Waygood: The market fails to reward companies that take sustainable actions

Dr Steve Waygood delivers his presentation at the Economist Sustainability Summit. Photo credit: The Economist Events.

By Anders Lorenzen

Is my pension fund sustainably invested? Am I protected from the future risks that climate change bring? Are the financial implications of market volatility in fossil fuels reflected in my investments?

These are questions which more and more people are asking their investment and/or pension fund managers. But according to Dr Steve Waygood, Chief Responsible Investment Officer at Aviva, the insurance company and pension fund, not enough people are asking those crucial questions. Dr Waygood was addressing the audience at The Economist’s Sustainability Summit, held in London last month. In his address Dr Waygood also bemoaned a lack of sustainability investments caused by the current market structure, a structure, he believes, which does not reward companies for taking sustainable actions.

The transition to more sustainable investments needs to be lead by the people
Later, after his talk, I asked Dr Waygood about sustainable investments and the lack of ethical choices. He said we have to go beyond this, and we shouldn’t just look at making certain funds sustainable, but that the overall investments portfolio should be sustainable. And the one way to achieve this, he said, is to encourage the public to demand that the pension funds invest in sustainable products. Only when there is demand can we achieve action. He also had a message for us at A greener life, a greener world, that our readers should be encouraged to do just that: ‘ask those fundamental questions: what are my funds being invested in, and are those projects that I agree with?’

Dr Waygood encouraged involvement in organisations such as Share Action, who petitions and pressurises pension funds to make more sustainable investments. He also said that the global divestments movement as well as the stranded assets work done by the NGO The Carbon Tracker, was a step in the right direction. It highlighted important issues and increased people’s interest and awareness around the risks of continued investment in fossil fuels. But again he urged more people to get involved, and he said that pension funds would only transition to a more sustainable model when there is demand. Or to put it simply, the transition away from fossil fuel investments to more sustainable investments has to be lead by the people.

But markets also have a huge responsibility to act on climate change , and he joined the growing group of investors and corporations who support a price on carbon.

In a blog post, Dr Waygood was optimistic about the ability of the markets to respond to climate change, referring to the commitments and goals which the Paris Agreement on climate change delivered, saying:China announced plans to set up an effective emissions trading scheme that will cover their top ten thousand companies. Without Paris, we wouldn’t have these commitments. The world has acted in a strong and coordinated manner to address climate change, mapping out the way forward. The accord doesn’t correct the market failure of climate change, and it’s clear that the deal now requires serious work on its implementation. But the Paris Agreement does represent a significant step forward and with the right implementation, it will be the game changer that we need.”

Aviva and climate change
The risks of climate change are immense, Dr Waygood said in his presentation, highlighting that the risk to manageable assets is huge. Assuming that no action on climate change is taken, we’re heading for a warming of 6 degrees C, and 30% of the world’s entire manageable stocks could be wiped out.

Climate change is a strategic move from Aviva, and at present they have £400 million investments in renewable energy. On top of that, Dr Waygood pointed out that they’re targeting a £500 million annual investment in low carbon infrastructure. It is also Aviva’s intention that their investments will create carbon savings of 100,000 tonnes of CO2 emissions annually.

However,  Aviva also has considerable assets in fossil fuels. But, where high carbon intensity fossil fuel companies are not making enough progress towards sustainable targets, Aviva would seriously consider divesting from those stocks.

UK lags far behind Scandinavian countries
When it comes to sustainable investments, UK’s pension funds have so far lagged behind more progressive countries like Denmark, Sweden and Norway. Here the pension funds have been quick to route their investments into sustainable energy assets while divesting from unsustainable ones. Dr Waygood acknowledged this, and he put that down to a far higher engagement on these issues in those countries, and more awareness about sustainability and finance. These two things put together lead to more demand from the public directed towards sustainable pension funds.

Could Aviva perhaps be about to lead the UK in the same direction?

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