Aviva says that all companies must publicly state their commitment to human rights and implement human rights due diligence – identifying and assessing the actual and potential human rights risks and impacts of their business activities. The scope of due diligence activities should extend through the value chain.
They must mitigate actual and potential risks and impacts. This must include appropriate independent grievance mechanisms for affected stakeholders. Further, they must track and review performance of mitigation and remediation efforts, integrating lessons learnt to continuously improve internal due diligence processes.
As is common across Aviva’s new approach, public reporting of salient human rights issues, actions and targets, including evidence of engagement with affected stakeholders and remediation action must be taken.
Aviva is even taking an axe to this long ring-fenced part of corporate accounting, executive pay. It argues that achieving environmental and social goals requires all empowered stakeholders to be fully aligned and committed to their delivery. Executive compensation structures and performance targets should reflect sustainability goals.
It is therefore essential that executive compensation structures and performance targets meaningfully reflect sustainability goals, particularly where management are required to take actions that are a significant departure from the business-as-usual environment.
Remuneration committees to ensure variable compensation plans include robust, stretching and externally validated sustainability targets that are clearly linked to the commercial strategy. Existing bonus and long-term targets that are fundamentally at odds with sustainability commitments should be retired.
Plus, total expected pay outcomes should not be inflated due to the inclusion of additional sustainability performance metrics.
Aviva shake up
All in all, it’s a comprehensive approach across all ESG and CSR, which will, assuming Aviva follows through on its promises to divest, radically alter the corporate landscape and remove any firms unwilling or unable to employ best practice.
Crucially, sustainability fraudsters are going to be shown the door. Aviva does understand though that change requires patience. It acknowledges the magnitude of many of these challenges and will evaluate companies on the strength of their commitments and their ability to demonstrate progress over time.
However, and here’s the kicker; ‘We will hold boards and individual directors accountable where the pace of change does not reflect the urgency required.’ Basically, that means divestment.
The final word
For any corporates interested to learn more, Aviva’s 2022 Global Voting Policy provides more details on its approach and perspectives on governance best practice and is available at www.avivainvestors.com. Let us not be fooled however, greenwash within ESG remains a major challenge no matter the impacts of Aviva. Bloomberg writes that investing in ESG funds remains like trying to navigate “the Wild West” as both regulations and enforcement fall short, according to Andrew Behar, the chief executive of As You Sow.
The shareholder advocacy group spearheaded a study that found 60 of 94 ESG funds failed to adhere closely to the principles of environmental, social and governance investing. The findings, which have been shared with the U.S. Securities and Exchange Commission, indicate that “one can’t tell the difference between a prospectus for true ESG offerings vs. greenwashing mutual funds and ETFs.” Against this backdrop, Aviva’s work becomes even more valuable. Yes, greenwashing and fraud remain. But investors using divestment criteria truly have the ability to stamp them out.
For their efforts here, financiers should be applauded. Once the naysayers are pushed back through divestment, true greener business can shine and truly sustainable products, services and operations will hasten, to the benefit of both societies and corporates making a handy sustainable buck. That’s a positive future. If the world’s big investment houses make it happen, we should all be grateful.
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