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Feb 24, 2023

Aviva Investors to focus on cost-of-living crisis in company engagement

UK asset manager to also concentrate on energy transition and biodiversity

One of the UK’s largest asset managers has identified the cost-of-living crisis as a major focus for its engagement with companies in 2023.

Aviva Investors, which manages £232 bn ($277 bn) in assets, says in its annual letter to board chairs that issuers face tough decisions on costs but must bear in mind their responsibility to all stakeholders.

The letter, written by CEO Mark Versey, also highlights the energy transition and biodiversity as focal points for stewardship activities this year.

Empty savings jar
Photo: Josh Appel

‘We expect management to explore all opportunities to deliver cost efficiencies, delay non-essential spending and leverage their pricing power where appropriate,’ says Versey. ‘But this must not come at the expense of the most vulnerable stakeholders within a corporate’s business model and value chain.

‘Multi-stakeholder management is not a zero-sum game; we will look unfavorably on any attempts to protect profitability and shareholder returns through the disproportionate and excessive transfer of costs to employees, suppliers and customers.

‘Furthermore, businesses have a responsibility to protect their most vulnerable stakeholders during this period of extreme stress.’

Inflation factor

Households around the world have suffered significant falls in real earnings as a result of decades-high inflation. In the UK, the consumer price index peaked at 11.1 percent last October, a 41-year high, before dropping to 10.1 percent in January this year.

The letter from Aviva Investors says boards should consider a series of actions amid the cost-of-living crisis, such as paying a living wage, offering additional support to the most vulnerable workers, engaging with unions and showing restraint over executive pay.

‘As the workforce is increasingly being forced to make trade-offs to afford essential spending, it would be inappropriate for highly paid executives to be fully insulated from the impacts of inflation,’ says Versey. ‘We expect any increases to executive base salaries to be below the average for the wider workforce.’

Disclosure demands

Turning to the energy transition, the CEO says all companies should ‘develop and publish robust and financially viable climate transition plans that will support the decarbonization of economies in a socially just and inclusive manner’.

He adds that Aviva Investors strongly supports the UK Transition Plan Taskforce Disclosure Framework and encourages companies to ‘pay particular attention’ to five areas: business models, financial planning, incentives and remuneration, engagement with value chain and engagement with governments.

On biodiversity, Versey says he expects all companies to ‘begin reporting within a reasonable timeframe against the Taskforce on Nature-related Financial Disclosures (TNFD) framework, due to be finalized in 2023’.

To help prepare for the new disclosure framework, issuers should ‘undertake the TNFD-recommended business model assessment process, referred to as LEAP,’ he adds.