Aviva will use its ‘ultimate sanction’ to force action on global warming

One of Britain’s top asset managers has warned it will use the “ultimate sanction” and ditch stakes in 30 of the world’s largest oil, gas, mining and utilities companies unless they do more to tackle climate change.

The blunt message from Aviva Investors, which manages £355bn, marks a departure from the current blueprint of most asset managers, which is to stay invested in the oil and gas industry while urging companies to do more on global warming.

The London-based investment group has written to the companies, calling on them to set net zero emission goals and integrate climate risks into their strategy, including their plans for capital expenditure.

If companies fail to meet its expectations over the next one to three years, Aviva said will divest across both its equity and credit portfolio.

Aviva declined to name the companies it is targeting. But it is a big shareholder in many of the world’s largest oil, gas and mining companies, with its holdings worth billions of pounds. According to S&P Global Market Intelligence, it is a top 30 shareholder in oil majors BP and Royal Dutch Shell, as well as miners Rio Tinto and Glencore.

David Cumming, Aviva’s chief investment officer for equities, said climate change posed a huge risk to capital markets.

“Climate change is a massive disrupter,” he said. “Exclusion [divestment] is the last thing we want to do but we will do it.”

Climate change is a massive disrupter. Exclusion [divestment] is the last thing we want to do but we will do it

Companies should set short and medium-term targets to meet the energy transition, align management pay with climate goals and ensure that direct and indirect lobbying was not in conflict with their public position on global warming, Aviva said.

Although many big investors have warned that climate change is a risk, most fund houses have avoided divestment, except across some coal holdings. Instead they have argued it is better to remain invested and push companies to make changes through so-called engagement.

But Mirza Baig, Aviva’s global head of ESG research and stewardship, said time was running out for this approach.

“We don’t have the freedom to continue an engagement without any firm commitments from companies over the next decade,” said Mr Baig. “We have an obligation to clients and society to not fund something we believe is catastrophic to the world and capital markets.”

He added: “The ultimate sanction is full divestment.”

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Mr Cumming said he expected that other asset managers will increasingly look to ditch holdings. Last week, BlackRock boss Larry Fink hinted that the world’s largest asset manager would consider divesting from some companies over the issue.

Big asset owners are also ditching fossil fuels, including New York City’s largest pension funds, which last week revealed it had sold out of $4bn of securities in such companies.

Colin Purdie, chief investment officer for credit at Aviva, said given that many companies had turned to debt markets for financing in recent years, it was critical that asset managers look at their bond as well as equity holdings when working out how to shape companies’ behaviour.

“Credit markets are a potentially powerful but largely untapped force that could exert significant influence on companies through the billions of dollars of debt financing they provide,” said Mr Purdie. “Cases where creditors can act together with shareholders, as we do at Aviva Investors, can be particularly powerful,” he said.