Corporate TreasuryTreasury Risk ManagementQ&A with Mark Versey, CEO at Aviva Investors

Q&A with Mark Versey, CEO at Aviva Investors

The Global Treasurer spoke with Mark Versey about the importance of ESG issues and how treasurers can become catalysts for change

Mark Versey was appointed CEO of Aviva Investors in January 2021 and is a member of Aviva’s Group Executive Committee.

In this interview, Versey discusses the importance of ESG issues and how treasurers play a crucial role in addressing the climate challenge through long-term targets and strategies.

 

Why should investors care about climate change?

Climate change is the biggest challenge our society will face over the coming decades and many recent natural disasters can be attributed to it.

We all have a role to play in keeping global warming within 1.5 degrees of pre-industrial levels [a key goal of the landmark Paris Agreement on climate change] and financial markets need to recognise their part in the process.

 

Digging down into that, what kind of role does a company like Aviva Investors play in mitigating climate change?

We need to recognise not only how climate change affects our investments, but also how our investments affect climate change. We need to ensure that we are allocating our capital to companies that are on the right side of change.

We’re global investors, we invest in all kinds of sectors and markets, and we need to identify which companies have set out climate strategies that they can demonstrate with clear roadmaps.

Our goal is to invest in companies with ‘net zero’ ambitions – that is, companies that seek to reduce emissions from their activities as much as they possibly can and invest in technologies to remove any remaining emissions – and we want them to support those targets with clear short and medium-term goals.

 

How exactly do investors assess climate risk?

Aviva Investors has a team of 25 dedicated ESG professionals and they are all embedded within the company’s investment teams. They work alongside portfolio managers and investment analysts to look at all the different markets and sectors we invest in, and ensure that they identify the “winners and losers” from a climate change perspective.

Once they’ve provided those insights, they work to make sure they are embedded within portfolio decision-making. So, they conduct portfolio reviews and challenge one another to identify the biggest risks and opportunities.

 

How do you work with the companies that you invest in?

As a house, we believe you can’t be passive in the face of climate change; it’s really important to be an active owner in the companies that you invest in. That means engaging with companies to ensure that they deliver the sustainable outcomes we expect.

We believe that engagement is a really powerful tool to achieve this. Other investors might walk away from companies that don’t meet their benchmark, but we feel it is more effective to remain invested, engage with companies and deliver the transition that we expect.

Across our ESG and investment teams at Aviva Investors, we’re engaging with over 3,000 companies each year.  When we have company engagements, we ask them very specific climate questions, which  could focus on risk like setting emission reduction strategies and targets, as well as seeking climate related value opportunities.

However, we realise that engagement can only go so far. Where engagement fails, we need to act. So, we have developed a climate escalation programme which targets 30 specific companies. In our opinion, these are systemically significant carbon emitters. We’ll engage with these companies and if they don’t meet our requirements, we’ll consider walking away.

 

How can treasurers influence the process?

If companies are going to address the climate challenge through long-term targets and strategies, it needs to be firmly embedded within every function. That includes treasury teams. And treasurers can really get involved by rethinking cash management strategies and funding strategies with climate change in mind.

Once a company has set out their climate strategies, treasurers can work with suppliers or customers to articulate their own ambitions and work together to achieve reductions throughout the supply chain. This is crucial for companies to understand their total emissions.

It’s also important to look at physical climate risks. Going back to the example of supply chain finance, we’ve seen some major weather-related events which have disrupted the global economy in recent years. There’s been droughts in Europe, river levels have declined and there’s been extreme freezing in the US. That has not only impacted those sectors that were directly located in those regions, but also customers within their supply chains. Not only does it impact companies, but it creates investment risks for us too.

Treasurers have a real role to play in understanding these physical risks within the supply chain and how that impacts their cash management strategy. They need to identify those risks and improve resilience within their supply chains. Demonstrating this resilience can support better cost of funding too.

 

What trends are you seeing around climate and sustainability in the credit markets?

One of the main ones is the growth of sustainable debt – the rise of green bonds, where proceeds can be spent on green projects, or sustainability-linked bonds where the coupon rate is linked to sustainable strategy targets.

This creates a new role for treasurers: to understand the funding needs for their organisation. As they determine their funding strategies and work with their advisors, it’s important that they issue green instruments that can have a really meaningful impact.

As investors, one of the things we’ve noticed recently is the growth of greenwashing [where a company deliberately overplays or falsifies its ethical credentials] and that’s something treasurers can tackle by challenging the whole organisation to set ambitious climate strategies and ensure these are reflected in financing and funding strategies too.

 

How can treasurers identify good ESG investors to support them in their cash management strategy?

It’s all about partnering with investors with leading ambitions. Those who recognise the long-term risks and what they need to do to reduce them.

Treasurers should look for investment managers with a commitment at the firm strategy level, who can demonstrate a robust active ownership process and show how they actively engage with the companies they invest in. An investor’s annual ESG reporting will hopefully highlight where there are meaningful case studies and what the ownership process is.

It’s important that investors look beyond mere numbers and ESG ratings. Treasurers should look for investors with dedicated ESG analysts that are firmly embedded within the investment process to conduct research and identify climate risks and opportunities. It is crucial there is challenge and debate within investment teams and that portfolio ESG performance is reviewed on a regular basis.


Find out more about Aviva Investors here

 

 

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