Aviva Investors Canadian Core Plus Climate Transition

CLIMATE TRANSITION: INVESTING FOR CHANGE

RICK

Since the dawn of humanity societies have endured major transitions. But the current climate transition is our greatest test ever.

JANE

To avert an existential threat and keep heating within 1.5 degrees, greenhouse gas emissions must decline by 50% each decade to reach net zero by 2050.

RICK

The scale and pace of change needed to achieve this is unprecedented and will impact on every company around the globe.

NAYEEM:

Climate change represents the largest long-term systemic risk in client portfolios today. Even companies that appear to have a small carbon footprint are at risk.

JANE

Banks for example are exposed to climate risks in their loan books. This information currently doesn’t show in their reported carbon emissions data.

NAYEEM

Ruling out high carbon emitters in the portfolio or investing only in companies that provide climate solutions such as renewable energy or electric vehicles will not deliver this transition alone.

RICH

ALL companies have a role to play in the transition to a lower carbon world.

JANE

Investing in the climate transition requires a good understanding of climate risks between and within sectors.

JANE

For example, the utilities sector faces higher decarbonisation risk than healthcare. But within utilities, water companies face higher physical risks from water scarcity whilst electricity generators are exposed to greater carbon regulatory risk.

NAYEEM

Understanding how businesses are managing transition risks and developing climate resilience across their value chain can help identify “transition-ready” companies.

JANE

For example, we are already seeing extreme weather impacting companies, from droughts in Europe disrupting power supply to floods preventing key components getting to market. Assessing and managing these risks will give a competitive advantage to companies.

RICK

Investment approaches that rely solely on carbon emissions data to identify low-emitting companies tend to focus only on operational emissions: Scope 1 and 2. As such, they are missing a big contributor to the global greenhouse emissions in their data.

Scope 3, or indirect emissions across a company’s value chain, cannot be ignored.

JANE

In contrast, by setting Science-Based Targets or SBTs – companies aligning emissions with a 1.5 degree future will also put pressure on emission reduction throughout their value chain to deliver this ambition.

NAYEEM

SBTs specify by how much and how quickly they need to reduce their greenhouse gas emissions, which is a more effective way of magnifying positive change beyond the investee company.

JANE

Companies that set SBTs may see increased innovation, reduced regulatory uncertainty, improved investor confidence and better profitability and competitiveness.

NAYEEM:

Crucially, a focus on both transition-ready and climate solutions’ companies broadens the opportunity set and diversifies portfolio risks.

JANE

This can help investors meet their needs for long-term sustainable returns whilst accelerating the transition to a lower carbon world.

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