. And I do think also we’ve got our job to do on the micro level. So those that want to green their portfolio, I think it is in within our DNA as mutuals, that we should be doing this because we are community-led and community-focused. 

Shaun Tarbuck: 

It just remains for me to say thank you very, very much, Steve and Ben, a lot of food for thought there for those of you who are listening live now and those that you will be listening later.  

So thank you very much and thank you for listening. 


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