Large asset owners, investment consultants and fund managers will all have to show how they have integrated sustainability considerations under a sweeping set of proposals put forward by insurance and asset management giant Aviva.
Under a roadmap published by the UK-based firm, all asset owners with more than $1bn in assets would have to publish a report to their beneficiaries and wider society about how they integrate sustainability into their mandates – or explain why not.
And large investment consultants, the gatekeepers for large parts of the market, would have to report to their clients, and society, on how well they think fund managers integrate sustainability.
The fund managers themselves, or at least those with over $10bn in AUM, would be required to publish to their asset owner clients by 2030 showing how they have integrated sustainable development into their voting at company annual general meetings (AGMs). Investment banks too would be required to consider sustainability as part of their recommendations to clients and advice to companies.
The proposals are “ambitious and systemic” says Aviva’s CEO Mark Wilson in the foreword to the 60-page report: “In my view, there are a number of important global capital market failures leading to unsustainable economic activity that are in need of correction by governments.”
His colleague, Euan Munro, CEO at the group’s Aviva Investors £246bn (€310bn) fund management arm, adds: “I believe our industry has a fiduciary duty to do what we can to protect and enhance the value of client assets.I think this includes putting pressure on policy makers to address the key sustainability challenges within our capital markets and the broader economy.”
The paper takes aim at the “relentlessness” of the capital markets to allocate capital to short term, unsustainable uses. It is intended for people involved in policy making in governmental, intergovernmental, think tanks and non-governmental organisations; the immediate focus is to feed in to the SDGs, which will replace the Millennium Development Goals after 2015.
“Put simply,” Aviva says, “policy makers need to improve the profitability of sustainable businesses relative to unsustainable ones.”
And the report also calls for what it identifies as the market’s mechanisms of (i) raising capital; (ii) cost of capital and (iii) ownership to be explicitly integrated into the discussions within the UN Framework Convention on Climate Change (UNFCCC) and the forthcoming replacement for the Kyoto Protocol in 2015.
Earlier this month the UN said it is closer to thrashing out a consensus on the 17 SDGs following a marathon 30-hour session. As part of the SDG development process, the UN Global Compact has released its own white paper on role of business and finance in supporting the post-2015 agenda.
It argues: “Private investment will be most effective when redirected away from areas with negative externalities and towards sustainability issues.” It notes how private sustainability finance is shifting towards a longer-term time horizon and a deeper adoption of sustainability considerations in investment decision-making throughout the investment chain. Earlier this month too, in the context of formulating the new SDGs, the Principles for Responsible Investment (PRI) met with UN Secretary-General Ban ki-moon.