Written evidence submitted by Aviva Investors

Executive summary

As the UK’s largest insurance company and owner of a global asset management business with assets under management in excess of £234 billion, Aviva is able to speak as both the owner of, and investor of capital in the market. We can trace our history back more than three hundred years to 1696. As both insurers and investors we are accustomed to thinking in the long term. 

As a business, we recognise our role in supporting sustainable development. Over the last fifteen years we have aligned the Aviva Corporate Responsibility programme to deliver on six of the eight UN Millennium Development Goals (MDGs) that are most relevant to us as a business. We have been a signatory to the UN Global Compact since August 2001 and in 2010, were invited to be one of approximately 50 companies forming the Global Compact LEAD.

We welcome the opportunity to participate in the Committee’s inquiry into the Sustainable Development Goals and the Government’s response. We believe that the next 15 months – with key decisions taking place for the Sustainable Development Goals (SDGs), Hyogo Framework for Disaster Risk Reduction and  finally the UN Framework Convention on Climate Change - present an important opportunity to move our economy and society onto a more sustainable and resilient footing. As a world leading finance centre, the UK has an important role to play in shaping the agenda and ensuring action is taken at the all important Finance for Development UN conference in Addis Ababa in July next year.

The UK government has already played an important role in the SDG process through the High-level Panel of Eminent Persons on the Post-2015 Development Agenda, co-chaired by David Cameron and we were pleased with the level of ambition set out by Ed Davey on the UK Government’s view on building a low carbon economy at the event launching the Paris 2015 report, which we hosted in September.  We believe there is a further opportunity for the UK government to show leadership on this agenda.

Our key points are:

• Sustainable Development Goals need to be more ‘finance savvy’ to mobilise private capital and ensure that capital markets are working for and not working against the achievement of the sustainable development goals
• Transparency can deliver considerable benefits enabling investors, regulators and civil society to promote more sustainable capital markets
• Integrated government will be critical to supporting and maximising the benefits of SDGs

This submission gives a brief overview of our recommendations for the Sustainable Development Goals, the role of transparency in achieving these goals and the necessity of integrated governments.

Our ideas are further expanded in the Aviva Roadmap for Sustainable Capital Markets.

1. Towards SDGs that Secure Capital Market Support

1.1   While welcoming the focus on private capital, we were disappointed that the International Committee of Experts in Sustainable Development Financing (ICESDF) report did not include sufficiently actionable ideas within it. Our specific SDG proposals are based on our analysis of the structural weaknesses in the capital markets and are presented below according the relevant thematic areas used by the Sustainable Development Goals (SDGs) Open Working Group and are as follows:

1.2   “Goal: A resilient, sustainable economy that optimises quality of life for all” Targets: Economic Growth

• Develop SDG Capital Raising Plans: for all Governments to develop national capital raising plans covering how they intend to finance the delivery of a zero-carbon economy and the Sustainable Development Goals; and for these national plans to be coordinated at the international level by the UN and World Bank. These will include a view on the money that can be raised via infrastructure investment, project finance, corporate debt, foreign direct investment, equity investment and sovereign and Multilateral Development Banks debt
• Establish Integrated Incentives: Governments to promote financial incentives along the investment chain that are fully aligned with long-term sustainable performance. This could involve reshaping the structure of individual remuneration along the capital supply chain
• * Promote Integrated Financial Regulation: Governments to promote capital markets regulation that integrates sustainable development factors in the mandates of the supervision agencies of stewardship codes, listing rules and financial stability (*= key, see below)

1.3              “Sustainable Consumption and Production (of financial services)”

• Improve Integrated Financial Literacy of the consumers and producers of financial services: Governments to have integrated sustainable finance into their national curricula by 2020; for the top fund manager and analyst courses such as the Chartered Financial Analyst Institute and for all the top MBA programmes to cover sustainable finance
• Ensure Integrated Asset Ownership: Governments to ensure all asset owners[1] with more than $1 billion under management publish a report to the beneficial owners and society on how they have integrated sustainability considerations into their investment management agreements, or to explain why they have not done so
• Ensure Integrated Investment Consulting: Governments to require all investment consultants advising on more than $10 billion in assets under management (AUM) to include a report to their clients and society on how well they think their fund managers are integrating sustainability, or to explain why they have not done so
• Develop Integrated Asset Management: Governments to require on a comply or explain basis all fund managers with more than $10 billion under management to be publishing an integrated report to their asset owning clients and society by 2030, including details of how they have integrated sustainable development into all AGM voting, or to explain why they have not done so
• Ensure Integrated Corporate Brokerage: Governments to require all investment banks to have considered corporate performance on sustainability into all their recommendations to investors and advice to companies, or to explain why they have not done so

1.4              “Good Governance and Capable Institutions”

• Improve Integrated Corporate Governance: Governments to ensure all national corporate governance codes promote integrated corporate governance – i.e. corporate governance that integrates sustainable development
• * Improve Integrated Reporting by companies, investment banks, stock exchanges, asset managers, investment consultants, asset owners and proxy voting agencies: Governments to establish a national legislative framework requiring participants in the capital market supply chain to be producing an integrated sustainability report to society – on a mandatory comply or explain basis (* = key, see below)
• Improve Integrated Proxy Voting: Governments to call for proxy advisers[2] to be integrating corporate sustainability performance into their advice to asset managers and asset owners on director (re)election, directors’ remuneration, and the quality of corporate integrated reports, or to explain why they have not done so;
• Establish Integrated Investment Legal Duties: for long-term sustainable development to be incorporated into the legal duties of market participants including, in particular, their fiduciary duty and duty of care of asset managers and investment consultants

Key: * = Following a round table discussion with a group of sustainable finance experts, the above two proposals with an asterisk were regarded to be the two key next steps for policy makers that are seeking to integrate sustainability into sustainable capital markets.

1.5              We believe the above systemic interventions will work in concert, reinforcing each other and ensuring continuity throughout the capital supply chain. These will be positive steps towards capital markets that finance development that meets the need of the present, without compromising the ability of future generations to meet their own needs.

2. Transparency can deliver

2.1   The ability to assess a company’s overall governance and performance in the context of sustainable development is of central importance to institutional investors and the ultimate beneficiaries for whom they act, as well as employees, governments and society as a whole.

2.2   Information is the life blood of capital markets. If the information that the market participants have to rely upon is short term and thin, then these are the characteristics that will define our market. Unfortunately, the current reporting model, framed by International Financial Reporting Standards, national standards and stock exchange rules, does not provide the necessary framework to enable nonfinancial factors to be taken into account systematically in reporting and decision-making.

2.3   In 2011 Aviva founded the Corporate Sustainability Reporting Coalition (CSRC) with the aim of transforming how open companies are about how they manage improving corporate reporting on material environmental and social issues and so improve the ability of investors to accurately value companies. We launched the Coalition at the private sector forum of the UN General Assembly, which was hosted by the UN Global Compact. It successfully secured the following in the United Nations Rio+20 Earth Summit outcome document “We encourage industry, interested governments as well as relevant stakeholders with the support of the UN system, as appropriate, to develop models for best practice and facilitate action for the integration of sustainability reporting …[]’ which, although we felt did not go far enough, represented significant progress.

2.4   Further, in the United Nations, A New Global Partnership: Eradicate Poverty And Transform Economies Through Sustainable Development, The Report of the High-Level Panel of Eminent Persons on the Post-2015 Development we were pleased to note:

• Governments can… prompt their large multinational corporations to report on the social, environmental, and economic impact of their activities.
• We suggest that a mandatory ‘comply or explain’ regime be phased in for all companies with a market capitalisation above $100 million equivalent.
• The Panel proposes that, in future – at latest by 2030 – all large businesses should be reporting on their environmental and social impact – or explain why if they are not doing so.

2.5   Fortunately, therefore, it would appear that the SDGs are likely to address one of the key reasons for market inefficiency from the sustainability perspective. However, our concern that corporate reporting in isolation is not enough. In order to ensure that the capital markets use and reinforce the information published within the integrated report, the targets need to address the entire system.

3. Integrated government

3.1   The Environmental Audit Committee expressed an interest in our views on co-ordination between government departments in agreeing the Goals. We are clear that these goals, the policies and action that support their implementation, and the finance required to realise these Goals can and should require significant co-ordinate across government departments.

3.2   We believe positive contributions have already been made to this agenda by BIS, DECC, DEFRA and the FCO. It is also critical that the Treasury is committed to these Goals. Crucially, we see the role of financial regulation and the integration of sustainable development factors in the mandates of the supervision agencies including FRC, PRA, Bank of England and the LSE. The founding mandates of these organisations focus on corporate governance standards and financial stability and further government support for integration of sustainability considerations into the regulatory tools would be welcomed.

3.3   Integration is also required at UN level. There are a number of different streams of work on sustainable finance that are occurring within UNCTAD, UNEP, the UN Global Compact, The Leading Group on Innovative Financing for Development and others. It would be far more effective if these were brought together into a single strand of activity. We strongly support the recommendation in this year’s World Investment Report, which proposes establishing a multi-agency technical assistance facility for investment in the SDGs. We would build on this to recommend a new global multi-stakeholder platform charged with embedding sustainable investment at the heart of the SDGs. The main focus of this work should then be to secure a mandate from member states that would allow a number of key recommendations (outlined above) to be implemented. This is crucial to ensuring that capital markets promote rather than undermine sustainable development goals.

15 October 2014