The importance of being active on climate change
Head of Client Solutions Switzerland & Liechtenstein / Senior GRI Analyst, Climate Specialist
Aviva Investors Schweiz GmbH, Zürich / Aviva Investors, London avivainvestors.com
Ms. Ipsaryaris, Mr. Stathers, why does Aviva Investors focus on climate?
Ipsaryaris: Global warming is the greatest challenge of the modern world. Under current global emissions trajectories, the planet is on track for approximately 3°C of warming by 2100 - a path expected to result in temperatures not seen in three million years.
It is the greatest long-term threat to the planet, and is why climate change was included as one of our stewardship priorities in our annual letter to the chairs of companies we invest in.
We are aligned with the Intergovernmental Panel on Climate Change (IPCC) position that the world needs to limit the temperature rise to no more than 1.5 degrees Celsius above pre-industrial levels.
We expect all companies to align with this ambition, and clearly articulate climate strategies and transition pathways that will deliver net zero emissions by the middle of the century. Climate plans must integrate biodiversity impacts and associated mitigation strategies.
It is not only a stewardship priority, as we also invest in companies and assets that are driving fundamental changes for a sustainable future by targeting opportunities that accelerate, and benefit from, the transition to a low-carbon economy. Our dedicated equities and climate specialists work collaboratively, blending an integrated research framework with strong in-house ESG expertise. Rick Stathers, our Climate Specialist and Senior Global Responsible Investment Analyst joined our Global Responsible Investment team in 2018, with a primary focus on climate change.
It is not a question anymore if we should be caring about our planet, the question rather is where we set the priorities, hence why climate change?
Ipsaryaris: As well as being the greatest long-term threat to the planet, climate change presents huge risks to investment portfolios. We believe that being passive against these risks is just not an option.
Being an active investor means thinking beyond fossil fuel exclusion or optimising a portfolio to focus solely on companies with low GHG emissions. Climate change will impact every actor in the global economy; a holistic approach is needed to understand both the risks and opportunities arising from the physical and policy impacts. We believe this is best achieved through a forward-looking, fundamental investment approach, one that assesses risks and opportunities across corporate value chains whilst also incorporating environmental, social and governance (ESG) considerations.
Taking an active approach to climate change also involves company engagement. We believe changing the behaviours of companies on climate change means reducing climate risk in our investments. Our philosophy is to be direct and visible in representing our views on ESG issues across all of our investments, spanning every asset class.
The 2015 Paris Agreement was supposed to mark a historic turning point for combating climate change, setting forth ambitious limits on global temperature increases. What needs to be done?
Stathers: To stay within these limits, countries must set equally ambitious global greenhouse gas (GHG) emissions targets - aligning with these pathways requires unprecedented and urgent change.
The change needed to transition to a low-carbon and climate-resilient world will impact every company around the globe. While for some companies the impact is clear, for others it is less apparent. As such, we believe that financial markets are not efficiently pricing the move towards decarbonisation - or the phasing out of fossil fuels - nor are they reflecting the physical risks from climate change. This underscores the importance of taking an active approach to identifying those companies that are best orientating their business models for a lower carbon, warmer world - and mitigating the associated risks.
GHG emissions: Where are we now and where do we need to be?
Stathers: Climate science has clearly linked the role of greenhouse gases to global heating. Most countries and companies look to the 2015 Paris Agreement when setting GHG emissions targets, as it sets forth clear limits on global temperature increases. The Agreement seeks to limit the increase in global temperature this century to well below 2°C above pre-industrial levels, and to pursue efforts to limit the increase even further to 1.5°C. After the Intergovernmental Panel on Climate Change (IPCC) released a 2018 report on the impacts of global warming of 1.5°C above pre-industrial levels, most are now focusing on this pathway when setting emissions targets.
However, in light of the current warming trajectory, closing the gap between where emissions are and where they should be will be a monumental undertaking. Current emissions commitments put the planet on track for a 2.8 - 3.2°C of heating by 2100 - well above the 1.5°C target.
What do you think about a shift to renewables as a solution to this problem?
Stathers: The key to achieving these emissions goals is decarbonising the global energy system with a significant shift in the energy mix towards renewable sources. Positively, the global shift to renewable energy sources is already well underway. And, in some instances, renewables are now a cheaper form of electricity than traditional fossil fuel sources. Further progress in the global shift to green energy will require sizable government investment and accommodative policies.
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Rula Ipsaryaris is based in Zurich and focuses on growth opportunities for institutional clients and wholesale customers in her region. She has over 30 years in the financial service sector. Prior to joining Aviva Investors, she worked as Senior Sales Executive and Deputy Head Switzerland & Liechtenstein for Vanguard. She gained her professional experience in various leading positions in the fiduciary industry with an American broker, both international and Swiss Private Banks, as well as with one of the worldwide largest asset custodians. Rula Ipsaryaris holds a CAS (Certificate of Advanced Studies) in Sales and Distribution Management from Lucerne University as well as Fiduciary with Swiss Federal Accreditation.
Rick Stathers joined the Aviva Investors Global Responsible Investment team in 2018 with a primary focus on climate change. He has almost 20 years’ experience in responsible investment. He was Head of Responsible Investment at Schroders for 16 years and a Global Director at the CDP (formerly known as the Carbon Disclosure Project) for two years. He has a Bachelors in Agriculture and Food Science and a Masters in Environmental Technology. Rick Stathers has a particular interest in syntropic agriculture and the dual role of forests in building resilience in the food system and combating climate change.