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Aviva’s £920 million investment in coal and tar sands

“Left unchecked, climate change will render significant portions of the economy uninsurable, shrinking our addressable market”, Aviva warned in its 2015 strategic response to climate change .

Known for its bold statements on climate change, British insurer Aviva is widely considered a climate leader in the finance industry. And indeed, it has taken several meaningful steps, notably by enhancing its climate-related financial disclosure and taking public positions against disastrous projects such as the Carmichael coal mine in Australia. However, when it comes to coal and other fossil fuels, Aviva’s generally strong climate policy is flawed.

The burning of coal is the top driver of climate change. If the goals of the Paris Agreement are to be met, no new coal power plants can be built and 100 GW of worldwide existing coal capacity must be retired every year. Yet, in 2017 Aviva was found to have invested £458 million in 31 of the 120 most aggressive coal plant developers .

Eleven of these companies, which attracted 97% of Aviva’s investments in the top coal plant developers, still planned more than 90 GW of new coal capacity in 2017, six times the British coal fleet. These companies are undermining global efforts to meet the Paris Agreement climate targets and should be at the top of every divestment list.

Since AXA’s commitment in December 2017 to divest from companies planning more than 3000 MW of new coal capacity, several (re-)insurers such as Allianz, Generali and SCOR, adopted forward-looking divestment criteria based on companies’ development plans in the coal sector. AXA’s head of public affairs and corporate responsibility Jad Ariss stated in the Financial Times that “coal is the most polluting industry and the most damaging for world temperature… for us it is critical to stop production of new coal capacity”.

Allianz, which committed last week to divest from companies planning more than 500 MW of new coal capacity and to have 0% exposure to coal by 2040 explained in a public statement that “ with coal being the fuel with the highest CO2 emissions in relation to its energy content, (i) a stringent phase-out of installed coal-based energy production and (ii) far-reaching avoidance of new coal additions is required to enable transitioning global energy generation to lower emission levels”.

Both AXA and Allianz commitments will lead to the exclusion of hundreds of companies from their investments, and will contribute to shift the trillions from fossil fuels to energy efficiency and renewable energy, as required if the Paris Agreement climate targets are to be met.

Despite stating to be “no friend of coal”, Aviva stands outside this trend. Despite the fact that Aviva doesn’t have the capacity to engage with all coal companies in its portfolio, the main focus of its investment strategy is to engage with coal companies rather than to divest from them. In its 2017 climate-related financial disclosure, Aviva states to have begun, in July 2015, engagement with 40 companies which derive over 30% of their revenue from thermal coal.

Aviva argues that rather than “just divesting”, it can use its leverage as investor to influence these companies. The insurer also claims to be prepared to divest if a coal company does not demonstrate sufficient progress, particularly if it plans to expand its coal generating capacity.

More than two years later, Aviva has not been able to report any substantive progress through its engagement strategy and states to have divested from only two companies, PGE and J-Power, and to be in the process of divesting £11 million from an additional 15 companies. These are trivial figures considering the scale of the challenge of “shifting the trillions”, and compared with the huge financial support Aviva is giving to coal and tar sands companies undermining the fight against climate change.

According to Aviva, 6 of the 15 companies being divested are Chinese and 2 are Indian. In November 2017, Aviva still held £16 million of investments in China’s Huaneng Group and £19 million in India’s National Thermal Power Corporation investees NTPC, considerably more than the £11 million being divested. Both companies plan to build new coal plants with a total capacity greater than the entire UK coal fleet. With 38 GW of new coal power planned, including the 1.3 GW Rampal coal plant close to the Sunderbans UNESCO World Heritage Site in Bangladesh, NTPC is the world’s biggest coal plant developer.

These figures suggest that Aviva is not divesting from NTPC and Huaneng, or is only divesting a small part of its holding, possibly because it manages other investments in these coal companies for third parties that are not included in their divestment policy – in contrast with other insurers such as Zurich and AXA. This issue is not isolated to Aviva’s investment in these two companies. While Aviva has not made public the value of its divestment from PGE and J-Power, it is certain the bulk of its investment in PGE, which is made through its Polish pension fund, will not be affected by its decision to put PGE on a Stoplist and to divest from the company.

Such baby steps will not be enough to align Aviva’s investments with the Paris Agreement climate targets, especially because Aviva’s investment strategy is limited to coal while other fossil fuels will also have to be phase-out by mid-century. On top of its investments in coal, Aviva also has over £469 million invested in companies operating in Canadian tar sands or currently planning to build major tar sands pipelines. This industry is highly carbon-intensive, environmentally destructive and threatens the health and lifestyles of First Nations people. Research by Oil Change International found that investment in new tar sands production is inconsistent with the Paris Agreement, yet there are plans for a 70% expansion in production by 2040 .

Aviva should not abandon its engagement approach, but it is urgent the UK insurer complement it with a consequent divestment. Aviva should focus its engagement on a small number of companies, selected because of their real potential to transition away from coal and tar sands within one year, in line with the Paris Agreement. If companies still plan new carbon-intensive projects, Aviva should automatically divest from them.

As Helena Morrissey, the head of personal investing at Legal and General Investment Management, one of Europe’s biggest investment managers, recently said in the Telegraph: “The reason we are shaming [the worst performers] is that we gave them a number of years and they did not take any notice. There comes a time when we should vote with our feet. We will be divesting from those companies.”

For further details on Aviva’s coal engagement, see the full Insure Our Future briefing ‘Aviva and Coal: a very long engagement’.

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