Increasingly, embracing ESG and CSR opens up valuable pathways for sustainable, transparent businesses and removes the charlatans from the equation. When it comes to transparency and green business, the world is anything but simple. Sadly, there are a whole host of businesses whose approach down the years has been anything but green and have been labelled as sustainability fraudsters.
Sustainability, like any other business measure, costs money. It may save both money and indeed a firm’s entire activities in the long term, but in the shorter term the unfortunate consequence of the effort, and the cash involved is that some companies adopt a tick box approach.
Others, more dangerously, have tried to actively greenwash their activities; to present the scope of their operations as sustainable through nefarious reporting and recording methods, while in the meantime failing to truly adopt their models to today’s greener world.
This is vexing in the extreme for those corporates who are actually doing the right thing. Thankfully, there is a way to eliminate the sustainability fraudsters. Increasingly the solution is coming from financiers and investment houses, whose concerns over stranded assets or poor investments on a sustainability metric is beginning to tighten the noose on corporates seeking to do less than they should.
Investment Transparency and Eliminating Fraud
Aviva manages billions in corporate assets, and every January as a key part of its engagement efforts, sends a letter to the chairs of companies it invests in to set out stewardship priorities for the year.
The exciting part of the 2022 approach is that Mark Versey, Aviva CEO has directly said he will now be willing to divest Aviva’s money out of companies that don’t hit the environmental social and governance (ESG) and corporate social responsibility (CSR) demands he sets.
Crucially too, Aviva isn’t sitting on its laurels when it comes to these ESG and CSR goals. They are truly ahead of the game in every aspect. Essentially Aviva is going to push unsustainable businesses out of the investment picture with a twofold approach.
The first key is it truly understands ESG and CSR. Its letter this year, as we will examine, is future-proofed and packed with the most recent sustainability science. Secondly, it’s made no bones at all about pulling money, fast, from those companies who can’t or won’t step up to the mark.
Aviva’s ESG and CSR demands in detail
These are the 2022 demands Aviva is placing on any companies wanting to keep hold of their Aviva investments. As we shall see, it’s a pivotal list.
Aviva has set four key stewardship priorities that will shape its voting and engagement activities in 2022:
climate change, biodiversity, human rights, executive pay.
On climate change, it expects all companies to work towards achieving science-based targets (SBTi) validation of their climate targets and plans. SBTi is presently the world’s recommended approach on how to use science to prove and lead on greener environmental corporate practice.
Beyond that, Aviva will focus on two key areas in the coming year that will be instrumental in helping investors understand and support business as it embarks on the Net Zero climate journey: transition plans and climate accounting.
Aviva demands all businesses develop climate transition plans, and companies in higher-impact sectors should present these for shareholder approval. In developing transition plans, it recommends companies comply with the six guiding principles outlined by the CDP Framework on reporting.
On Net Zero, 2050 or earlier Net Zero objectives must be augmented with interim targets aligned with the need to at least halve absolute global greenhouse emissions by 2030. These objectives should be fully integrated in the broader corporate strategy, demonstrating how the business will fund the necessary investments in the transition while remaining commercially viable during the interim period.
Aviva also concludes that robust integration of climate risks and opportunities into fundamental valuations requires high-quality and consistent financial reporting. It welcomes the publication of the IFRS Climate-Related Disclosure Prototypeand encourages companies to voluntarily report against this standard as soon as practical.
All climate reporting and related risk assurance are to be included within the annual audit plan of the external auditors. That’s it for climate. But there’s lots more.
On biodiversity, Aviva is making all companies develop biodiversity action plans, taking into account emerging best-practice guidance frameworks, such as the Science Based Target Network (SBTN) for Nature and the Task Force on Nature-related Financial Disclosures (TNFD) as well as the conclusions of the CBD COP process.
Corporates should take time to investigate these individually, but all represent top end solutions and theory. Companies must also assess business dependencies and impact upon nature, identifying key issue areas and locations in the value chain for target setting.
Comprehensive targets must be aligned with the SBTN framework once guidance is finalised (this should include the full value chain within scope) and public reporting of performance against targets is mandated.