A unique approach to sustainable investing and climate action

Meeting high-calibre specialists in the financial industry is, of course, one of my favourite things to do. When I got the opportunity to meet Sam Tripuraneni, Head of Sustainable Investments at Aviva Investors, I flew straight to London. We met for lunch on Thursday, 14.11.2024, in the «Paradise Green» at 100 Bishopsgate. Sam chose this cool location because he is friends with the owners. In keeping with the theme of «Sustainable Investing», we selected particularly healthy food.

During the flight, I found time to write a list of questions on the topics of «ESG», «Impact Investing» and «Sustainable Investing». I wrote down around 15 questions. Sam was kind enough to answer them with great patience. I now know a lot more, but by no means everything. It now seems clear to me that large financial groups with the appropriate resources are needed to really get to grips with this and then implement the decisions made with the appropriate capital. To conclude: it was one of my most valuable meetings in recent years! Thomas J. Caduff, CEO, Fundplat LLC

• Caduff: Mr. Tripuraneni, Aviva Investors has been at the forefront of sustainable investing and particularly climate: what makes your approach different and how does it relate to Aviva’s ambition to become net zero by 2040?

Tripuraneni: I think I would reflect on the Aviva group ambition of 2040, it is an ambition because it will be very hard to achieve, whereas most 2050 targets assume that the «market» or «economy» will do some of the work for them. But it must be remembered that the goal should not be «Net Zero» but to limit temperature rise as much as possible in line with the Paris agreement. Unfortunately, the more we delay meaningful action the less chance we have of maintaining the goal of Paris. What that means is that we are going to face significant physical impacts from climate change and there is a real danger that is going to impact not just local economies but the global one too, and that raises questions about the long-term stability of the markets we invest in on behalf of our clients. Whilst like most managers we as a firm we consider the risks of climate change we also think about that long term stability, because that is important to our clients – we can do that through policy level engagement for market reform (Macro Stewardship), using our influence with companies, particularly in hard to abate sectors and by bringing funds and solutions to market that will push capital into nature based solutions.

• Caduff: Natural capital is being called the «new Climate change» as far as investors go – it is a key topic and very much linked to climate and people – the three focused pillars of Aviva Investors, how do you integrate this topic in your investment philosophy?

We recognise that so much of our economy is dependent on nature, in one way or another. Sam Tripuraneni

Tripuraneni: Firstly, we recognise that so much of our economy is dependent on nature, in one way or another, but how different sectors impact upon nature or rely on natural capital is very different. Therefore, the most important thing we all must do is to start to understand these impacts, and then to assess how reliant on finite resources or nature sectors or companies are. That could be for key minerals, or if they have intensive water needs through to the importance of pollinators for crops. The challenge with natural capital therefore is that we are at the start of the journey – we are still working on better disclosure, companies being able to do biodiversity assessments, agreed sector level KPIs as well as the real policy level push that will make the risks of ignoring the topic more material in our clients’ portfolios. There is no simple, cross sector data point like with climate – which is based on emissions. Climate change will have a profound impact on people but ignoring the importance of natural capital in maintaining our food, water and energy systems will lead to equally as profound impacts. We have always believed that engagement is the first step of ESG integration, and we are increasingly engaging with companies on this topic as a priority.

• Caduff: With all the regulation in the market around sustainable products what have been the most important developments and what is next for sustainable funds?

Tripuraneni: Possibly the most important change in the past few years is that the regulation, SFDR in particular, have formally differentiated between ESG and Sustainable – they are two different things. ESG is about better financial performance whilst sustainable is about having outcomes linked to sustainable objectives. That is a huge development because it makes clear that sustainable funds have a tradeoff and that changes the way they are developed and used in portfolios. Looking at broader market trends the most interesting then is the greater access to private markets and genuine «impact funds» – those two things can work very well together. That does not rule out impact in public markets but the broader category of «sustainable» funds will I would expect to grow but it will be very much driven by what asset owners will want to target and many of them are focused on quite simple net zero goals so we may see a slight shift in the market to funds with a net zero target for broad allocations and then smaller more targeted allocations to sustainable or impact funds, at the expense of very broad ESG mandates.