Mark Versey

Asset managers and other financial institutions have a duty to act in the best interests of their customers and society. Macro stewardship will be crucial to meeting these responsibilities, argues Mark Versey, CEO at Aviva Investors.

• Why old notions of stakeholder capitalism are no longer fit for purpose.
• What we mean by macro stewardship how it can help address market failures.
• Why macro stewardship must align with corporate engagement and capital allocation.

Stakeholder capitalism has come under fire from multiple directions recently. Caught up with a rising backlash against ESG investing, some hard-line commentators argue it is vague and lacks teeth.

They claim grand business commitments are nothing more than disingenuous PR statements – undermining the whole movement. Others invoke the term ‘woke’ capitalism and argue ethical governance should be left to politicians. In the now infamous – but often narrowly quoted – words of Milton Friedman, they believe the role of business should be simply “to increase its profits”.

The critics are wrong: in my view, a more nuanced and inclusive form of capitalism will lead to much better outcomes for societies and economies than a model that pursues profit alone. However, stakeholder capitalism must become more substance than slogan if it is to help tackle the biggest issues we face, from the climate crisis to rising social inequality.

The primacy of shareholder primacy

The first “Davos Manifesto,” published by the World Economic Forum in 1973 (or European Management Forum as it was then), sought to codify stakeholder capitalism and declared “the purpose of professional management is to serve clients, shareholders, workers and employees, as well as societies, and to harmonise the different interests of the stakeholders”.^[1]

Part of the disparity in views and lacklustre take-up relates to the broad definition of stakeholder. Edward Freeman arguably characterised this best when he defined a stakeholder as “any group or individual who can affect or is affected by the achievement of the organisation’s objectives”.^[2] The net result is an accountability void: where no one feels agency or pressure to make changes, the resulting paralysis leaves the global commons to rot in the process.

In recognition of the failure of stakeholder capitalism to wrestle control from shareholder primacy, Klaus Schwab (WEF’s founder and chair) issued a new manifesto in late 2019.^[3] And while much progress is being made to try and plug the gaping hole emerging between the aspirations of those seeking to shift the economy to a fairer footing, we lack a common vision in finance of where we are heading.

From almost nowhere, we are buried in a tidal wave of consultations on sustainable finance taxonomy, labelling standards, definitions and regulatory concerns of greenwashing. This is critical work and shows all the classic hallmarks of a system at the outset of a transition.

Indeed, initiatives like the Taskforce on Climate-related Financial Disclosures and the Taskforce on Nature-related Financial Disclosures – both of which we strongly support – are important step changes in this process. Enhanced disclosures will create greater transparency around ESG-related issues that are increasingly recognised as ‘material’ to businesses’ bottom line.

But more needs to be done for a workable form of stakeholder capitalism to take hold. After all, 1.5°C of warming is not just a ‘least-worst’ option, it represents a “planetary boundary”.^[4] Once crossed, we risk not only setting off negative feedback loops that dramatically increase the pace of warming, however quickly we cut emissions, but also crossing “tipping points” and moving to a different “system state” from which there is no return.^[5]

We are already experiencing the effects of around 1.2°C of warming and are currently heading for in excess of 2°C of warming by 2100. The physical impacts by the end of the century could undermine the financial system as we know it, with finance crossing its own tipping points to trigger a chain reaction of negative feedback loops like toppling dominos.

The financial system stores up significant systemic risk and interdependencies between its three limbs of insurance, banking and investment. If one element were to fall, it could bring the whole system crashing down. This would not be a financial crisis; it would be a collapse. While we can and have recovered from financial crises, a collapse is irretrievable.^[6]

Tariq Fancy, former BlackRock chief investment officer for sustainable investing turned whistleblower, argues responsible investment efforts undermine the sustainability agenda as they distract governments from intervening in existential threats like climate change.

His frustrations are understandable, but he misses a key point: the latent power lying dormant in investor portfolios to create real and lasting change, as well as a requirement for asset managers and consultants to try to maintain the integrity of markets and protect clients’ capital in the process.

At the heart of the challenge is a complex and delicate dance between consumer and end investor demand on the one side, and governments and regulators on the other. Asset managers and investment intermediaries are wedged in the middle – the appointed agents and stewards in capitalism’s great game.

It is a crucial role. If done well, the investment industry can ensure greater accountability and transparency on the sustainability issues investors care about.

Unfortunately, the incentives for asset managers and other key financial institutions to actively push for positive systems change and sustainable market reforms – such as stewardship codes, regulations  correcting market failures, and transparency for end-customers – are weak at best. This needs to change. Something we call macro stewardship can help ensure it does.

Financing green, and greening finance

In an environment where people can easily express their views via the ballot box and wallets, it seems strange that, aside from impact investing (which accounts for a tiny proportion of overall investment assets), we have no clear way of capturing clients’ sustainability values in mainstream funds. As an industry, we need to do a far better job of incorporating this information with clients’ investment profiles and our own engagement activity to make sure it aligns with the issues they care about most.

If we get this right, it will take us much closer to ‘democratising finance’. Shifting the power from the firm to the customer could be a real force in the investment community.^[7]

MiFID II – though only applicable to the EU – is changing the rules on capturing sustainability preferences within financial advice, but the behavioural minefield of framing biases and potential return versus values trade-offs make accurate assessments and conclusions tricky. The training gaps for advisers (both real and robo) are huge.

Terminology makes life even harder, and ensuring we are all on the same page is no easy task.

Take the term ESG, which has become a catch-all for a hugely complex and nuanced area of investing. It is no wonder some people are calling for it to be retired. The issue, however, is not with the term, but with us. We can replace the term with another one – but fast forward five years or so and, just like its predecessor, the newly anointed term will also mean different things to different people. The devil is in the detail.

First and foremost, there are different types of sustainable investing. We need to be clear about the differences between integration, screening (including positively screened thematic funds, such as impact) and engagement – accepting they are not necessarily discrete endeavours.

Clearly labelled funds and marketing materials are prerequisites. The European Union’s Sustainable Finance Disclosure Regulation (SFDR), as well as its Green and Social Taxonomies, are welcome, as is the expectation the UK will follow suit with its Sustainability Disclosure Regulation (SDR) and fund-labelling regime.

However, the extent to which a product provider is advocating for a more sustainable system should also be one of the factors consumers consider when choosing someone to manage their money. And yet education and clear signals are required to support such value judgements.

Improvements can come not only from governments in enhancing transparency and financial literacy to promote more informed choices, but also through civil society campaigns like Make My Money Matter and NGOs like ShareAction. As the former campaign points out so clearly: “Having a green pension could be 21 times more effective at reducing your carbon footprint than stopping flying, going veggie and switching to a green energy supplier.”^[8] Technological aids like Tumelo will be essential to navigating the murky world of end-investor preferences.

Despite all this great work and momentum, I still worry the vast sums of ESG-related money will fall short of their intended goal.

We need to redeploy existing capital at scale, and the faster we stop financing the bad stuff, the easier it will be. We don’t need more sustainable finance as though it was a separate category of money; all of finance needs to become sustainable.^[9]

This is a subtle, but massive distinction – one many investment professionals, practitioners and market commentators have yet to grasp. To be clear, we need green finance and as much of it as possible to help with the transition to net zero and other key sustainability targets. The same goes for effective corporate stewardship; holding the polluters and societal abusers to account is needed now more than ever.

Yet on their own they will not come close to being enough. Thematic investing and corporate engagement represent micro nudges when we also need macro-level, systemic change. To put it another way, it is like taking a pea shooter to a gun fight. We need to be far more ambitious and innovate the system itself, including the supporting multilateral architecture that sits around it.

Re-defining engagement and stewardship

The market does not always have the answer and consumer preferences do not always react fast enough to market failures. We do not have time to wait for demand to right-size and see how things turn out. That is one point I agree with Mr. Fancy on.

As already alluded to, we need to improve and correctly interpret standards, investor norms and regulation.

Principle 4 of the Financial Reporting Council’s 2020 UK Stewardship Code, which Financial Conduct Authority (FCA) rules requires all asset managers to adhere to on a comply or explain basis,^[10] expects signatories to “identify and respond to market-wide and systemic risks to promote a well-functioning financial system”. Similarly, stewardship is defined in relation to its capacity to lead to “sustainable benefits for the economy, the environment and society”.^[11]

We also see the FCA increasingly referring to its statutory market integrity objective. For example, in its discussion paper on its forthcoming SDR and policy statement on enhanced climate-related disclosures, it states the desired outcome of these interventions is protecting and enhancing the integrity of the UK financial system. This is through improved assessment of sustainability and climate-related matters across the market, resulting in more informed pricing and capital allocation decisions.

According to the EU’s Sustainable Finance Action Plan (SFAP), financial market participants are required under SFDR to articulate how they take action to mitigate against principal adverse impacts (and if they do not, why not). Similarly, they must explain how they integrate sustainability risks into investment decisions. Under SFDR, while sustainability risks are deemed to be already or potentially financially material to investments, “principal adverse impacts” are characterised by their material impact on the environment and society.

Mitigating these kinds of impacts often requires systems-level thinking. And macro stewardship could help bring about the corrections needed for the market to price in externalities that are not yet internalised. These include the true cost of carbon, the threat of antimicrobial resistance, water or air pollution and the hidden costs of curtailing talent through diversity and inclusion failures – along with many others.

To truly act in the best long-term interests of our customers, we need to not only advocate for a sustainable system, but also ensure – to the extent we have tools at our disposal – the financial system is one that has integrity and is not undermined by market failures. Stewardship in the fiduciary sense is being redefined and re-written in response to these sustainability concerns.^[12]

The main tools we have are our voice, expertise and authority to support and influence policymakers. For while it is they who have the authority and mandate to address these failings, it is market participants who have the resources, access to information, and expertise to identify them and suggest appropriate corrections.

Examples of interventions we have made include helping to draft the precursor to the EU’s SFAP through its High-level Expert Group, as well as convening a group of industry experts and public policy officials from around the world to discuss how to best harness finance to meet the goals of the Paris Agreement. The main proposal is to create an International Platform on Climate Finance that can provide advice and capacity building for UN member states to raise climate finance; promote, advise on and analyse climate commitments from private financial services actors; and act as a market thermometer.

More recently, we launched a climate manifesto that outlines the leverage points and changes required across the entire international financial architecture. And to help embed macro stewardship throughout the asset management industry, we plan to launch a School for Systems Change in the near future.

To reiterate, stewardship cannot and should not be limited to engagement with individual companies. The biggest risks cannot be mitigated through action by any single entity.

Aligning and assessing macro stewardship

That the debate sparked by Friedman about shareholder primacy continues to rage to this day is partly because his comments have frequently been taken out of context. In a forgotten part of the article referenced at the start of this piece, he also said the responsibility of a corporate executive is to “make as much money as possible while conforming to their basic rules of the society; both those embodied in law and those embodied in ethical custom”.^[13]

Where I disagree with Friedman is over his definition of what it means to be a socially responsible company. He was wrong to define it as doing things other than the core business.

Meeting basic rules of society, whether on labour standards, environmental protection or good governance standards, are fundamentally important to all businesses. Stakeholder capitalism and ESG investing should be mutually inclusive and reinforcing; the former cannot work without a properly functioning latter. And for stakeholder capitalism to work – or stick – incorporating macro stewardship into everyday ESG activity is essential.

As well as systems thinking and a holistic mindset, it requires close alignment between micro and macro engagement. Engaging with companies, sovereigns, state-owned enterprises, policymakers and other influential changemakers in a considered and coordinated way will ensure maximum impact from minimal resource deployment. People, time and money are always constrained. Alignment for us comes in the form of three pillars – people, climate and Earth – that link closely to the UN Sustainable Development Goals.

Take climate change. At the same time as engaging ‘with teeth’ via our climate engagement escalation programme, where high-risk and/or high-impact companies are given a deadline by which progress needs to be made to avoid divestment, we also advocate for policy and systems change on multiple fronts.

As new standards of stewardship emerge, judging asset managers on their ESG promises at a fund level will not be sufficient. Scrutiny at a firm level – on genuine commitments and action to correct market failures to improve public welfare – will be critical. Consultants and fund selectors have a pre-existing model for incorporating firm-level assessments and these should be expanded and updated to include macro stewardship ratings. Other key investment gatekeepers will need to adjust their thinking accordingly. Macro stewardship could also form a useful shield against accusations of greenwashing.

I have seen many phases in responsible investing. This era, where targeted corporate engagement and macro stewardship initiatives combine with the reallocation of capital towards more sustainable investments, is by far the most exciting.

Never has so much interest and, more importantly, capital flowed towards the sector. But if we are to properly harness it to avert environmental and societal disasters, tinkering around the edges will not be enough. We need to start actively changing the system itself.

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References:
[1] Klaus Schwab, ‘Davos Manifesto 1973: A code of ethics for business leaders’, World Economic Forum, December 2, 2019
[2] Edward Freeman, ‘Strategic Management: A Stakeholder Approach’, Cambridge University Press, 1984
[3] Klaus Schwab, ‘Davos Manifesto 2020: The universal purpose of a company in the fourth industrial revolution’, World Economic Forum, December 2, 2019 Page 7
[4] Fiona Harvey, ‘Climate experts warn world leaders 1.5C is ‘real science’, not just talking point’, The Guardian, October 30, 2021
[5] Fiona Harvey, ‘Climate experts warn world leaders 1.5C is ‘real science’, not just talking point’, The Guardian, October 30, 2021
[6] James Vaccaro, ‘Blip, crisis or collapse: why financial regulators need to prepare for more than a climate crisis’, Green Central Banking, May 26, 2022
[7] Steve Denning, ‘The triumph of customer capitalism’, Forbes, January 10, 2020
[8] ‘Act now: Question your pension’, Make My Money Matter, as of August 2022
[9] Article 2.1.c of the Paris Agreement: “Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”
[10] ‘FCA Handbook : COBS 2.2.3 Disclosure of commitment to the Financial Reporting Council’s Stewardship Code’, Financial Conduct Authority, as of August 2022
[11] ‘The UK Stewardship Code 2020’, Financial Reporting Council, 2020
[12] ‘Markets’, Financial Conduct Authority, as of August 2022 13. Milton Friedman, ‘The social responsibility of business is to increase its profits’, The New York Times, September 13, 1970
[13] Milton Friedman, ‘The social responsibility of business is to increase its profits’, The New York Times, September 13, 1970

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Mark Versey

Aviva Investors, the global asset management arm of Aviva PLC, expects the companies it invests in to deliver tangible and transparent progress on a wider definition of sustainability in 2022.

In his Annual Letter to Chairs, Mark Versey, Chief Executive of the £262 billion asset manager, said the firm would judge companies this year against expectations on biodiversity and human rights as much as climate and executive pay. The Letter will be distributed to 1500 companies in around 30 countries.

“We want to encourage companies to consider the whole picture of sustainability because this is how they will create the greatest return for shareholders, while helping to build a better future for society. Companies must now turn their pledges into concrete and measurable plans of delivery. Our letter sets out clear expectations as to how they should do this, and what those plans must address across climate impact, biodiversity and human rights,” Versey said.

Versey added that addressing just one area would be a less effective approach because it might trigger negative impacts that would undermine another aspect of the transition to a sustainable economy.

He cited the example of companies developing climate action plans, which Aviva Investors believes must also manage dependencies and impacts on nature, as well as supporting a just social transition for workers, customers and communities. “Simply cutting emissions but allowing the destruction of the rainforest to continue will do little to reverse global warming. Companies need to adopt an integrated approach for maximum benefit,” he said.

Engagement “with teeth”

Aviva Investors will hold boards and individual directors accountable at companies where the pace of change on climate, biodiversity and human rights does not exhibit sufficient urgency, the letter revealed. The asset manager also wants executive compensation structures and performance targets to reflect sustainability goals.

Aviva Investors uses it stewardship programme to help shape change at investee companies and undertook 1277 substantive engagements in 2021. It voted at 6648 shareholder meetings – and voted against 26% of management proposals tabled. ShareAction ranked the firm seventh globally for its voting record on the most significant environmental (94%) and social (90%) shareholder resolutions of last year.

In 2021, Aviva Investors voted against the re-election of directors at 137 companies for lack of progress on ethnic diversity and opposed directors at 85 companies due to human rights concerns. The firm also rejected 33% and 68% of executive pay proposals in the UK and US, respectively, on concerns over quantum and structure.

The asset manager will divest in cases where companies consistently fail to meet its requirements. Last year, Aviva Investors introduced a 1.5 degree centigrade aligned engagement programme focused on 30 of the world’s worst carbon emitters, with an ultimate sanction of divestment if its expectations are not met over one to three years.

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Mark Versey

Aviva Investors, the global asset management business of Aviva plc (‘Aviva’), has set out a series of proposals and recommendations to G7 and G20 nations ^[1] it believes will enable the global financial system to tackle the climate crisis in an effective and cohesive way.

The recommendations follow discussions held with a coalition of global allies – including asset managers, advisory firms, management schools, industry bodies and foundations – which advocates the creation of an International Platform for Climate Finance (‘IPCF’). The concept was first proposed by Aviva Investors in 2020 ^[2] to ensure global capital is being channelled into sustainable parts of the economy and that markets amplify – rather than undermine – the ambition of the Paris Agreement.

As part of the output from discussions of the Coalition for an International Platform for Climate Finance, Aviva Investors has also proposed that core principles of UN-affiliated finance initiatives be updated to better align with net zero ambitions and ensure they fully support the goals of the Paris Agreement.

Having outlined the rationale for the IPCF and its role as part of a globally coordinated strategy and response to finance the Paris Agreement, the recommendations put forward by Aviva Investors focus on the actions it believes are required to turn the concept into reality.

Mark Versey, Chief Executive Officer at Aviva Investors, said: “The current international order pre-dates awareness of the climate crisis and was originally set-up with the primary goals of sustaining world peace and supporting global economic growth. Since then, these frameworks have not been revisited, reconfigured, or redesigned to reflect other issues affecting the world today. To these goals, we need to add the challenge of climate change, which represents a growing and catastrophic threat to life on our planet. We believe an International Platform for Climate Finance could play a critical role in harnessing the considerable power of finance to tackle the climate crisis and support long-term net zero objectives.”

In the white paper, Harnessing the international financial architecture to deliver a smooth and just transition^[3], Aviva Investors highlights the following steps it believes can help to create a comprehensive strategy for the global economy, as well as ideas of how to finance the transition:

1. Invite the OECD to bring forward proposals for convening an International Platform for Climate Finance (IPCF).

2. Recommend that the G20/OECD principles of corporate governance be updated; develop a Convention on Fiduciary Duty and Climate Change; and update the OECD Framework for Consideration of Prospective Members to require net zero country commitments.

3. Invite IMF Board of Governors to clarify that the IMF’s mandate to promote sustainable growth and financial stability includes consideration of climate risk, and extend its Technical Assistance Climate Change Policy Assessments (CCPAs) to become a required part of all IMF Article 4 economic surveillance work.

4. Invite the World Bank to report back to the G20 Indonesia Summit in 2022 on how it can ensure the Systematic Country Diagnostic and the Country Partnership Frameworks are most supportive of the implementation of NDCs and to invite the International Finance Corporation to update, develop and extend its Environmental and Social Performance Safeguards to be more focussed on transition plans and Science-based targets (SBTs), as well as Taskforce on Climate-related Financial Disclosures (TCFD) requirements.

5. Clarify that the mandates of the Financial Stability Board, Basel Committee and International Association of Insurance Supervisors include the consideration of climate risk. Invite regulatory supervisors to report on how they intend to update regulation to better manage the exogenous and endogenous nature of systemic climate risks, in particular to analyse potential unintended consequences of the structure of banking and insurance prudential requirements.

6. Encourage finance ministries and central banks to participate in, and implement recommendations from, the Coalition of Finance Ministers for Climate Action and Network for Greening the Financial System (NGFS).

7. Invite the United Nations to collaborate with OECD IPCF to convene a UN Finance Assembly, including finance minister participants of Helsinki Principles, central bank governors of NGFS and CEOs of systemically important financial institutions (SIFIs).

8. Replicate the 2021 alignment of the country hosts of the G7 and G20 with UNFCCC COP co-hosts for the future triennial stocktakes and the five-yearly reviews of progress of the Paris Agreement. Importantly, this should be supplemented by the addition of a G77+ country as a third co-host for each of these COPs to maintain the principle of inclusivity.

Steve Waygood, Chief Responsible Investment Officer at Aviva Investors, added: “Despite substantial efforts, the international community still lacks a cohesive strategy to finance the Paris Agreement and, collectively, we are falling well short of meeting the targets it lays out. To deliver that strategy, we need enhanced international cooperation between public and private financial institutions and a mechanism to track progress. We think it’s right to examine international financial architecture, to allow greater focus on raising the amount of private capital invested in climate adaptation and mitigation solutions globally, how this money can best complement public finance, and how public policy, globally, regionally and nationally can help accelerate capital flows. As we stare down the barrel of the climate crisis gun, now seems the time to take a different approach.”

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[1] https://www.avivainvestors.com/en-gb/about/responsible-investment/climate-finance-challenge/sustainable-finance-proposals-g7-g20/ 
[2] https://www.avivainvestors.com/en-gb/views/aiq-investment-thinking/2020/02/capitalism-and-climate-change/
[3] https://www.avivainvestors.com/en-gb/about/responsible-investment/climate-finance-challenge/sustainable-finance-proposals-g7-g20/ 

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Mark Versey

Aviva Investors, the global asset management business of Aviva plc (‘Aviva’), today publishes its Annual Responsible Investment Review, reporting significant increases in its voting and engagement activity for 2020. The review outlines how Aviva Investors’ responsible investment approach aligned with the priorities of clients and society.

The report reveals that Aviva Investors voted on over 72,025 resolutions at 6,457 shareholder meetings globally in 2020, a 16% increase in resolutions voted on and 20% increase in meetings from 2019^[1]. Aviva Investors voted in favour of 98% of the most significant climate and social shareholder proposals tracked by ShareAction.

Remuneration was the issue most actively opposed, Aviva Investors voted against 43% of 7,680 remuneration resolutions. This was followed by director elections (32%), anti-takeover measures (31%) and auditors (22%).

Aviva Investors was ranked second by ShareAction for its environmental voting track record and achieved an A+ rating in the United Nations Principles for Responsible Investment scorecard.

Through bilateral and collaborative company engagements, the exercising of voting rights, filing shareholder resolutions, and dialogue with regulators, Aviva Investors achieved 90 successful engagement outcomes. These included a call for social media platforms to strengthen controls against objectionable content and holding the Brazilian government to account over deforestation in the Amazon.

Engagement by asset class

With the collaboration of its ESG, equity and credit teams, Aviva Investors notched up targeted engagement with over 1,500 companies and was involved in a further 1,900 corporate interactions through collaborative initiatives and written communications.

In real assets, good progress was made against Aviva Investors’ commitment to originate £1 billion of climate transition-focused loans by 2025, with £189 million of sustainable loans originated in 2020. Since 2015, the company has also made £5 billion of investments in solar, wind, energy centres and energy from waste. In 2020, Aviva Investors also invested £172 million in social housing, contributing to the provision of affordable homes in communities across the UK.

To support its stewardship activities, Aviva Investors strengthened its internal ESG research capabilities. This included launch of a proprietary ESG ratings tool and publication of over 500 internal ESG research notes.

Aviva Investors’ market reform efforts are an extension of its integration and stewardship work. Where market failures exist or there are systemic or market stability risks, Aviva Investors engages with policymakers to reform markets. Currently, efforts are focused on four main areas of market reform, including climate change, biodiversity, antimicrobial resistance and diversity.

Mark Versey, CEO, Aviva Investors, said: “History may look back on 2020 as a turning point for environmental, social and governance issues. The pandemic has proven to be a giant ESG stress test for the global economy and shown us that today’s challenges will not respect national borders. Investors have a vital role to play in pushing for change on society’s biggest issues, from climate change to diversity, environmental degradation to human rights. We are proud to have long been at the forefront of investor action on these issues.”

Read the full report

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In his new role, Daniel will report to Mark Versey and will be responsible for the strategy and growth of Aviva Investors’ integrated Real Assets business, encompassing Real Estate, Infrastructure and Private Debt. He will oversee around 300 professionals working across fund management, asset management, development, transactions, origination, underwriting, research, and business management. Daniel will also join the Aviva Investors Executive Team.

Daniel joined Aviva Investors in April 2018 as Managing Director, Real Estate. In that role, he was responsible for business strategy, product initiatives, and external engagement across Real Estate, as well as leading the firm’s direct investment activity across the asset management, development, and transaction teams. He is also a member of the Real Assets Senior Leadership Team. Daniel has more than 25 years’ experience in UK and continental European real estate. Prior to joining Aviva Investors, he was Head of Continental European Real Estate Investment at Standard Life Investments. He joined Standard Life Investments in 2000.

A successor as Managing Director, Real Estate, will be announced in due course. In the interim, James Stevens, Head of Development, Global Real Estate, will lead the team.

Mark Versey, Chief Executive Officer at Aviva Investors, said: “I’m delighted that we have promoted one of our own to the role of CIO for Real Assets, which is central to our commercial strategy and an area we continue to see strong demand from our UK and international clients. Daniel has an exceptional investment pedigree, with a relentless focus on clients and delivering strong performance. Since he joined the business, we have significantly built out our development, asset management and transaction capabilities in Real Estate, expanding our investment strategy in exciting new European locations and forging strong partnerships with key international investors. Daniel shares my ambition to establish Aviva Investors as a market leader in Real Assets, and I have every confidence the business will flourish under his leadership.”

Daniel McHugh, Chief Investment Officer, Real Assets, at Aviva Investors, said: “I’m excited and proud that Mark and the executive team have given me the opportunity to lead our Real Assets business and I can’t wait to get started. We have a fantastic franchise, with highly capable and motivated teams across Real Estate, Infrastructure and Private Debt, and an integrated ESG approach that I believe is a differentiator for our parent Aviva and our external clients. My objective will be to ensure we continue growing the platform by delivering the investment outcomes our clients demand.”

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[1] Subject to regulatory approval

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Mark Versey

Global institutional investors are set to prioritise investments into real assets over the next 12 months, as the COVID-19 pandemic continues to have a lasting impact on global economies and financial markets, according to the latest edition of Aviva Investors’ Real Assets Study.

The Study, based on responses from over 1,000 decision-makers at insurers and pension funds representing over €2 trillion of assets under management, found that 49 per cent of insurers and 37 per cent of pension funds are expecting to increase their allocation to real assets investment strategies.

When asked which real asset markets they expect to increase allocation to over the next 12 months, both insurers and pension funds (54 per cent and 45 per cent respectively) identified real estate long income as their preferred asset class. Beyond this, insurers highlighted the desire to increase their exposure to debt strategies, with infrastructure debt (48 per cent), real estate debt (46 per cent) and private corporate debt (46 per cent) all expected to see increased investment. Pension funds demonstrated a similar view, expecting to increase their exposure to real estate debt (39 per cent), private corporate debt (39 per cent) and infrastructure debt (37 per cent).

Mark Versey, Chief Investment Officer, Real Assets, at Aviva Investors, said: “The findings from the latest edition of our study reveal fascinating trends in the appetite for real assets from institutional investors. Cashflow-matching continues to be the key criteria for insurers and pension funds around the world, as these investors increasingly recognise the resilience that real assets can offer their portfolios. This is being seen not only through consistent – and often inflation-linked – cashflows, but also via enhanced yields relative to more traditional asset classes and lower volatility. With central banks looking set to keep base rates low for the foreseeable future, our expectation is that institutional investors will increasingly turn to real assets for yield, returns and diversification.”

Despite significant numbers of office workers set to work remotely for the foreseeable future, 57 per cent of insurers and 53 per cent of pension funds surveyed feel that the long-term trend of working from home will provide the greatest opportunity for real assets investing. This was closely followed by datacentre growth (51 per cent of insurers, 43 per cent of pension funds), alongside growth and change in the logistics sector, where 49 per cent of insurers and 43 per cent of pension funds see opportunities.

Mark Versey commented: “Whilst COVID-19 clearly had an immediate and profound impact on the built environment, many investors have seen these changes as the acceleration of existing structural shifts. Investors are seeking out opportunities caused by these changes, such as the increased reliance on digital infrastructure from those working remotely and the growing importance of logistics assets as demand for ecommerce expands.”

Reflecting the pace at which ESG integration across markets is maturing, insurers (59 per cent) and pension funds (56 per cent) both view the transparency of ESG investment approaches as the most important thing they look for in an asset manager. The Study also reveals a continued increase in focus on social responsibility by real assets investors. Including healthcare assets in portfolios was a factor for 55 per cent of insurers and 45 per cent of pension funds; investments in social housing (51 per cent of insurers, 42 per cent of pension funds) and education (46 per cent of insurers, 42 per cent of pension funds) were also seen as important.

Given the increased efforts of investors to align their portfolios with net zero emissions targets, there was continued support for investments that make a positive environmental impact; 58 per cent of insurers and 48 per cent of pension funds looked towards ‘energy-efficient real estate assets’.

Overall, the majority of both insurers (77 per cent) and pension funds (64 per cent) agreed cashflow-matching was the most important requirement for their real assets strategy, followed by capital preservation (60 per cent of insurers; 52 per cent of pension funds). Inflation-proofing was also cited as an attractive feature by 55 per cent of insurers, whilst access to illiquidity premia continues to be a significant draw for 51 per cent of pension funds.

The research also found that:

• Regulation is the biggest hurdle to real assets allocation for insurers (46 per cent), whilst pension funds are most concerned about illiquidity (41 per cent);
• Pension funds lag behind insurers on net zero portfolio targets, with only 47 per cent having a commitment in place, and just 33 per cent aiming to achieve net zero by 2050. Conversely, 72 per cent of insurers have firm commitments in place, of which 44 per cent have committed to doing so by 2050;
• 44 per cent of insurers and 36 per cent of pension funds see financial instability as the most likely concern for their investments over the next 12 months;

Asked when they expect their own economies to recover to 2019 levels, global institutional investors broadly agree on the end of 2022 or the beginning of 2023, with European investors the least optimistic by favouring spring or summer 2023 and those in North America at the other end of the spectrum, predicting June 2022.

Read the study.

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