In the dynamic world of investment, the concept of ‘greening’ portfolios is gaining significant traction. Aviva Investors recently shed light on its approach to this critical issue, offering invaluable insights for investors keen on aligning their portfolios with sustainable practices.
Greening a portfolio often begins with adopting a policy approach, which typically includes screening policies and baseline exclusions. This process integrates environmental, social, and governance (ESG) considerations into investment decision-making. However, the real challenge lies in applying these principles to the mainstream segments of a portfolio.
For large investors, sustainable thematic investments like natural capital or impact investing constitute only a fraction of their portfolio. The pivotal task is transforming the mainstream portfolio, transitioning from existing investments to more sustainable options. This is a complex and dynamic endeavour, involving considerations of risk, return, and sustainable outcomes, which vary from client to client.
Aviva Investors emphasises an active investment approach. Contrary to limiting its investment universe, it focuses on engaging and enabling transitions towards better outcomes. This philosophy is built on the understanding that there is no “one-size-fits-all” solution in sustainable investing.
The case study presented by Aviva Investors involves a large asset owner with long-dated pension funds, aiming to invest in emerging market bonds. The challenge was to align these investments with the client’s net-zero target while maintaining the desired credit and spread profiles.
Aviva Investors’ approach differentiates between corporate and sovereign investments. The corporate strategy is more quantitative, employing bespoke screening tools to assess net-zero alignment and portfolio construction. For sovereign investments, a qualitative approach is necessary due to less precise data and constantly changing geopolitical landscapes.
Aviva Investors’ stewardship approach is particularly effective at the sovereign level, where engagement can lead to significant impacts. This involves a comprehensive strategy encompassing various levels of stewardship and resource allocation, especially in areas with the highest potential for impact.
The key takeaway from Aviva Investors’ experience is the necessity of agility in green investment strategies. Its tools and frameworks are designed to adapt to market changes, balancing quantitative and qualitative assessments. The focus remains on the impact, particularly in terms of decarbonisation goals, ensuring scalability to cater to multi-billion pound portfolios.
Aviva Investors acknowledges the evolving nature of the market, constantly updating its tools and strategies with better data and newer techniques. Importantly, its approach remains client-centric, adapting to the unique risk-return-outcome preferences of each investor.
The journey of greening investment portfolios is intricate and multifaceted. Aviva Investors’ method demonstrates the importance of a dynamic, client-focused approach, blending active investment strategies with a deep understanding of the unique challenges in various market segments. Its experience serves as a valuable guide for investors and firms aiming to align their financial goals with environmental sustainability.
