Responsible Investment & The Stewardship Funds
AV612388_SP99883_0721.indd 1 22/07/21 10:39 AM What this guide covers
We hope the information in this guide is helpful and that it broadens your knowledge of what it means to invest responsibly, how we do this at Aviva and why we believe it’s important to deliver responsible investment solutions for our customers.
Here’s what the following pages cover:
Here for you today, for a better tomorrow 3
Our expertise 4
What are the Stewardship Funds? 5
Stewardship philosophy and criteria 7
Exclusions, engagement and outcomes 8
Governance of the Stewardship Funds 12
Stewardship Lifestyle Strategy 13 – 15
Helping you to understand risk 16
Risk warning codes 17
Appendix 19
Glossary 24 – 25
2 The Stewardship Funds and responsible investment
AV612388_SP99883_0721.indd 2 22/07/21 10:39 AM Here for you today, for a better tomorrow
“ Everyone wants to do the right thing for themselves, their families and the world we live in. They need businesses like ours to help them do that. At Aviva, we use our scale, influence and experience to help our customers, our people and the communities we’ve served for over 300 years. We want to help give our customers the confidence to make informed savings and investment choices. Through the investments we make together, we can create a fairer, greener and better world for everyone. We’ re with you today, for a better tomorrow.” Amanda Blanc, Aviva Group CEO
“Being responsible – in both life and investing – should never be about creating an ethical straitjacket, but there are a few guiding principles and rules of thumb that can help us all. First, we can all make a difference. Second, harness Pareto’s Principle. Pareto taught us that 20 per cent of our efforts account for 80 per cent of our results, or impact. Along with our core values, this should guide our behaviour and where we prioritise our time. We can identify the areas that will drive the most impact and focus our attention there. By doing this, daunting problems can become less so. Third, “It is better to be roughly right now, than perfectly right when it is too late.” The complexity of sustainability is not insurmountable. As we develop various coping strategies, and despite some inevitable and unintended hiccups, we should remember that while we can’t be perfect, we can be better.” Marte Borhaug, Global Head of Sustainable Outcomes at Aviva Investors
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AV612388_SP99883_0721.indd 3 22/07/21 10:39 AM Our expertise
Responsible investment is something we’ve been doing at Aviva for decades...
You can be reassured that for us sustainability isn’t a fad. Investing responsibly is something we’ve been doing for decades. As far back as the 1970s we were holding companies to account by voting at their annual meetings.
For us, responsible investment is a way to get the best possible return for you in the long term. We’ve always believed that companies which conduct their business in a responsible and sustainable way are more likely to succeed over time, benefiting both you and society. Find out more about our work in this space, and that of our dedicated asset manager, Aviva Investors, in the chart below:
2001 Aviva Investors founding CDP signatory (previously 2017 Carbon Corporate Human Disclosure Rights Benchmark 1994 Project) & first 2007 2016 launched at Among first asset manager Aviva is founding 2012 Asked to join Aviva’s offices asset managers to formally signatory to Founded Corporate 2015 European to publish integrate ClimateWise Sustainability CEO speaks at UN Commission’s High Responsible Investor Corporate corporate and Accounting Reporting Coalition General Assembly Level Expert Group Award for Innovation Governance responsibility to for Sustainability with call to action at on Sustainable on Sustainable & Industry Voting Policy voting policy Principles Rio+20 Conference Finance Finance Leadership 2017
1970 2020
1970 1995 2006 2010 2014 2016 2018 2019 Voting at Pledge at the UN Founding Aviva Investors Launched Asked to join the UN award for ESG Manager of company summit to ‘balance signatory of in vanguard of Roadmap for Financial Stability sustainability work the Year, Global meetings of economic the Principles signing the UK Sustainable Board Taskforce The World Investor Group development, the for Responsible Stewardship Capital Markets on climate-related Benchmark Alliance Investment welfare of people Investment Code & Sustainable financial disclosures is launched Excellence Awards and a sound Capital Markets Stewardship environment, by Manifesto Disclosure incorporating these (Asset Manager) considerations into award category at business activities’ the ICGN Global
Our achievements
• We’ve been a leader of responsible investment for nearly 40 years.
• Aviva Investors was among the first asset managers to publish a Corporate Governance voting policy in 1994.
• Aviva was the first carbon-neutral international insurer in 2006.
• We were awarded the UN Momentum for Change Award in 2017 for our commitment to reducing our environmental impact, and for helping to write the world’s first corporate governance code and the UN Principles for Responsible Investment.
• ESG manager of the year 2019 - Global Investor Group Investment Excellence Awards.
4 The Stewardship Funds and responsible investment
AV612388_SP99883_0721.indd 4 22/07/21 10:39 AM What are the Stewardship Funds? 1. Heritage Launched in 1984, the Stewardship UK Equity Fund was the UK’s first social and environmentally screened fund. 2. Screening, company engagement and measuring the Funds’ ESG credentials ESG stands for environmental, social and governance criteria. These are the factors which investment managers use to decide how well a business is performing with regard to its impact on the environment, on society, and therefore its role in the communities where it operates, and also how a company functions in general, in terms of executive pay, diversity and shareholder rights, for example. The Stewardship process involves three layers: screening/excluding firms that carry out harmful activities and practices; engagement with companies to foster change; and measuring the Stewardship Funds’ ESG or environmental, social and governance performance. Companies must be aligned with the Stewardship values, namely that they do not harm the world in which they operate. Certain sectors - alcohol, gambling, tobacco, coal and oil - will always conflict with the Stewardship values and are therefore excluded. 3. Scale and experience in Stewardship team Aviva Investors and Stewardship have a long history of engaging with companies to help them become more aware of the risks they face and to encourage positive change. An experienced fund management team sits alongside a well-resourced team of more than 20 experienced responsible investment professionals. 4. The Stewardship Fund range covers the key asset classes Customers can access UK and international equities, fixed income, or a blend of equities and fixed income via the Stewardship Funds. There are five funds in the Stewardship range - the Stewardship UK Equity, Stewardship Equity Income, Stewardship Bond, Stewardship International Equity and Stewardship Managed Funds. 5. Stewardship and Aviva Investors combine their expertise as responsible investors The Stewardship LIK Equity Fund was the first ethical fund of its kind in the LIK when it was launched in 1984. The Stewardship Funds, the Stewardship LIK Equity Fund, the Stewardship LIK Equity Income Fund, the Stewardship International Fund, the Stewardship Bond Fund and the Stewardship Managed Fund have been managed by global fund management group Aviva Investors since April 2018.
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AV612388_SP99883_0721.indd 5 22/07/21 10:39 AM Working together to create a better world for you to retire into and for your family to inherit
More and more of us want to know that our pension savings are being invested in businesses that contribute positively to the world around us to help create the type of world we want to retire into, and the world that the generations after us will inherit. At the same time, as a guardian of people’s money, we believe we have a duty to use our customers’ money in a responsible way, to help foster change across businesses, whether that be for the environment, for society or for people’s lives and communities, and the world in general. Stewardship Lifestyle Strategy With this in mind, in July 2019, we combined our expertise as a leading pension provider, with the fund management expertise of Aviva Investors and the heritage of the Stewardship Funds to create the Stewardship Lifestyle Strategy.
The Stewardship Lifestyle Strategy, which is described in detail on page 13, incorporates both ethical, environmental, social and governance (ESG) consideration. The strategy gives you the opportunity to invest responsibly throughout your retirement journey, and in this way enables you and your pension to have a positive impact on the earth and its people.
6 The Stewardship Funds and responsible investment
AV612388_SP99883_0721.indd 6 22/07/21 10:39 AM Stewardship philosophy and criteria
Philosophy Launched in 1984, the Stewardship Funds have a proud heritage as the UK’s first ethical fund range, while also incorporating environmental, social and governance (ESG) considerations. The aims of the Stewardship Funds have remained broadly consistent since then:
1. Exclude companies that do not meet certain ethical standards or that harm society or the environment 2. Support companies that make a positive contribution to society 3. Encourage better business practices through shared ownership and dialogue
The Stewardship Funds’ philosophy recognises that the contribution companies make to a sustainable society depends both on the products and services they provide and the way they provide them. Shareholders have a responsibility to address these issues actively with the companies they invest in to deliver a positive outcome for their customers, suppliers, employees, local communities and the environment. Criteria Companies and their shareholders can and do make a positive contribution to society. However, companies can also cause ethical, social and environmental issues by, for example: making harmful products; acting without regard to customers, employees and the communities in which they operate; polluting the environment; or failing to have acceptable governance practices.
Stewardship aims to determine whether the benefits delivered by a company or a sector outweigh the potential harm they may cause when creating those benefits and if, as shareholders, we believe we can influence them to reduce the harm and increase the benefits.
Companies generally operate in such a way that some aspects of their activities are acceptable to Stewardship while others are not. In some instances, failings may not be significant enough to disqualify a company from inclusion in the portfolio. In such cases, Stewardship takes a balanced view across the company’s activities.
The Stewardship Funds investment approach is based on three layers, and we’ll cover them in more detail next:
1. Exclusions – what a company does 2. Engagement – how a company goes about its business 3. Outcome – measuring the ESG performance of the companies we invest in at a fund level.
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AV612388_SP99883_0721.indd 7 22/07/21 10:39 AM Exclusions, engagement and outcomes
Layer 1: Exclusions Some industries and the activities of some businesses will always conflict with the values of the Stewardship Funds.
Below we highlight our negative screening criteria and the reasons for excluding companies from the Stewardship Funds: Ethical & Social Exclusions Issue Negative screening criteria Adult entertainment, pornography • >10% of turnover from adult entertainment or pornography. and violence • >10% of turnover from violent video games. • Any involvement in the manufacture of guns.
Alcohol • >10% of turnover from the manufacture of alcoholic products. • >25% of turnover from the distribution or sale of alcohol products (e.g. retail, hotels, restaurants and leisure industries).
Animal welfare – animal testing • Any involvement in the development and manufacture of non‑medical related products (such as cosmetics, personal care, household cleaning products) where this has involved animal testing and where the company does not disclose an animal testing policy or statement. • Any involvement in providing animal testing services and where the company does not disclose an animal testing policy or statement.
Animal welfare – fur • Any involvement in production or design of fur pelt, raw materials and products containing fur or fur trim. It also includes companies that hunt, raise, trap animals for their fur.
Endangered species • Involvement in the retail of threatened species, or components thereof, with insufficient action to prevent it.
Gambling • >10% of turnover from gambling related activities.
Genetic modification • Companies that genetically modify plants (e.g. seeds, crops) and other organisms intended for agricultural use or human consumption.
Labour standards, human rights and • Companies that are the subject of severe controversies related to Health & Safety controversies health & safety breaches or systematic failure to protect human rights and labour standards, with no evidence of serious or lasting remedial action.
Military – weapons and weapon • Any involvement in the manufacture of whole weapons systems, systems components or support systems (including conventional, Biological-Chemical, cluster munitions, depleted uranium and nuclear weapons).
Tobacco • Any involvement in the manufacture of tobacco related products. • >25% of turnover from distribution or sale of tobacco related products (e.g. retailers).
8 The Stewardship Funds and responsible investment
AV612388_SP99883_0721.indd 8 22/07/21 10:39 AM Environmental Exclusions Issue Negative screening criteria Chemicals • Any involvement in production of chemicals restricted by the following international agreements: the Stockholm Convention, Montreal Protocol and OSPAR Priority List. This includes persistent organic pollutants, PCBs and CFCs. (Note manufacturing lead compounds is a Layer 2 engagement issue).
Climate change - Aviation • >10% of turnover from aviation related activities i.e. airlines, airport operators and aircraft manufacturers.
Coal • >25% turnover from thermal coal mining or coal-fired power generation.
Oil • >10% turnover from oil sands extraction. • >25% turnover from oil operations, including pipelines. • Any involvement in oil operations in the Arctic.
Nuclear power generation • >10% of turnover from nuclear power activities. • Any company deriving revenues from the mining of uranium.
Pollution • Companies that are the subject of severe controversies related to environmental pollution, with no evidence of serious or lasting remedial action.
Layer 2: Engagement At its simplest, Stewardship means taking responsibility for something entrusted into our care. We monitor, engage and, where appropriate, intervene on matters that may affect the long-term value of the companies we invest in and the capital invested in them.
We adopt a two-tier approach to engagement:
Tier 1 Companies are encouraged to have, as a minimum, strong sustainability policies and systems for the following three areas:
a) Target to reduce greenhouse emissions, disclosure of data on water use and waste
b) Policies to prevent discrimination, child and forced labour, globally applicable human rights policy
c) Commitments to improving gender and ethnic diversity across the business and in particular at a board and senior management level. Tier 2 The Stewardship Funds also engage on the three issues below in depth:
1. Climate change: the team focuses on identifying which companies could have a better approach to climate change.
a) Adopt Science Based Targets for emissions reduction to prove commitment to Paris Agreement 1.5C goal
b) Report publicly according to the Taskforce for Climate Related Financial Disclosure recommendations
2. Board diversity: identify holdings which have low representation of women on the board and encourage them to meet the 33% target set by the UK Government’s Hampton Alexander Review
3. Plastic pollution: engaging with consumer goods companies to encourage the development of strategies to reduce, reuse and recycle plastic far more effectively.
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AV612388_SP99883_0721.indd 9 22/07/21 10:39 AM Stewardship engages with businesses to foster positive change
As well as using our voice as a shareholder to vote for change at company meetings, we also engage with businesses themselves, which is the second layer of the Stewardship philosophy. We believe strongly that engagement goes hand in hand with being a ‘good’ investor, of being an investor with a conscience, and therefore wanting to guide businesses in the right direction, whether that be for their employees, the environment or society as a whole. Rather than walking away from a business whose activities might conflict with the Stewardship values, we believe it’s better to stay invested and to encourage change. We work with businesses to set stronger goals, for example on board diversity or Science Based Targets on greenhouse gas reduction. Key engagement areas: The Stewardship team carried out a total of 409 engagements with 118 companies in the year to the end of March 2020. A total of 194 of these engagements were focused on climate change, plastic pollution and board diversity. Firms’ sustainability policies are monitored across all investments. We engage with companies in all sectors – financials, services, retail, industrials, technology. The experience and intellectual capital of our fund managers and their relationships with businesses facilitates the engagement process.
Subject Number of engagements in year to end March 2020 Sustainability policies and reporting is a minimum requirement for all companies held in the Stewardship Funds.
Climate 100 engagements including with banking group Barclays change
Plastic 4 engagements including with consumer goods manufacturer Unilever pollution
Board 90 engagements including with wealth manager St James’s Place diversity
10 The Stewardship Funds and responsible investment
AV612388_SP99883_0721.indd 10 22/07/21 10:39 AM Layer 3: Outcome non-financial performance We believe that improving the “non-financial” performance of companies is also likely to have a positive effect on their long-term financial performance. We therefore monitor the performance of the Stewardship Funds against several non-financial targets. The table below shows the performance of the Stewardship Equity Funds against these non-financial targets over the 12 months to 31 March 2020.
ESG performance – Stewardship Funds Stewardship MSCI Stewardship Stewardship FTSE All versus their respective benchmark International World UK Equity UK Equity Share 2019 - 2020 Equity Fund Index Fund Income Fund Index *Carbon emissions t Co2e/$1M invested 10 113 29 51 180
**Carbon emissions t Co2e/M $ revenue 22 181 31 45 146
***Carbon emissions t Co2e/M $ market cap 34 160 28 42 121
% data coverage 98 100 99 95 95 % of portfolio deriving > 20% of revenue from clear 7 5 3.1 7.4 2.5 tech solutions.
% of companies with fossil fuel reserves 0 6 0 0 15
% of portfolio with emissions reduction target 70 78 86 77 82
% of portfolio with a diversity policy 58 63 60 56 54 % of portfolio with a detailed formal policy on 80 73 72 63 74 bribery and anti-corruption
Average % women on the Board across portfolio 29 30 35 35 35 % of portfolio with high social or environmental 24 21 23 37 39 impact with pay linked to sustainability
% of companies with a formal anonymous 17 12 27 22 19 whistleblower system with legal protection
Source: MSCI Index. Weighted averages are used for the Funds and their respective benchmarks. Please note that in 2020 we changed the data source for the Stewardship Funds to harmonise ESG reporting across the Funds. As a result, data for the period to end March 2020 is not comparable to data to end March 2019. *What is the Fund’s carbon footprint per million dollars invested? **How efficient is the Fund in terms of carbon emissions per unit of output? ***What is the Fund’s exposure to carbon intensive industries?
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AV612388_SP99883_0721.indd 11 22/07/21 10:39 AM Governance of the Stewardship Funds Three levels of oversight
The Aviva Investors’ Global Sustainable Outcomes team, headed by Marte Borhaug, runs the 1 ESG screening and assessment research for the Stewardship Funds, working closely with the fund managers.
The Aviva Investors’ Investment Oversight Committee conducts a deep dive of environmental, social and governance issues every six months. The Committee also reviews the Stewardship 2 Funds, the investment policies and the holdings to ensure they continue to reflect the Stewardship philosophy and remain suitable for the Stewardship Funds.
Aviva Investors employs a panel of subject-matter experts to act as independent advisers on a wide range of ESG issues to ensure that we listen to different voices and incorporate experts’ views into our thinking. John Elkington of think-tank and advisory firm Volans and Annelisa Grigg, 3 formerly of the UN Environment Programme World Conservation Monitoring Centre are joined by Niall O’ Shea, former Head of Responsible Investment at Royal London and the Co-operative Asset Management.
12 The Stewardship Funds and responsible investment
AV612388_SP99883_0721.indd 12 22/07/21 10:39 AM The Stewardship Funds & Lifestyle Strategy
As mentioned on page 6, we launched the Stewardship Lifestyle Strategy in July 2019. We explain how this strategy works on this page.
Lifestyle Strategy The Stewardship lifestyle strategy gives our customers the opportunity to save for a future for themselves and their families through the Stewardship Funds, while actively contributing to a sustainable long-term future for the world around them.
The Lifestyle Strategy uses the Stewardship International, Stewardship Managed and Stewardship Bond Funds from when investors join the pension scheme to when members reach their selected retirement date.
Please note that the value of investments can fall as well as rise and are not guaranteed. This means that the value could be worth less than has been paid into your plan.
The chart shows the underlying funds which make up the strategy and how investors’ monies are gradually moved from one fund to another during the journey to retirement.
Stewardship Lifestyle Strategy – taking customers through the journey to retirement
100%
90%
80%
70%
60%
50%
40%
% of portfolio invested % of portfolio 30%
20%
10%
0% 10 9 8 7 6 5 4 3 2 1 0
years to retirement Stewardship Lifestyle Strategy
Aviva Stewardship International Fund Aviva Stewardship Managed Fund Aviva Stewardship Bond Fund
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AV612388_SP99883_0721.indd 13 22/07/21 10:39 AM The funds the Stewardship Lifestyle is invested in
The table below shows the funds’ risk ratings, risk warnings and objective.
Fund Objective Stewardship Managed Fund The fund aims to provide exposure to a diversified portfolio of ethically screened assets in order to Risk rating: 4 generate capital growth and income. The ethical screening criteria of the fund will mean that its Risk warnings: A, B, C, D, E investments are more restricted than a non-ethical fund. The fund may invest in UK and international equities, bonds, warrants, money market instruments and short-term bonds. The fund may invest directly or indirectly. For more information about our Stewardship philosophy please visit https://www.aviva.co.uk/ retirement/fund-centre/stewardship/ Stewardship Bond Fund The objective of the fund is to achieve a reasonable income primarily from sterling denominated or hedged Risk rating: 3 back to sterling broad investment grade securities, using a set of ethical investment criteria. The fund Risk warnings: A, E, F may also invest in derivatives, cash, deposits, units in collective investment schemes and money market instruments. For more information about our Stewardship philosophy, please visit https://www.aviva.co.uk/ retirement/fund-centre/stewardship/. Stewardship International Fund The objective of the fund is to achieve long term capital growth by investing primarily in companies Risk rating: 6 listed in the world stock markets, using a set of ethical investment criteria. The fund may also invest Risk warnings: A, B, C, D, E in derivatives, cash, deposits, units in collective investment schemes and money market instruments. For more information about our Stewardship philosophy, please visit https://www.aviva.co.uk/retirement/fund- centre/stewardship/.
14 The Stewardship Funds and responsible investment
AV612388_SP99883_0721.indd 14 22/07/21 10:39 AM Asset allocation The pie charts below show what the Stewardship International, Stewardship Managed and Stewardship Bond Funds invest in as at the end of March 2021.
International Equity Allocation % as at end March 2021 US equities 52.2%
UK equities 21.2%
European equities 12.0%
Asia ex Japan equities 6.5%
Japanese equities 4.0%
Other 1.9%
Cash 1.3% Source: Aviva Investors, 31 March 2021.
Managed Allocation % as at end March 2021 International equities 67.1%
Fixed Income 21.8%
UK equities 9.6%
Cash/Money Market 1.4%
Source: Aviva Investors, 31 March 2021.
Bond Allocation % as at end March 2021 UK corporate bonds 90.0%
UK government bonds 4.9%
Cash/Money Market 2.1%
Other 3.0%
Source: Aviva Investors, 31 March 2021.
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AV612388_SP99883_0721.indd 15 22/07/21 10:39 AM Helping you to understand risk
The Aviva Investment Governance team allocates risk ratings and warnings for all funds included in the Stewardship fund range available to you. Please note that not all of the risk warnings listed on pages 17 and 18 apply to each fund and there is no direct relationship between the number of risk warnings and the risk ratings shown below. Risk ratings Aviva calculates its risk ratings for these funds using historical performance data, based upon the methods set by European Union rules. We also carry out further research using information from the fund’s investment manager(s). We review each fund’s risk rating annually and these may change over time. The timing of your investment decisions is very important and you should consult a financial adviser. Past performance is not a guarantee of future performance.
Our risk ratings go from 1 to 7, with 1 being the lowest and 7 the highest. As a point of reference, a fund with a risk rating of 4 (medium volatility) would typically experience the volatility you would expect from a fund invested in a range of different investments (for example shares, property and bonds) without any bias to a particular investment type. Remember that all investment funds carry some element of risk but this varies from fund to fund.
RISK RATING VOLATILITY DESCRIPTION
The historical performance of funds with this risk rating has typically experienced the highest volatility of all 7 HIGHEST the funds Aviva has rated. This means that these funds have the highest potential for substantial changes in value compared with other Aviva insured funds.
The historical performance of funds with this risk rating has typically experienced high volatility 6 HIGH compared with other funds Aviva has rated. This means that these funds have a high potential for substantial changes in value compared with other Aviva insured funds.
The historical performance of funds with this risk rating has typically experienced medium to high 5 MEDIUM TO HIGH volatility compared with other funds Aviva has rated. This means that these funds have a medium to high potential for substantial changes in value compared with other Aviva insured funds.
The historical performance of funds with this risk rating has typically experienced medium volatility 4 MEDIUM compared with other funds Aviva has rated. This means that these funds have a medium potential for substantial changes in value compared with other Aviva insured funds.
The historical performance of funds with this risk rating has typically experienced low to medium 3 LOW TO MEDIUM volatility compared with other funds Aviva has rated. This means that these funds have a low to medium potential for substantial changes in value compared with other Aviva insured funds.
The historical performance of funds with this risk rating has typically experienced low volatility 2 LOW compared with other funds Aviva has rated. This means that these funds have a low potential for substantial changes in value compared with other Aviva insured funds.
The historical performance of funds with this risk rating has typically experienced the lowest volatility 1 LOWEST of all the funds Aviva has rated. This means that these funds have the lowest potential for substantial changes in value compared with other Aviva insured funds.
Please note: These investment risk ratings are based on our interpretation of investment risk and are only meant as a guide. These levels of investment risk are not guaranteed and may change in the future.
The colours in this table may be different to those used online; however, the ratings and approach to investment risk remain the same.
16 The Stewardship Funds and responsible investment
AV612388_SP99883_0721.indd 16 22/07/21 10:39 AM Risk warning codes Here’s how our risk codes work There are different risks associated with investing in funds. To help you understand what these are, we assign risk warning codes (letters A to J) to each fund. You’ll see these letters at the end of each fund description. Each type of risk is explained clearly below. Please note that there’s no direct link between the number of risk codes and the risk ratings.
Risk code Risk code rescription A Investment is not guaranteed: The value of an investment is not guaranteed and can go down as well as up. You could get back less than you have paid in. Specialist funds: Some funds invest only in a specific or limited range of sectors and this will be set out in the fund’s aim. These funds may carry more risk than funds that can invest across a broader range or a variety of sectors. Suspend trading: Fund managers often have the ability, in certain circumstances, to suspend trading in their funds for as long as necessary. When this occurs, we will need to delay the ‘cashing in’ or switching of units in the relevant fund. You may not be able to access your money during this period Derivatives: Derivatives are financial contracts whose value is based on the prices of other assets. Most funds can invest in derivatives for the purpose of managing the fund more efficiently or reducing risk. Some funds also use derivatives to increase potential returns, known as ‘speculation’. For those funds we apply an additional risk warning (see Risk F).
B Foreign Exchange Risk: When funds invest in overseas assets the value will go up and down in line with movements in exchange rates as well as the changes in value of the fund’s holdings.
C Emerging Markets: Where a fund invests in emerging markets, its value is likely to move up and down by large amounts and more frequently than one that invests in developed markets. These markets may not be as strictly regulated and securities may be harder to buy and sell than those in more developed markets. These markets may also be politically unstable which can result in the fund carrying more risk.
D Smaller Companies: Where a fund invests in the shares of smaller companies, its value is likely to move up and down by large amounts and more frequently than one that invests in larger company shares. The shares can also be more difficult to buy and sell, so smaller companies funds can carry more risk.
E Fixed Interest: Where a fund invests in fixed interest securities, such as company, government, index-linked or convertible bonds, changes in interest rates or inflation can contribute to the value of the investment going up or down. For example, if interest rates rise, the value is likely to fall.
F Derivatives: Derivatives are financial contracts whose value is based on the prices of other assets. The fund invests in derivatives as part of its investment strategy, over and above their use for managing the fund more efficiently. Under certain circumstances, derivatives can result in large movements in the value of the fund and increase the risk profile, compared to a fund that only invests in, for example, equities. The fund may also be exposed to the risk that the company issuing the derivative may not honour their obligations, which could lead to losses.
G Cash/Money Market Funds: These are different to cash deposit accounts and their value can fall. Also, in a low interest rate environment the product or fund charges may be greater than the return, so you could get back less than you have paid in.
H Property funds: The fund invests substantially in property funds, property shares or direct property. You should bear in mind that: • Properties are not always readily saleable and this can lead to times in which clients are unable to ‘cash in’ or switch part or all of their holding and you may not be able to access your money during this time • Property valuations are made by independent valuers, but are ultimately subjective and a matter of judgement • Property transaction costs are high due to legal costs, valuations and stamp duty, which will affect the fund’s returns.
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AV612388_SP99883_0721.indd 17 22/07/21 10:39 AM I High Yield Bonds: The fund invests in high yield (non- investment grade) bonds. Noninvestment grade bonds carry a higher risk that the issuer may not be able to pay interest or return capital. In addition, economic conditions and interest rate movements will have a greater effect on their price. There may be times when these bonds are not easy to buy and sell. In exceptional circumstances, we may need to delay the ‘cashing in’ or switching of units in the fund and you may not be able to access your money during this period.
J Reinsured Funds: Where a fund invests in an underlying fund operated by another insurance company through a reinsurance agreement, if the other insurance company were to become insolvent, you could lose some or all of the value of your investment in this fund.
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AV612388_SP99883_0721.indd 18 22/07/21 10:39 AM Appendix
Aviva Investors’ ESG capabilities team The Stewardship team benefits from the rich experience in responsible investment across the Aviva Investors business, which is shown below:
Equity and Credit
Sustainable Finance ESG Solutions Governance & Sustainable Outcomes Corporate ESG Research ESG Real Assets Centre for Excellence Stewardship
Market reform, strategic Advisory and strategic Engagement and voting Thematic and impact Company and sector ESG research for real partnerships with NGOs, asset allocation an impact and ESG research, sustainable research estate, infrastructure and training and coordination product range private debt across Aviva Investors
Steve Waygood Sophie Rahm Mirza Baig Marte Borhaug Paul Lacoursiere Ed Dixon Chief Responsible Global Head of Global Head of Global Head of Global Head of Corporate Head of ESG Real Assets Investment Officer ESG Solutions Governance & Sustainable Outcomes ESG Research Stewardship
Solutions Abigail Herron Global Head of ESG Strategic Partnership 4* 4* 5* 4* 7* 3*
Solutions Liquid Markets Real Assets All Denholm Colin Purdle Peter Fitzgerald Daniel McHugh CIO CIO Credit CIO Multi-Asset CIO Real Assets
* number of people in the team
Marte Borhaug – Global Head of Sustainable Solutions Marte leads the Sustainable Outcomes team, which is responsible for ensuring Aviva Investors contributes to the United Nation’s Sustainable Development Goals through positive impact. Her team delivers thematic research used across investment teams on climate change, biodiversity, diversity and inequality, as well as running all thematic screens across Aviva Investors’ funds. Marte previously led Aviva’s sustainability campaigns as Head of EU public policy, looking after the company’s public policy work in Brussels on sustainable finance, financial reform and Brexit. She joined Aviva from the Confederation of British Industry (CBI) where she was Head of Financial Services and Corporate Governance. Before this Marte led sustainable finance campaigns in Brussels at the EU consultancy, The Brussels Office and the Mission of Norway. She holds an MSc in European Political Economy from the London School of Economics. Marte is an adviser to Rosa UK, a charity that funds grassroots women’s organisations to help make the UK a fairer, safer place for women. She is also adviser to the social accelerator Bethnal Green Ventures.
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AV612388_SP99883_0721.indd 19 22/07/21 10:39 AM Eugenie Mathieu – Senior ESG Analyst on Stewardship, Earth Pillar Lead Eugenie was part of Greenpeace International’s Forests team, where she worked on deforestation driven by palm oil, pulp & paper, cattle and soy. She spent 14 years as a sustainability consultant advising major international companies, including FTSE 100s, on their environmental, social and ethical strategies and performance. Prior to consulting, Eugenie worked with EIRIS on the creation of the FTSE4Good indices in 2001, following an MSc in Business and Environment at Imperial College, London, and two years at Bain & Company.
Rick Stathers – Senior Global Responsible Investment Analyst, Climate Pillar Lead Rick joined the Aviva Investors Global Responsible Investment team in 2018 with a primary focus on climate change and responsibility for ESG coverage of the industrials sector. Rick has almost 20 years’ experience in responsible investment. He was Head of Responsible Investment at Schroders for 16 years and a Global Director at the CDP (formerly known as the Carbon Disclosure Project) for two years. He has a bachelor’s degree in agriculture and Food Science and a Masters in Environmental Technology. Rick has a particular interest in syntropic agriculture and the dual role of forests in building resilience in the food system and combating climate change.
Vaidehee Sachdev – Impact Analyst - Social Pillar Lead Vaidehee is the Social Pillar Lead in the Sustainable Outcomes Team. She provides thematic expertise for the Social Transition Fund and on Aviva’s work on human and labour rights. Vaidehee worked in the NGO sector prior to joining Aviva Investors. This included developing a corporate reporting framework for workforce and labour practices at ShareAction, and delivering research on human rights abuses, corruption and minority groups for environmental and human rights organisations.
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AV612388_SP99883_0721.indd 20 22/07/21 10:39 AM Trevor Green – fund manager of the Stewardship UK Equity Fund Trevor has managed UK equities at Aviva Investors since 2011. He joined from Henderson Global Investors, where he was co-manager of the Henderson Managed Distribution Fund. Before that Trevor worked at New Star Asset Management.
Tom Grant – co-fund manager of the Stewardship UK Equity Fund – Portfolio manager at Aviva Investors In January 2020, Tom was appointed as Co-Fund Manager of the Aviva UK Equity Stewardship Fund alongside Trevor Green. In addition, Tom also has lead sector coverage for Diversified Financials and Insurance. Tom joined Aviva Investors following his graduation from Durham University, where he obtained a BSc (Hons) in Natural Sciences which ranged from Cellular Biology to Glaciology. In his penultimate year Tom carried out a work experience with Towry, now Tilney Group, in their Funds of Funds investment team. Tom is a CFA® Charterholder and holds the IMC certificate. He has also completed the Business Sustainability Management course (‘BSM’) run by Cambridge University’s Institute for Sustainability Leadership.
James Balfour – fund manager of the Stewardship UK Equity Income Fund James joined Aviva Investors in 2012 as part of the Aviva Investors Graduate Training scheme, initially as UK Equity Analyst before becoming assistant fund manager. James was appointed co-fund manager of the firm’s UK Equity Income Strategy in May 2016.
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AV612388_SP99883_0721.indd 21 22/07/21 10:39 AM Jaime Ramos Martin – fund manager of the Stewardship International Fund Jaime is a fund manager in the global equity team. He joined Aviva Investors from Standard Life Aberdeen where he was a global equity fund manager for 12 years. Before this, Jaime worked at Mercer investment Consulting.
Julie Zhuang – co-fund manager of the Stewardship International Equity Fund – Portfolio manager Julie is a Portfolio Manager in our Global Equity team. She is the deputy Portfolio Manager on the Climate Transition Global Equity fund and contributes investment ideas to the Stewardship International Equity strategy, as well as the broader Global Equities team. Prior to joining Aviva Investors, Julie was at UBS Investment Bank covering European Luxury Goods & Global Brands sector. Before this she was at Barclays Investment Bank where she covered European Luxury Goods and European Food Retail. Julie holds a MSc in Management from HEC Paris with a CEMS double degree from the LSE, and a BA in French Language and Literature from Beijing Foreign Studies University. She is also a CFA charterholder.
Thomas Chinery – fund manager of the Stewardship Bond Fund Tom co-manages sterling investment grade funds, the Pre-Annuity Tax Transparent Fund (TTF) and the Stewardship Bond Fund. Tom is also a Responsible Investment Officer and is leading the efforts to ensure that ESG factors are integrated across the credit process. Before joining Aviva Investors, Tom worked at Mitsubishi Trust Bank managing a credit total-return treasury book
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AV612388_SP99883_0721.indd 22 22/07/21 10:39 AM Stewardship Funds
The table below shows the Stewardship Fund details including fund manager, launch date, benchmark and ABI sector. Stewardship UK Equity Benchmark FTSE All-Share Custom Index TR Sector UK All Companies Fund managers Trevor Green and Tom Grant Launch date May 1984 Stewardship UK Equity Income Benchmark FTSE All-Share Custom Index TR Sector UK Equity Income Fund manager James Balfour Launch date (NGP) September 1999 Stewardship Bond Benchmark Markit iBoxx Sterling Non Gilts Overall TR Sector UK Fixed Interest Fund manager Thomas Chinery Launch date (NGP) April 2018 Stewardship International Equity Benchmark MSCI World Index NDR TR GBP Sector Global Equities Fund managers Jaime Ramos Martin and Julie Zhuang Launch date (NGP) September 2010 Stewardship Managed Benchmark ABI Mixed Investment 40-85% Shares sector Launch date (NGP) September 1999
* The Stewardship Managed Fund comprises the Stewardship International Fund (approximately 80% of the Fund) and the Stewardship Bond Fund (approximately 20% of the Fund). This is reflected in the AUM for the Fund. For objectives, risk codes and top 10 holdings, please see fund factsheets in fund centre: https://www.fundslibrary.co.uk/FundsLibrary.BrandedTools/AvivaConsumer/FundCentral
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AV612388_SP99883_0721.indd 23 22/07/21 10:39 AM Glossary
Actively managed funds The fund manager chooses which investments to buy and sell, with the aim of achieving higher returns than the fund’s benchmark.
Asset allocation This refers to the composition of a fund and its exposure to different asset classes, including company shares, fixed interest and commodities. Investing in different asset classes can help to provide the benefits of diversification and reduce risk.
Asset class A collective term to describe different types of investment such as fixed interest investments and company shares.
Assets Under Management (AUM) Assets Under Management is the total amount of money invested into a fund.
Diversification Diversification refers to investing in more than one type of investment. This approach is taken by investment specialists to prevent investors ‘putting all of their eggs in one basket’ so to speak and to prevent investors from relying on the performance of company share, property or bonds during their journey to retirement. Investing in company shares and bonds can help to reduce the risk that investors might be exposed to as this can reduce their exposure to the fall in value of company shares, for example, should stock markets fall, which would negatively impact the performance of their investment savings.
Emerging market India and Brazil are two good examples of emerging markets. Both countries are experiencing industrialisation and are growing rapidly as a result. Investing in emerging markets can provide higher returns, albeit with a higher level of risk, and therefore greater potential for losses.
ESG ESG stands for environmental, social and governance criteria. These are the factors which investment managers use to decide how well a business is performing with regard to its impact on the environment, on society, and therefore its role in the communities where it operates, and also how a company functions in general, in terms of executive pay, diversity and shareholder rights, for example
Equities (or ‘shares’) Shares are sold or issued by companies, in exchange for a small % ownership, to raise money to help them grow and develop, for example, Shares are bought and sold on a stock market, such as the London Stock Exchange, and their value can go up and down, sometimes sharply, depending on the fortunes of the company and stock markets in general.
Fixed interest (or ‘bonds’) Loans issued by a government (those issued by the UK government are also known as ‘gilts’) or a company (also known as ‘corporate bonds’). The return is usually in the form of regular interest payments for an agreed period of time.
Fund Is where an investor’s assets are pooled with those of other investors and then invested in shares, fixed interest or property on their behalf by a fund manager.
Funds of funds A fund of funds invests in several different funds, rather than directly in shares, bonds or other investment types. Funds of funds aim to provide investors with greater diversification, enhanced returns, lowered risk or a combination of all three. This type of fund may invest in actively managed funds, index funds or both. Funds of funds may be designed by Aviva for general use, or designed specifically by an adviser for a specific scheme.
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AV612388_SP99883_0721.indd 24 22/07/21 10:39 AM Lifestyle strategy A Lifestyle strategy aims to grow your money when retirement is a long way off, then to get it ready for the different ways that you can take it when you retire. They are designed for people who don’t want to make an active fund choice.
Money market instruments The term ‘money market instruments’ is a mechanism for short-term borrowing and lending between organisations. Money market investments typically include what are described as ‘near-cash instruments’, including certificates of deposit, floating rate notes and treasury bills. They are not to be confused with bank or building society deposit accounts.
The returns that money market investments can provide will reflect the rate of interest set by the Bank of England and will typically be lower than returns from fixed interest investments, property and shares. While the value of money market instruments will normally fluctuate less than the value of fixed interest investments, property and shares, there is a risk that they won’t keep pace with inflation. Also, if the annual management charge of a money market fund is higher than prevailing interest rates or the returns generated, the value of the fund will go down.
Risk Risk is how likely investors are to lose money if they invest in a particular asset. However, by investing in riskier assets, you could potentially earn a better return over the long term.
Underlying funds This is a collective term used to refer to the funds included in a fund of funds.
Volatility As far as investing is concerned, risk tends to be associated with potentially higher volatility: meaning the higher the risk levels, Is the more likely the value of a fund may go up and down from day to day.
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AV612388_SP99883_0721.indd 25 22/07/21 10:39 AM Aviva Life & Pensions UK Limited. Registered in England No. 3253947. Registered Office: Aviva, Wellington Row, York, YO90 1WR. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Member of the Association of British Insurers. Firm Reference Number 185896. aviva.co.uk
SP99883 07/2021 © Aviva plc
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