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Henderson was a canary in the coalmine, Aviva is an explosion in the SRI business…
If asset managers are cutting SRI funds teams, will they really back ESG integration if the price signals aren’t strong?
The pending redundancies from Aviva Investor’s Sustainable and Responsible Investments (SRI) team are a serious blow; more even than the Henderson team cut in November last year, which already caused concern. Together they represent a worrying trend to cut back on specialist SRI funds teams amid concerns that SRI is not bringing in assets and making money. As we reported yesterday Link , Aviva has confirmed that 11 of its 16-person SRI team are being laid off from full-time posts under its plans for a Global Responsible Investment Team, which it said would “refocus” its ESG activities on integration, its commitments to the UN Principles for Responsible Investment and the UK Stewardship Code.
The worry is not just for those who lose jobs at Aviva, but what it means for SRI more broadly; decisions taken at fund managers are studied and mirrored by business heads at rivals, especially where commercial rationale is tested. That doesn’t augur well for the teams at other UK asset managers – and maybe even overseas – with dedicated SRI funds businesses. Furthermore, as an asset management house, Aviva, more than Henderson, was seen as a leader in the RI space, and from the top-down. Its UK Chief Executive, Paul Abberley sits on the advisory council of the United Nations Principles for Responsible Investment (UNPRI). That makes the latest announcement an uncomfortable one for Aviva and the PRI; shouldn’t signatories – especially vocal ones – be investing in their RI capabilities rather than cutting them?
In a letter to clients, Abberley said he will work to ensure ESG is integrated across all of Aviva’s portfolios by analysts and fund managers. He added: “I will expect them to be able to demonstrate engagement with these issues and will be rewarding them accordingly.”
It will be interesting to see what that internal reward for backing integration entails.
Aviva’s screened funds, existing ESG integration and high-level support for RI mean it has significant influence on industry promotion, political influence (one area Aviva has said it is cutting is responses to regulatory green papers) and the business chain for sell-side research providers and ESG research houses, although the latter may profit in the short term as research and in-house projects are outsourced. One question is whether ESG integration over time is likely to command more and better external research than actual SRI portfolio management? I fear not. One major broker told RI that they had been shocked by the news: “Aviva’s commitment to responsible investment has been a major market driver for ESG integration.” Another RI professional said: “The industry had better watch where the pieces fall and then work out what can be salvaged.”
Aviva said the rationale behind the decision was to trim an un-commercial, resource-intensive business. Its chief executive, Alain Dromer – who has himself backed ESG initiatives calling on listed companies to adhere to common governance and corporate responsibility standards – told Financial News: “This is a big question for the asset management industry. We at Aviva have had a seriously important team in this field, and it is fair to say that investors want us to maintain principles of sustainability in our investments – but we don’t see the business coming in. He added: “These are themes that do not particularly generate any revenues. Funds under management in our SRI funds have been stagnant.” Put simply: asset owner clients are not putting enough assets or price signals into RI and Aviva as a business ‘agent’ is not going to underwrite the cost of leading from the front. That reality check hurts, but needs context. Funds houses are being hit by outflows from equity strategies and the reorganization at Aviva looks like costing a total
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