Aviva Plc FSUK0023
Written evidence submitted by Aviva
Summary
- We believe the financial sector has a vital role to play in the UK’s net zero transition
- That’s why we have set our own ambitious aim – to be a Net Zero company by 2040, which we followed up this year with a detailed transition plan
- It’s also why we are active participants in the various net zero alliances and initiatives, including GFANZ and the UK Transition Plan Taskforce, which we believe can do much to increase collective ambition and consistency
- But financial firms alone cannot solve the climate crisis. We continue to need clear, strong signals from government and regulators to steer the entire economy in the direction of net zero – in particular we are calling on the UK Government to introduce its own regular net zero transition planning process, and to give the regulator an explicit net zero statutory objective
Contents
1. Aviva’s net zero goals
2. Aviva’s fossil fuel policies
3. Aviva’s policies on investment in renewable energy technologies
4. Aviva’s policies on underwriting renewable energy technologies
5. Aviva’s role in the Net Zero Alliances and GFANZ
6. Aviva’s role in the UK Transition Plan Taskforce (TPT)
7. Aviva’s Calls for Policy Action
Detail
- In March 2021 we announced our plan to become a Net Zero company by 2040:
- We will achieve net zero across our scope 1 and 2 and supply chain by 2030
- We will achieve net zero across our investments and insurance (including scope 3) by 2040
- By 2025, we plan to cut the carbon intensity of our investments by 25%.
- And by 2030, we plan to cut the carbon intensity of our investments by 60%. That’s ahead of the Paris aligned target of 50% cuts by 2030.
- We are setting Science-Based Targets aligned to a 1.5 degree pathway for our operations, supply chain and investments, and our climate goals will be delivered in a way that contributes to tackling the related challenges on biodiversity and nature.
- Focusing on real economy change
- The easy thing would be to sell off all energy and utility stocks and bonds today. But that changes nothing in the real world. The harder but more useful thing to do is to be an active owner and use our muscle in the market to push companies we invest in to commit to ambitious climate action. That is how you drive real change.
- Divestment is not our first choice. Many of the companies that will move our economy from a high carbon to low carbon world already exist today. It is far better they face into the challenge and bring about the change, than just go bankrupt. But the option of divestment gives engagement its teeth.
- Oil and gas
- Aviva Investors Climate Escalation Programme
- In January 2021, Aviva Investors announced our new ‘climate engagement escalation programme’, starting with 30 systemically important carbon emitters in the oil and gas, metals and mining, and utilities sectors. We are making specific asks, including to deliver Net Zero Scope 3 emissions and establish robust transition roadmaps. We are setting out timelines between 12 and 36 months. If we don’t see serious engagement from the companies to meet the climate challenge, we will put them on our stoplist and divest any assets we hold. And we will work through the alliances of other asset owners and investors to increase the pressure.
- Aviva UK Life
- We have applied portfolio caps and constraints on oil and gas companies
- Aviva has no material exposure to sovereigns whose credit quality is reliant on oil and gas production.
- Some portfolios have decided that any new business investments should not worsen the current portfolio-level weighted average carbon intensity score for the overall existing book
- No coal
- We believe the highest emission fuels are not part of a Net Zero future. We will therefore stop investing in or insuring coal (power generation or mining).
- We are already members of the Powering Past Coal Alliance, but we want to go further faster. We’ve been taking action on coal over the last few years and by the end of 2022, we will have divested all companies making more than 5% of their revenue from thermal coal unless they have signed up to Science-Based Targets. We will divest the equities, put the bonds into run-off and put the companies on our stoplist. Because we support companies making the transition to low carbon, we will only continue to invest in ring-fenced, non-fossil fuel project finance bonds.
- By the end of 2021, we will have stopped insuring companies making more than 5% of their revenue from thermal coal or unconventional fossil fuels. We will make an exception for those companies serious about their transition out of high carbon fuels and who have committed to clear Science-Based Targets aligned to the Paris Agreement target of limiting temperature rises to 1.5 degrees.
- Aviva is not insuring:
- Construction of coal fired power stations/coal mines
- Companies where more than 5% of revenues are generated from thermal coal mining
- Companies where more than 5% of power generation is from coal
- Companies which hold at least 5% of their reserves in unconventional fossil fuels
- We are committed to supporting businesses transitioning away from coal and unconventional fossil fuels, as such we’ll continue to provide construction/operational coverages for their standalone Renewable Energy assets and provide management liability and employee benefits insurance.
- Over the past five years Aviva Investors has invested £500 million every year in low-carbon and renewable energy infrastructure including solar, wind and energy centres. This takes total energy generation capacity to 730 megawatts in the UK and Europe, enough to power one million homes.
- By the end of 2022, we expected to invest £10bn of assets from our auto enrolment default funds and other policyholder funds into low carbon strategies. We have already exceeded that ambition, investing £12.4 bn by the end of April 2022.
- By 2025, we will invest £6bn in green assets, including £1.5bn of policyholder money into climate transition funds from a 2020 baseline. By YE 2021 we had invested £4bn – the equivalent of £3.3m everyday.
- By 2025, Aviva Investors will invest £2.5bn in low carbon and renewable energy infrastructure and deliver £1bn of carbon transition loans. We have already achieved the £1bn in carbon transition loans – 3 years ahead of the target deadline.
- However, the majority of our investments will be focused on driving the transition of assets from higher carbon to low or zero carbon impact.
- Aviva exited the London fossil fuel power generation market in January 2019
- Aviva’s renewable portfolio is now more than 150% of the size of the fossil fuel power generation book it exited
- Aviva renewable portfolio covers enough renewable energy to offset the equivalent of 24.8 million tonnes of CO2 annually
- Aviva is now a UK leader in battery storage insurance
- Aviva is targeting a top three position as a renewable energy insurer in the London Market by the end of 2022
- Expert underwriting and claims team focused on the renewables market providing coverage on six continents
- We are active members of:
- The UN-convened Net-Zero Asset Owner Alliance (AOA)
- The UN-convened Net-Zero Insurance Alliance (NZIA)
- The Net Zero Asset Managers initiative (NZAM)
- The Glasgow Financial Alliance for Net Zero (GFANZ)
- We believe there is significant benefit from these initiatives, in particular:
- Agreeing consistent, science-aligned methodologies for agreeing how we will individually and collectively meet our net zero commitments
- Using our collective influence with policymakers to encourage ambitious climate policy and regulation to help shift the entire economy to net zero
- Agreeing consistent, comparable methodologies for best practice in transition plans
- In 2021 we led calls for the government to introduce mandatory transition plans. The government responded at COP26 by announcing the establishment of the UK TPT to formulate the gold standard in net zero transition plan guidance.
- Our Group CEO Amanda Blanc co-chairs the TPT alongside the Exchequer Secretary John Glen.
- The TPT’s work will help to drive decarbonisation by ensuring that financial institutions and companies prepare rigorous plans to achieve net zero and support efforts to tackle greenwashing.
- The financial sector can help accelerate the UK’s net zero transition, but policy and regulatory action continue to provide the key drivers for the economy as a whole. That’s why in a recent publication with WWF we called for:
A. New roles for Government to:
- Produce and regularly update a UK economy-wide net zero transition plan
- The Government should produce a plan to deliver the emissions reductions necessary to align with the Climate Change Committee’s (CCC) carbon budget for the following five-year period. This plan should contain firm sectoral emissions pathways, and outline which departments are expected to deliver them via departmental net zero transition plans. The plan should also include content outside of the CCC’s remit, for example overseas investment.
- Ambition should be ratchetted up over time in line with the science, with a clear commitment to update and revisit the plan biannually. The plan should include sections on key real economy policy areas and financial sector.
- This would send a powerful and clear signal to the market, helping to support investment in UK businesses aligning their strategy to the net zero transition and those businesses providing the solutions that the transition will require – in turn helping the UK to secure the economic benefits that the net zero transition will offer.
- Introduce departmental net zero transition plans
- Flowing from the Government’s overall net zero plan, each department should look to introduce their own Transition Plan, based on the sectoral pathways they are responsible for, which aligns with and feeds into the overall Government approach. Again, some plans already exist in this space, but have been developed in an ad hoc manner. Therefore the aim would be to make these consistent and coherent. Importantly, these must cover not only operational emissions associated with the department but information covering the way in which the policies for which they are responsible are contributing to the net zero transition.
- As with the whole of economy UK Transition Plan, these should be fully revisited and reported against biannually, with new policies and key delivery risks flagged on an annual basis.
- Establish a central unit to inform, coordinate and push net zero delivery across government
- Establishing a central unit would clarify and align various existing ad hoc processes in government in delivering net zero, for example Cabinet Committees and other cross-Governmental meetings. The core functions of the central unit would be to:
- Develop, update and report against the whole of economy net zero transition plan.
- Act as an internal centre of excellence to help departments prepare and deliver individual departmental transition plans.
- Aggregate departmental transition plans together and ensure that they add up to delivering the whole of economy UK Transition Plan. This analysis should be published to enable external scrutiny by the OBR, guided by the CCC, and reporting to Parliament. • Act as a conduit between Government and the private sector on net zero transition planning to assist in alignment between the two, and ensure clarity of signals to the market on net zero policy.
- Coordinate delivery of and reporting against departmental transition plans. A central unit would need to be given the resources and backing from the top of Government to achieve their objectives. For example, reporting directly to the Chancellor, Prime Minister and BEIS Secretary of State and be headed by a Permanent Secretary, to give parity with key departments.
- Embed net zero into core economic and financial decision-making processes
- In order to deliver and embed the concept of Transition Planning within Government, we suggest the following enhancements to existing processes:
- Give all Treasury spending and tax teams and the central Treasury coordinating teams a formal remit to consider net zero implications in tax and spending decisions - notably at key fiscal events (Budgets, Statements and Spending Reviews).
- Introduce a requirement on Treasury to assess the aggregate climate change impact of the spending and taxation package set out in each fiscal event and to compare it to the intended net zero pathway contained in the whole of economy UK transition plan
- Publish this assessment at each fiscal event, demonstrating how the UK’s commitment to net zero is being delivered4 •
- Introduce a net zero assessment into policy and project impact assessments
- Revise the Government’s economic assessment criteria (the Green Book) to better reflect the net zero commitment.
- Ensure key transparency and accountability mechanisms reflect the above
- It is important that the Government is supported and held to account for the delivery of its net zero commitments. The process described in points 1-4 above should assist in this. In addition, we suggest the following key institutions will also have an enhanced role to play:
- Give the Office for Budget Responsibility (OBR) a clear net zero remit. In line with the tweaks to Treasury roles set out in point 4 above, the OBR should build on its existing ad hoc work on net zero to report on the net zero implications of fiscal events as a matter of course. Government should then update the OBR’s Charter to reflect this additional role. The CCC should be given a role in providing expert guidance to the OBR.
- The Public Accounts Committee should build on existing work in this space and task the National Audit Office with regularly tracking and reporting progress.
- As departmental transition plans come onstream, each departmental select committee should hold its department to account for delivery, with the Environmental Audit Committee looking across the piece.
- The OBR, CCC and Select Committees should all draw on the expertise and feedback for policy recommendations and assumptions embedded into private sector transition plans in providing this scrutiny.
B. New role for Regulator
- We suggest that the government introduces a new statutory objective requiring the regulators to facilitate the alignment of the financial services sector with net zero including wider considerations of nature.
- A statutory objective on climate would empower regulators to actively advance the innovative climate polices needed to facilitate the transition to net zero. This would complement and strengthen their existing policy commitments (UK taxonomy, climate-related disclosures) but also instigate further actions by regulators, such as:
- Greater supervisory and macro-prudential measures to prevent build-up of systemic risks to the financial system.
- Exercising rule-making powers to ensure that financial institutions do not continue supporting activities that undermine climate, nature and broader sustainability objectives and have a credible transition plan for getting to net zero.
- Better enable accompanying sanctions for non-compliance, given the rising prevalence of greenwashing.
June 2022