Aviva’s head of responsible investment engagement talks IR and corporate secretary co-operation, setting ambitious KPI targets and bringing in business experts for successful investor events
Can you give us a few words on your background?
I started off in politics, moving through corporate law. Before joining Aviva Investors, I headed up corporate governance at the Co-operative Asset Management, leading on executive pay, corporate responsibility and sustainability and ensuring a cutting-edge approach to ESG integration across all asset classes. I have a special interest in reputational risk.
What is your role at Aviva Investors?
I spend my days talking to the companies we invest in on the full spectrum of ESG topics – from antibiotic resistance to zero-hour contracts. I complement this with public policy advocacy at a UK, EU, OECD and UN level on a spectrum of issues from sustainable development goals through to green bonds. I’m also heavily involved in business development.
What tips would you give European companies when it comes to ESG communications?
The biggest oversight we see is the mistake of thinking reporting equals investor relations. Reporting and disclosure is a foundation activity. IR teams from mature, multinational corporations must be able to talk a degree of ESG.
We see great benefits when the IR team is well connected to the company secretary, not just around proxy voting and AGM season, although it’s not always a given. Investors communicate on ESG matters with both the board and management and may use multiple channels into the business to make their views clear. If IR and the corporate secretary aren’t talking, IR is missing a vital piece of the institutional investor picture. Increasingly, governance engagement and research is on ESG, not just governance and remuneration. IR must connect the dots to ensure it has the whole picture of the market.
What will you be looking for when judging an annual report?
In general, the following is what we look for and, while most of the points seem obvious, it’s amazing how few companies manage to achieve them.
- Identify the ESG issues you feel are material to the company: they have the potential to meaningfully affect its operations, financial health or perception by critical stakeholders. Be prepared to ditch issues that don’t meet this test; less is more. Justify your choices and relate them to the health of the business as a whole.
- Focus on opportunities as well as risks, where they exist. Focus on the strategic as well as the managerial aspect – for example, you may have products that address upcoming regulations ahead of competitors.
- Integrate your reporting of ESG issues into the main narrative text in the annual report and accounts. A simple example might be a power company reporting its emissions intensity alongside Ebitda or a miner citing its lost-time injury-frequency rate and fatality rates alongside production volumes.
- Create relevant KPIs to track your key impacts and, once you have acceptable baseline data, establish targets that are stretching but achievable.
- Integrate these targets into the executive annual bonus scheme, at least at a meaningful percentage (not less than 10 percent) and below board level where there is functional responsibility. Consider extending longer-term goals into long-term incentive schemes.
- Report on your progress against targets as time goes by (design KPIs so that they should be stuck with for five years, minimum), explaining notable changes – both positive and negative – in performance and justifying rebasing where these become absolutely necessary.
- Seek independent verification of any data that might be considered material.
- No platitudinous policy statements, woolly feel-good narrative or otherwise self-congratulatory assertions that can’t be backed up by evidence.
- No pictures of smiling children, especially in poor countries, or a pair of hands holding a sprouting shrub. You get the idea.
What do you believe makes a successful investor event?
A successful investor event brings the company’s story to life for the investor. IR should own all investor engagement, including ESG. If a company says sustainability is integrated into strategy, IR shouldn’t have a problem doing so. IR can and should use the corporate responsibility department as experts to help shape meetings and also talk to brokers and advisers that help other companies shape these types of meetings – lots of companies are doing them.
The meeting content and speakers must have a clear link to current business strategy and performance and shouldn’t feel like a sustainability or governance bubble.
Focus for an event can make more sense than trying to cover everything. Make sure to link it to the current IR and business narrative – don’t have a meeting on one issue when investors will be focused on another (for example, holding a meeting on water strategy when the company is dealing with bribery allegations). Bring business experts in, as investors can talk to IR anytime they want to. This shows a degree of maturity and confidence that the company is comfortable putting experts in front of investors.
Site visits are becoming increasingly popular. I’ve visited sites as diverse as a palm oil plantation and a carpet factory and always come away with a richer understanding of the company and the risks and opportunities it faces.