The UK insurance giant Aviva published yesterday new climate commitments, including a net zero target by 2040 and updated wording on coal and oil and gas. Reclaim Finance welcomes the adoption of a very stringent exclusion threshold for coal and unconventional fossil fuels, but the policy unfortunately contains major loopholes which significantly reduce its concrete immediate impact. Aviva should urgently remove these loopholes and blacklist all fossil developers to be a real climate leader.
1. What’s new
Aviva presented new climate measures for both its insurance and its own investments activities:
- Immediate end to insurance of new coal mines
- Immediate exclusion of companies deriving more than 20% of their revenues or power generation from thermal coal
- Exclusion from 2022 of companies deriving more than 5% of their revenues or power generation from thermal coal
- Exceptions for companies signing up to the Science Based Target initiative (SBTi)
On own investments:
- Divestment from 2023 of shares of companies deriving more than 5% of their revenues or power generation from thermal coal, except for companies signing on the Science Based Target initiative (SBTi), and bonds put in run-off
On oil & gas
- Immediate exclusion of companies with more than 20% of their reserves in unconventional fossil fuels
- Exclusion from 2022 of companies with more than 5% of their reserves in unconventional fossil fuels
2. Our analysis
a) On Coal:
At the project level, Aviva completes its previous commitment to stop insuring new coal plants by also ending the coverage of new coal mines, but it fails to extend it to other coal infrastructure, such as AXA. However, Aviva’s real exposure to fossil fuels in its underwriting business remains uncertain, so the concrete impact of such measures is very difficult to assess. Aviva should unambiguously clarify its exposure.
At the corporate level, Aviva’s 5% exclusion thresholds both on the insurance side and for its own investments would have been considered very stringent and a significant progress it it was not for a very important loophole: the UK giant financial player plans to continue to insure and invest in companies that have signed on the Science Based Target initiative (SBTi). This is a major shortcoming after a very bad precedent with the German utility RWE that saw its climate target validated by the SBTi last December despite its plans to continue to burn coal in Germany until 2038, eight years later than the 2030 deadline needed according to climate science – a deadline also endorsed by the Powering Past Coal Alliance (PPCA) and the Net Zero Asset Owner Alliance (NZAOA), two initiatives that Aviva is a member of . RWE is even suing the Dutch government for its mandatory coal phase-out by 2030, seeking €1.4 billion in compensation on the basis of the controversial Energy Charter Treaty.
Instead of relying on the SBTi for such exceptions, Aviva should require a mandatory and detailed coal phase out plan from companies remaining in its porfolio, by the relevant deadlines indicated above, such as Ostrum AM. TThis would be the only solution possible to avoid the current situation where, despite its commitments to the PPCA and NZAOA and their deadlines mentioned above, Aviva is still investing in companies without any such coal phase-out plans.
Another major shortcoming of the new policy is the timeline of its implementation. The 5% exclusion threshold will only be implemented strictly from 2023, almost two years from now, which is an eternity given the climate emergency we face. In the meantime, Aviva will still be able to invest in all 437 coal developers companies in the GCEL, such as the Adani Group, in which it had recently almost $11m of holdings. The exclusion of all coal developers represents the real litmus test to assess the credibility of any climate announcement, and the immediate next step to which Aviva should commit. The UK insurer will also still be able to invest in global coal producers and important coal utilities, such as Duke Energy ($93m), Glencore ($60m) or PGE ($46m).
A last major loophole in the policy is that all the announcements made do not cover existing bonds, which will not be divested, contrary to shares; nor the assets managed for third parties by Aviva Investors, making up 20% of its assets under management.
Aviva Insurance’s Scores in the Coal Policy Tool
This table presents the coal scores of Aviva Insurance based on 5 criteria of the Coal Policy Tool
b) On oil & gas
Aviva announced last month some measures regarding oil and gas and the new measures announced focus on unconventional fossil fuels.
While Aviva fails to explain how it defines unconventional fossil fuels and if the measure covers the whole value chain or only the production side, the measures announced on the oil and gas sectors only apply to its insurance business. As mentioned above for the coal sector, the actual exposure of Aviva to oil and gas remains uncertain, so the insurer should unambiguously clarify its exposure to all fossil fuels. If exposed, Aviva should commit to rule out all coverage for new oil and gas projects.
Aviva should apply the exclusion thresholds on oil and gas to its investments without offering a cop-out for companies that have signed up to the SBTi. It should also call on all oil and gas companies to stop developing new fossil fuel projects and adopt production reduction targets, consistently with what climate science requires. According to the Production Gap report, oil and gas production must go down by 4% and 3% until 2030 in order to align with a 1.5°C trajectory.
Aviva has improved its fossil policy but missed the opportunity to take a real lead on climate among global insurers regarding its measures on the coal and oil and gas sectors. The exclusion thresholds adopted are stringent but their impact will be significantly reduced by potentially large exceptions, such as for RWE. Aviva will also be able to continue to invest for two more years in the same 127 companies from the GCEL it had invested recently, and more. Aviva must urgently remove such exceptions and apply immediately its exclusion threshold. To truly answer the climate emergency, the UK insurer must also immediately exclude all fossil developers.