Despite a backlash in 2022, it’s worth remembering why integrating ESG is critical to the investment process, explains Shane O’Brien, Senior Investment Director & Head of Multi-asset & Macro Investment Specialists at Aviva Investors.
The past year has been tough for environmental, social and governance (ESG) investing. Some critics have cited Russia’s invasion of Ukraine, and the concerns over energy security it has triggered, as ‘evidence’ investors have mistakenly turned away from fossil fuels on ESG grounds. And with inflation hitting multi-decade highs in many countries, other commentators say this is not the time to be getting bogged down in ethical issues.
Yet while things can be improved, writing off a movement when it is still relatively young is misguided. The business and investment cases for acting responsibly are hard to dispute. Incorporating ESG into investment decision-making makes the world a better place and enables fund managers to mitigate risk and identify opportunities. This is why it is one of the three key pillars of our MAF Core range.
Our approach to ESG is threefold: 1) avoid the bad; 2) invest in the good; 3) engage and improve.
On the first, the MAF Core range applies the Aviva Investors baseline exclusions policy to areas such as controversial weapons, thermal coal, Arctic oil, oil sands and tobacco.
As for investing in the good, we take a multi-faceted approach. The building blocks in MAF Core integrate ESG into security selection. We believe the basis of any ESG-focused approach is in-depth quantitative and qualitative research. This provides a clear reference point for our investment teams.
Our multi-asset portfolio managers are responsible for taking ESG factors into account when making investment decisions. They are supported by a team of dedicated ESG professionals, who specialise in issues such as climate change, biodiversity, human rights and corporate governance.
The process doesn’t end after we make an investment. We hold the companies we own to account. At the heart of this approach is our conviction that impactful engagement with companies is a more powerful tool than exclusion – although we may decide to exit an investment if a firm fails to engage or improve.
This stance is confirmed by our strong voting and engagement track record. In 2021, we voted on over 70,000 resolutions at 6,648 shareholder meetings, voting against management 27 per cent of the time; when it came to pay proposals, we voted against management 47 per cent of the time.
Overall, we engaged 2,959 times with companies, helping drive positive change on issues such as the inclusion of female executives on boards and establishing robust climate change targets.
But there are still problems investors can’t tackle in isolation. That’s why we seek to influence policymakers and regulators to create more sustainable financial markets – what we call macro-stewardship.
We manage around £98 billion in multi-asset portfolios, which gives us considerable influence to try and change things for the better. Our MAF Core clients can be part of this journey, while benefiting from a solution offering diversification and value for money.
Key Risks
Investment risk – The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency exchange rates. Investors may not get back the original amount invested.
Emerging markets risk – Funds may invest in emerging markets; these markets may be volatile and carry higher risk than developed markets.
Derivatives risk – The funds may use derivatives; these can be complex and highly volatile. Derivatives may not perform as expected, which means the funds may suffer significant losses.
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Important
Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (“Aviva Investors”). Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested.
The Aviva Investors Multi‐asset Funds comprise two ranges, each with five funds (together the “Funds”):Aviva Investors Multi-asset Plus Fund range comprises the Aviva Investors Multi‐asset Plus Fund I (“MAF Plus I”), the Aviva Investors Multi‐asset Fund Plus II (“MAF Plus II”), the Aviva Investors Multi‐asset Plus Fund III (“MAF Plus III”), the Aviva Investors Multi‐asset Plus Fund IV (“MAF Plus IV”) and the Aviva Investors Multi‐asset Plus Fund V (“MAF Plus V”) Aviva Investors Multi-asset Core Fund range comprises the Aviva Investors Multi‐asset Core Fund I (“MAF Core I”), the Aviva Investors Multi‐asset Fund Core II (“MAF Core II”), the Aviva Investors Multi‐asset Core Fund III (“MAF Core III”), the Aviva Investors Multi‐asset Core Fund IV (“MAF Core IV”) and the Aviva Investors Multi‐asset Core Fund V (“MAF Core V”).
The Funds are sub-funds of the Aviva Investors Portfolio Funds ICVC. For further information please read the latest Key Investor Information Document and Supplementary Information Document. The Prospectus and the annual and interim reports are also available on request. Copies in English can be obtained free of charge from Aviva Investors UK Fund Services Limited, St Helen’s, 1 Undershaft, London EC3P 3DQ. You can also download copies from our website. Issued by Aviva Investors UK Fund Services Limited. Registered in England No 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119310. Registered address: St.Helen’s, 1 Undershaft, London EC3P 3DQ. An Aviva company. 350553 – 30/09/22
