Q&A with Euan Munro, Aviva Investors
Euan Munro is Chief Executive Officer at Aviva Investors
Why should asset managers be concerned about sustainability?
Because we live on this planet. And because, in common with other large investors, we can have enormous influence in creating a more sustainable financial system. We see it as our responsibility. We can hold companies to account, demand higher standards and help make the world a better place. I am proud that this is what we aim to do at Aviva Investors.
It is not simply a question of altruism. We commissioned research by the Economist Intelligence Unit in 2015 which showed that the global value at risk from the effects of climate change amounts to US$4.2 trillion by 2100 if we continue on our current trajectory. That’s roughly equivalent to the GDP of Japan. An unsustainable planet is an existential risk for investors. It’s in our own interests, as well as those of our customers and society, to tackle that.
Ultimately, financial markets can only ever be as sustainable as the real economy of companies that they comprise. That’s why we work with governments, policymakers, civil society, and other companies and investors to push for reform of the financial system. We need to fix the incentives that affect companies. I can see a future where there will be no investment that is not sustainable.
What are the opportunities to be found in sustainable business models?
There is increasing evidence that sustainable businesses outperform in the long term. Companies that are serious about their environmental and social impact, and have the governance to hold management to account, are likely to be a better bet than those who pay scant regard to these issues.
It is essential to understand the businesses in which we invest. That is why consideration of ESG issues is fully embedded in our investment process alongside traditional financial analysis. We have agreed specific ESG integration policies for each of our investment functions: Credit, Equities, Multi-Asset & Macro, Real Assets and Solutions. Saying “we do ESG integration” is no longer enough. We must be completely transparent about how we do it, so that our clients can be confident that ESG considerations are applied to every pound and every penny of the assets we manage on their behalf.
As ESG issues gain greater traction with consumers at one end of the spectrum and regulators and governments at the other, sustainability and responsible business practices become ever more important. Bank of England Governor Mark Carney got it right when he said there will be companies that prosper in the transition to a low-carbon world because they are part of the solution. And, on the other hand, “companies that don’t adapt will go bankrupt, without question”.
How do you think companies like Aviva Investors can make a difference to others?
We are among a small number of asset management firms that can legitimately claim a long heritage in responsible investing, in our case dating back to the early 1970s. We believe in the value of active investing and portfolio construction, and as well as making active investment decisions, it is important to be an active steward of the investments that have been selected on our clients’ behalf.
We welcome the increasing emphasis placed on good stewardship by regulators, and I’m proud to lead a business that actively uses its voice. In the last decade alone, we have voted at over 40,000 shareholder meetings on approximately 475,000 resolutions. We also seek to use that voice with purpose. For example, we were the first asset manager to publicly announce we would vote against management of companies that were not reporting in line with the recommendations of the Taskforce on Climate-related Financial Disclosure (TCFD).
We believe that making active investment decisions and constructing ESG-aware portfolios can manage some of the risks that concern our clients better than simply tracking an index. If we reach a tipping point on climate change and have a ‘Minsky moment’ in which asset prices collapse, managers who can avoid the assets and sectors that are most affected and look to invest in those that can support the climate transition, will stand a better chance of protecting and creating value.
What gives you hope that the finance community can help to create a sustainable world?
A sustainable world is much more than one that has tackled the climate emergency. However, unless we address the climate issue, we will not be able to create the future we owe to our children and that we and our clients want to retire into.
The urgency of the crisis has focused global attention, and the UK presidency of the climate conference in Glasgow at the end of the year (COP26) will be a pivotal event. Governments have to make the difficult decisions needed to stop the rise of greenhouse gas emissions and to start to reduce them, and we also need governments to create the conditions in which finance can support them in making that transition. Public money alone will never be enough.
The amount of money needed to move the economy to a net-zero basis is estimated by the International Energy Agency at US$1 trillion per year. At the UN General Assembly in September, Aviva CEO Maurice Tulloch issued a call for a “Marshall Plan for the Planet”, a capital raising plan to finance the UN Sustainable Development Goals. This included calling for the creation of an International Panel on Climate Finance to monitor finance flows towards hitting the Paris Climate Agreement and make recommendations as to how to close any gaps. Many of those recommendations can be found in the Financing our Future report we produced with Accounting for Sustainability and updated at the end of last year.
It is a huge challenge, but if governments can provide the political will, I believe that finance can play its part. It can’t happen without us, so the whole system has a responsibility to act.
