Aviva Investors will expand its Climate Engagement Escalation Programme (CEEP) to include nature and Just Transition expectations, the UK manager revealed this week.
The £357 billion ($556.5 billion; €409 billion) investor detailed the plans in its latest Annual Responsible Investment Review, which covered its voting and engagement activity for 2022, and updates for this year.
Established in January 2021, the CEEP is a three-year initiative that applies across Aviva’s equity and credit portfolios. It focuses on 30 of the “most systemically important carbon emitters” from the oil and gas, mining, steel and utilities sectors. Corporations include Rio Tinto, TotalEnergies, Valero and Reliance Industries.
CEEP’s key expectations for firms include 2050 net-zero Scope 3 targets for entire business operations validated by the Science Based Targets initiative (SBTi), “transparency over and Paris-alignment for all lobbying activities”, and effective board oversight and meaningful climate targets in variable pay plans for senior leadership and wider business.
In the report, Aviva said it is “not yet convinced of any company’s full Paris alignment”, but is pleased with the quality of conversations and progress across a challenging set of asks.
For 2023, the manager has committed to deepening activity to engage with laggards and to increasing the stringency of escalation action against those falling particularly short of its expectations.
According to an Aviva spokesperson, no divestments have been made as yet, but will be at the end of the initiative if firms have not met the manager’s expectations.
Aviva also said CEEP will raise the bar in new areas, including expecting companies to evidence the employment of best practice Just Transition principles “to understand and alleviate the social impact of company decarbonisation strategies”.
Companies will also be expected to set more comprehensive targets aligned with the Science Based Targets Network (SBTN) framework once its guidance is finalised.
Earlier this month, SBTN announced that the first release of science-based targets for nature will be made public on 24 May. This release will include integrated technical guidance for companies to assess and prioritise their material impacts on the environment and set targets accordingly.
From this year, Aviva will also expect CEEP target companies to show a meaningful consideration of material climate risks in accounts and associated audits.
In tandem, the investor is expanding the scope of the programme to encompass hard-to-abate industries, including heavy-duty transport, chemicals, cement and steel.
Telecoms firm ditched over human rights and corruption
Also in this week’s report, Aviva revealed that it last year divested a telecommunications equipment firm due to concerns about the latter’s ability to manage human rights and corruption-related risks.
The unnamed firm was engaged as part of Aviva’s three-engagement programme, which targets all companies invested in the Social Transition Global Equities Fund (STF).
The STF holds companies “demonstrating leadership in their management of social risks and opportunities” or providing specific products or services such as access to healthcare, finance or education for underserved groups or communities.
According to the report, despite the firm having strong human rights due diligence practices for its supply chain, it recently settled a case with the US Department of Justice concerning systematic corruption activities over a multi-year period, which led to a material fine.
As part of the settlement, the company entered in a Deferred Prosecution Agreement (DPA). However, according to Aviva, investigations by the media in 2022 suggested this had been breached several times, including when the firm failed to disclose potential payments to a terrorist organisation.
In response, throughout 2022, Aviva engaged the company concerning human rights risks and specifically on the media controversy.
Despite “some initial favourable views” in a meeting, “significant red flags” were raised about the firm’s ability to manage human rights and corruption risks. Aviva subsequently exited all active equity positions.
Aviva declined to name the firm in question.
Action on deforestation
Also on the divestment list last year was a Brazilian beef exporter that had failed to meet Aviva’s expectations on deforestation after two years of engagement.
Specifically, the investor had requested that the company bring forward and expand deforestation targets to include legal deforestation, and issue a public call to the local government to facilitate a full traceability programme and a radio frequency identification tagging programme.
Aviva would not name the firm that was divested.
On deforestation, 2023 will see Aviva publish a more comprehensive engagement plan. This will be based on the results of a deforestation risk assessment of its holdings conducted by the manager last year.