The global economy is undergoing a transformation as sustainability considerations are becoming increasingly important for investors, businesses, and governments. ESG factors have become crucial in investment decision-making, with sustainable finance taking centre stage. Sustainable data, climate litigation, and a sustainable global economy are now intertwined, making it essential for investors and policymakers to consider the long-term impact of their decisions on the planet and society as a whole. As the world faces unprecedented environmental and social challenges, it is becoming evident that achieving a sustainable global economy is essential for the well-being of current and future generations.
Mark Versey, Chief Executive Officer, Aviva Investors, joined us ahead of his panel session at IMpower 2023, to discuss ESG, sustainable finance, sustainable data and investment and the journey towards a sustainable global economy:
What now for ESG and sustainable finance - How can we make it work for individual investors and the planet?
We can’t lose sight of the big picture. There are three fundamental and interlinked challenges at the core of sustainability – climate change, biodiversity loss and social inequality. It amazes me when I read some commentators or politicians question the role finance and investment can or should play in helping to address them.
If we carry along on the same trajectory, we will relatively shortly enter extremely dangerous territory for the planet, but, critically, our individual and collective wealth as well. So, as I’ve said previously, there’s both an ethical and fiduciary responsibility to act.
After the backlash against ESG/sustainable finance last year, and as other shorter-term macro headwinds begin to subside, I hope we can quickly return to a more considered debate over where we go now. The big positives are that most institutional asset owners (and by extension their beneficiaries) are already on this journey in terms of capital allocation.
We are also getting to a point where the choices for individual investors who want to invest for a better future are becoming clearer, despite some niggles around labelling that we need to get right.
Lastly, the area of macro stewardship – which is asset managers and asset owners pushing governments, regulators and other policymakers towards making systemic changes to incentivise better decisions and disincentivize bad practices – is becoming acutely critical. We need change on all fronts and we need it now; there is no alternative.
Sustainable data is often criticised for lack of standards and inconsistency, yet it is essential to provide proof points for investors, how do you see this area evolving?
Firstly, the data is constantly improving, particularly around climate. For a climate transition fund with a duel objective of reducing portfolio emissions or carbon intensity by X% while beating a benchmark by X%, you can report on that now.
But we need to clear around the limitations to what the data is actually telling us. Attributing investment performance at a portfolio or security level to any single variable – whether that’s fundamental investment characteristics like balance sheet strength or an ESG factor like board composition – is incredibly complex.
ESG was never designed to be viewed as a standalone investment and valuation framework – but full consideration of ESG factors do enhance and inform a robust investment process.
So, yes, data will continue to evolve but let’s be realistic about how far that can go.
As a leader in sustainable investment, how are you advocating that we change our asset allocation and horizons for the ordinary investor?
As an industry, our role is to provide a range of solutions that can help all investors achieve their desired financial goals. Allocation is down to the needs of the individual or institution – what we need to give them is clear choices; with particular emphasis on the word clear, because the way financial products are presented can often be confusing to many ordinary investors.
More effective and clearer labelling of products – on what they invest in (and what they don’t) and what their objectives are – will, in time, be a big step forward for the industry.
On sustainable or ESG-labelled funds specifically, I go back to my earlier point – while there are certain niche areas that an investor might want to invest in, it’s really the big three areas of climate, natural capital and social equity that will have the biggest impact on the economy, society and the environment, and therefore resonate with a broader spectrum of clients.
We need to make sure that products linked to those big themes have both a positive real-world impact and deliver the financial outcome the investor needs.
How important is climate litigation going to become in changing corporate behaviour and bridging the gap between what companies pledge and what they actually do?
In an ideal world, incentivising the right behaviours is vital. But on climate in particular, we need to compliment incentives with other measures that ensure polluters pay.
An effective carbon price is one tool; litigation is another.
We’ve seen climate litigation cases more than double in the last five years, with some high-profile energy companies coming out on the wrong side of those cases. That’s a warning for others. So, litigation is an important part of the toolkit against climate change.
What makes you optimistic about the role of investment management in providing an essential way for our economies to support the transition to a sustainable global economy?
I’m an optimist. While we face serious challenges over the next few decades, we have to find a way to meet those head on. The collective AUM of our industry globally is expected to reach $145 trillion in 2025 – that gives us huge leverage to support the transition.
We can do that in the way we allocate capital, in the way we engage with corporates and other issuers, and in the way we lobby governments, regulators and policymakers to make financial and economic systems aligned to sustainability goals. But this is not something a handful of institutions can do in isolation – we all need to take responsibility and play our part.
Under the spotlight: Mark Versey
What are you most passionate about within the industry?
I believe we can build a more sustainable world at the same time as delivering strong investment performance for our clients. For that to happen though, we need to aggregate and amplify our clients’ voices to drive change in the companies we invest into - ensuring companies can thrive in the required transition – while also pushing for systemic change with regulators and the wider financial architecture.
What are you looking forward to the most about IMpower 2023?
Networking with existing clients, prospects and industry colleagues.
Which session/speaker do you think is unmissable in this year's agenda?
Risks : Generative AI – We are at an early stage, but this could potentially revolutionise our industry (and others) in ways we haven't yet considered.
Mark is CEO of Aviva Investors and a Director of Aviva Investors Board. He is on the Executive Committee of Aviva Plc.
Mark Versey joined Aviva Investors in 2014 and was appointed CEO in January 2021. Previously, he was Chief Investment Officer for Aviva Investors Real Assets from its formation in May 2018, during which time the business saw material growth, with assets under management increasing from £37 billion to £47 billion.
Mark sits on the Board of the Investment Association and chairs its Sustainability and Responsible Investment Committee. Experience and qualifications Mark began his career as a consultant Actuary and then gained a diverse experience across markets with investment banking roles in fixed income, equities and capital markets. He has extensive risk management and derivatives experience.
Mark began his career as a consultant Actuary and then gained a diverse experience across investment markets with investment banking roles in fixed income, equities and capital markets. He has extensive risk management and derivatives experience.
Prior to Aviva Investors, Mark worked at Friends Life where he was Chief Investment Officer of the Group and Managing Director of their in-house asset manager, Friends Life Investments. Previously, he was the Chief Investment Officer of AXA in the UK.
Mark is a Fellow of the Institute of Actuaries and has a Mathematics degree from Cambridge University.
Mark Versey is a part of our incredible speaking faculty at IMpower 2023. Don't miss out on his session 'The impact of creating systematic change on the next evolution of investment' on the 27th of June, 2023.