Aviva Life & Pensions UK Limited (AVLAP) is responsible for the oversight of a significant amount of capital that is invested in a large number of companies. As an asset owner managing assets on behalf of our customers, we take our responsibility seriously.
We classify responsible investment according to the Principles for Responsible Investment (PRI) definition as “an approach to investing that incorporates environmental, social and governance (ESG) factors into investment decisions, to better manage risk and generate sustainable, long-term returns”.
We believe this is achieved through integrating ESG factors into our buy/sell decision on an investment and by active ownership and engagement, which we view as the minimum level for responsible investing. We believe this is essential in fulfilling our role as responsible asset owners.
What is ESG?
ESG means "environmental, social and governance" and represents extra-financial factors that can be used to help us better understand the material risks and opportunities of the assets we invest in. ESG research can provide valuable information and insight by analysing potentially unacknowledged yet material risks, that may impact the performance and reputation of our investments.
- Environmental factors can include a company's energy usage, waste, pollution, natural resource conservation and animal treatment.
- Social factors would often include the company's relationships with and auditing of its suppliers, how it looks after its staff in terms of health & safety and training and issues surrounding diversity and inclusion.
- Governance factors involve how a company is run, such as how transparent and accurate a company is being regarding its accounting, how it deals with conflicts of interest, the suitability and competency of its board members and any issues with bribery and corruption.
The factors can vary depending on the sector, geography and company in question. A technology company, a mining company and a bank, for example, will face different key ESG risks and opportunities.
We have long been an advocate of responsible investing – it has been part of our investment activities for many years. The vast majority of our assets are managed on our behalf by Aviva Investors, who are a UK pioneer of responsible investing, dating back over 26 years, when they published their corporate governance voting policy. More information about their investment strategies and policies can be found on their website.
The timeline below outlines key moments in Aviva’s extensive history of supporting responsible investing:
1990 - 1999
- Aviva Investors among first asset managers to publish Corporate Governance Voting Policy
- At UN Summit Aviva pledges to ‘balance economic development, the welfare of people and a sound environment, by incorporating these considerations into business activities’
- Aviva starts reporting on environmental impacts of business
- Aviva Investors founding CPD signatory (previously Carbon Disclosure Project) and first asset manager to formally integrate corporate responsibility to voting public
- Aviva makes its operations carbon neutral
- Aviva Investors is founding signatory of the Principles for Responsible Investment
- Aviva is founding signatory to ClimateWise and Accounting for Sustainability Principles
2010 - 2019
- Aviva Investors in vanguard of signing the UK Stewardship Code
- Aviva Investors founded Corporate Sustainability Reporting Coalition with call to action at Rio+20 Conference
- Aviva is founding signatory of Principle of Sustainable Insurance
- Launched Aviva Roadmap for Sustainable Capital Markets & Sustainable Capital Markets Manifesto
- Mark Wilson speaks at UN General Assembly on Sustainable Finance
- Aviva published Strategic Response to Climate Change & actively participated in COP21
- Aviva Investors joined Investor Board
- Aviva Investors asked to join the Finance Stability Board Taskforce on climate-related financial disclosures
- Aviva Investors asked to join European Commissions’ High Level Expert Group on Sustainable Finance
- Aviva discloses against TCFD recommendations
- Aviva brings Stewardship fund range ‘in-house’
- Aviva expands availability of Stewardship funds
Stewardship fund range
The Stewardship funds have a proud heritage as the UK's first range of ethical funds. These funds are managed by our dedicated asset management company, Aviva Investors. Stewardship aims to provide investment portfolios that are socially, ethically and environmentally sound, investing in companies with high standards of corporate governance. More details can be found here.
Our investment approach
We recognise that the products we offer our customers are used to meet long-term financial requirements such as saving for the future or to fund retirement. As such, one of AVLAP’s Investment team’s core investment beliefs is that we are primarily long-term investors. We endeavour to offer products, set benchmark allocations and manage our balance sheet assets in a way that works throughout the full market cycle, and we evaluate our investments accordingly.
- Investment strategy - Our long-term focus has the benefit of reducing transaction costs and avoiding the pitfalls of predicting short-term market movements, instead focusing on company fundamentals. It also supports managers in having a sense of ownership; promoting active engagement with company management to drive positive change. In most of our multi-asset strategies we combine equities with other asset classes to achieve diversification. This investment into companies represents a long-term holding and we are therefore looking for long-term benefits.
- Prudent person - By following the ‘prudent person’ principle and by adopting a long-term only investment approach, we can focus on the long-term risk/return characteristics of the investments under consideration.
- Liquidity - We seek to ensure that the liquidity of our investment portfolios meets the needs of our customers, whilst also maximising returns.
- Monitoring – Our monitoring processes, whilst frequent, are aligned to our long-term investment horizon. Our assessment of asset managers' expected future long-term performance is based on understanding the causes of their short-term performance; their investment process and the quality of their personnel. Although we do not set specific turnover targets, we monitor the turnover of our portfolios on a regular basis through reporting and asset manager meetings.
The duration of arrangements with our asset managers is strategic in nature and is intended to be long-term to align with our investment strategy (provided the arrangement continues to be in customers' best interests).
As part of our asset manager selection and oversight framework, we expect our asset managers to align with our own long-term investment beliefs. They must demonstrate that their own investment philosophies, processes and investment decisions assess medium-to-long-term financial and non-financial performance of the companies whose shares they ultimately invest in.
We monitor and assess these processes through our investment forums and deep-dive fund manager review meetings, which are carried out on each strategy at least annually for all Unit Linked and With Profits funds.
The reviews are designed to assess the appropriateness of the strategy for the customer and identify potential issues with people, process, product or performance at an early stage.
If our monitoring identifies significant concerns with our expectations of future long-term performance, we will look to make changes such as changing the underlying manager, close funds or reduce our allocation to managers.
Where appropriate, we incentivise long-term performance of asset managers through performance fees, which are deferred. This means an element of the fee we pay asset managers is aligned to the long-term performance of our customers’ funds.
Voting and engagement
The long-term nature of our investment supports our preference for active engagement with companies to influence improved ESG performance. We believe engagement is more effective than divesting in seeking to initiate corporate change.
As investors we feel a responsibility to monitor and engage with companies on issues such as: strategy; financial and non-financial performance; risk; capital structure; social and environmental impact; and corporate governance. All our voting and engagement activity, which applies equally to actively and passively managed holdings, is delegated to asset managers under the provisions of the respective investment management agreements or equivalent fund documentation.
As detailed in our voting and engagement policy, we also expect our asset managers to engage with the companies they invest in on our behalf, to improve their performance over the medium-to-long-term.
Voting records for investment managers who manage assets on a segregated basis on behalf AVLAP can be found via the links below. A segregated mandate is a written agreement that AVLAP has with an asset manager regarding how we want our customers' investments to be managed by them.
Details of the voting records for investment managers of funds we make available on our platforms can be found on their respective websites.