Joining forces to build resilient ecosystems

The facts of a changing climate have become starkly personal for Doug Brown, CEO of UK & Ireland Life Insurance, Aviva, who has witnessed warmer winters and hotter summers in his native Canada. “I grew up in Winnipeg, where winter would regularly see a freeze to 30°C below zero. It barely reaches that now,” he says. “The past three summers in Canada have effectively been ruined by smoke and forest fires. In British Columbia (BC) the forest should be like a rainforest, but it is absolutely dry. I was just talking to my parents in BC and they can’t even see their neighbour’s house because of the smoke from the fires.”

The knock-on effects of such alarming climatic conditions for insurers are already severe. Climate and extreme weather caused £210bn in total losses in 2020, of which about £80bn were insured losses, says Brown. Clearly, severe climate effects pose existential risk. “Are we going to be able to price our products appropriately? What's going to happen to returns, for our customers and shareholders? If temperatures were to increase by about four degrees, it potentially wipes out the insurance industry,” says Brown.

The group aims to be net zero by 2040, with this to include the investments it makes and the emissions its suppliers produce, as part of the effort to avert such extreme outcomes. “It is the most demanding target of any insurance company worldwide,” he says.

Investing for change

Helping individual investors make informed choices about where they place their money is another area of action that can have powerful effects. How an individual retail investor or pension saver chooses to invest funds could offer the most constructive of all climate crisis responses, when it comes to our individual carbon footprints, adds Brown. 

“It is somewhere around 21 times more powerful for fighting climate change than going vegan, stopping flying, changing your renewable energy provider or going electric with your car. That's quite a compelling argument.”

To this end, Aviva is investing £10bn more of its default pension funds into low carbon strategies, adds Brown, and the aim is to extend green options to policy holders further still. “If we can do that, then we can make quite an impact. The WWF partnership will help us achieve that.”

The three-year WWF (World Wide Fund for Nature) partnership sees Aviva become the charity’s lead partner in insurance and pensions, to help bring focus onto the issues at hand. “We want to work with our communities to build healthier and more resilient ecosystems, to hopefully reduce their risk from a more extreme climate. Having a strategic partnership with a trusted organisation such as WWF helps us achieve that ambition,” says Brown. “Our values are clearly aligned, and they have reach into a lot of our core markets.”

It’s a partnership that will give the WWF clout and reach with the wider financial sector, says Tanya Steele, WWF’s Chief Executive. “As an organisation, we can’t hope to tackle the climate emergency without engaging influential voices and forces. Businesses are central to that. This is a great opportunity to start to talk to the finance sector and get under the skin of the issues in this urgent transition to net zero.”

Declining to invest in companies whose supply chains fuel deforestation, for example, is a powerful way to make an impact, says Steele. “There is an overwhelming level of investment that still sits in unsustainable activity, and the IPCC [the UN’s Intergovernmental Panel on Climate Change] is clear that 2.5 per cent of GDP needs to be invested in low carbon systems. These are actions that need to be taken right now.”

Setting “time-bound, science-based targets” and delivering on the plans to meet these in a concerted way is of the essence, says Steele. Getting the finance sector to see the issues clearly is proving less of a challenge than some might imagine, she adds. “The financial community understand data, and the science is unequivocal. We have less than a decade to start to make this transition and for us all to play our role. And every organisation needs a transition plan to help us all get there in time.”

Balance sheet power

The Aviva Group has great influence to lead by example here, Brown points out. Aviva Investors, its global asset management business, will require 30 "systemically important" carbon emitters to deliver net zero Scope 3 emissions (emissions generated outside a company’s day-to-day operations, such as in its supply chain) by 2050, as well as establishing robust transition roadmaps to demonstrate their commitment to immediate action on climate change. 

“It’s about signing up to science-based targets and wanting to see evidence of progress towards those over the next 24–36 months," he says. "If we’re not seeing progress, we will divest from the asset. So we are clearly using our balance sheet and how we invest to try to influence businesses.”

It is a more positive approach than simply opting out of certain investments without seeking to engage first, says Brown. “The harder thing to do is to try to influence them for change – but I think that’s the right approach. Just stopping investing in companies isn’t going to provide them with the capital to transition to a greener operation.”

The Aviva/WWF partnership is about fostering awareness of the issues that affect a company’s bottom line, but there’s a huge opportunity for positive solutions too, adds Steele. "We will be working together on re-integrating nature to mitigate flood and other climate risks which is an exciting area for both organisations," she says.

“For the past 50 years we have drained wetlands and chopped down trees; it may have made for a stronger economy in the short term, but it has also created one that is less resilient to external shocks like flooding and extreme heat. We need to think again about the role of nature in supporting our life support systems, because removing the ecosystem services it provides has become a risk to our economy. Nature is not just there so we can take from it – we must work with it to build back our resilience once again."