The very nature of their business means financial service providers are under constant scrutiny. Briefing examines Aviva’s CSR management programme and discovers challenges at both the local and international level.
Managing an effective corporate social responsibility programme throughout a large, multinational group is a complex task in any business. And when that business is operating in the multi-faceted world of finance, an area that has profound implications for most people throughout society, the task becomes that much more burdensome.
Aviva PLC, the owner of Norwich Union and the largest provider of life and pension products in the UK, faces up to the challenges with a comprehensive set of policies. As one of the leading providers of financial services in Europe and with substantial operations across the world, it has encountered over three years of adverse economic conditions. Furthermore, the company has had to face the enormous task of securing its reputation in the wake of the mis-selling of endowment mortgages, an issue that has affected the entire UK industry.
The group employs 51,000 people across the globe and at the last set of full-year financial results in 2003 reported an operating profit of £1.91bn before tax. In that year, Aviva made premium income and investment sales from continuing operations of about £30bn and managed over £240bn of assets.
In 2004, Aviva published what was its third CSR report – having previously produced three environment reports. The company is an active member of the United Nations’ Global Compact initiative, it chairs the Global Compact UK Forum and it supports the UN Environment Programme (UNEP) finance initiative. Aviva also chairs the FORGE group of insurers and banks, which has produced guidance on the management and reporting of the environment and CSR. It is now engaged on its third project, which is to generate reliable CSR key performance indicators for the financial sector.
Aviva’s CSR report is extensive by any standards and is easily accessible to one and all on its corporate website. The company deals with the management of CSR in a family of eight policies: standards of business conduct; customers; human rights; workforce; health and safety; suppliers; community and environment. Aviva conducts regular reviews of each of these eight policy areas, believing that demonstrable performance should play a key part in any successful business. But how do Aviva’s policy statements stand up in the cold light of day?
‘Umbrella’ CSR
As director of CSR, Anthony Sampson reports directly to the group company secretary and chief executive, presenting annually on the CSR programme to the board of directors.
Aviva’s CSR management structure effectively acts as an ‘umbrella organisation’. Because the group has such a large range of businesses – varying in size from just 45 people to 13,000 – and considering its vast geographical spread, each unit’s CEO will appoint someone to implement and develop CSR. The nominated manager will report to Sampson, who sets the policy lead.
“When you descend into the business units, I probably wouldn’t be able to tell you the names of the people, beyond the names of the nominated (CSR) manager responsible for this area,” Sampson tells Briefing. “The only way you can deal with this [CSR management] is by unbundling it and passing it on to different people with different accountabilities within the organisation”.
Aviva’s belief that CSR should play an integral part in the business is demonstrated by the fact that it does not dedicate a separate budget to its CSR programme. “CSR is part of the way we do business – there is no other way to do business,” Sampson says. “One of the first signs of ill-health in any CSR programme would be finding that a central [CSR budget] would have to do for all.”
Sampson believes the best route to effective implementation is via local subsidiaries. “The way in which the nominated manager discharges responsibilities and the structures they set up must reflect their local culture and the way they do things there,” Sampson says. “Implementation is something best done at the local level”.
And an understanding of different cultures is essential in the effective implementation of CSR policy. “If you don’t have a policy that is informed by all of those party to it, it would suffer from some kind of UK-centricity, which is something you have to be on the guard against. We actually make conscious efforts to ensure there is an appropriate overseas input to what we do,” Sampson says, noting overseas representatives participate actively in Aviva’s CSR review group, which meets annually to evaluate and update the company’s CSR policy, programme and performance.
International understanding
Sampson believes there is a very different understanding of CSR throughout the world. Despite this, he reckons people are moving towards a common definition of CSR, although what’s more important is that companies prioritise defining for themselves what they mean by CSR.
“In time you’ll end up with commonality. What in the interim is important, though, is that each individual company defines for itself what it means by CSR. If you don’t know where you’re going then you can hardly expect anybody else to follow what you’re up to.”
The use of over-complicated language is another criticism Sampson levels at CSR communicators. “Often the language used by some companies is difficult to penetrate and sometimes deliberately obscure to mask the fact that they themselves are unclear about their thinking,” he says. “It’s very important we are simple in our explanation of what CSR means to us and our approach to it.”
“If the five-year-old understands it, you don’t have to worry about the professor of ethics. If, however, only the professor of ethics understands it, you’ve lost all the five-year olds, and many more in between.”
Community programmes
Aviva’s business units – such as its largest long-term savings business Norwich Union – manage and develop community programmes at the local level, while the group sponsorship and community investment policy aims to give guidance and direction on the types of activities businesses should or should not be involved in.
At the group level, the corporate affairs director takes responsibility for setting policy for community programmes. The programme reports directly to the board on total spending by business and the types of activities supported worldwide. Local businesses will in most cases have a committee in place to manage their local community programmes, although in the smaller units, responsibility for community investment is usually that of the local CEO.
The devolution of responsibility for community programmes to the local level has its origins in the history of the company, Sampson explains. In the ‘pre-Aviva’ days, the company had numerous brand names. “Now with the re-branding, the relationship between the different branches is very, very much clearer – certainly this has an impact on our community involvement programmes, and this is something we will be looking at in the future.”
Norwich Union’s £4m sponsorship of UK athletics is a good example of Aviva’s support of youth education and development. Norwich Union also launched the ‘Do the Right Thing Campaign’, aimed at creating more opportunities for children to do more sport, while tackling obesity. The business also continues to be one of the main sponsors of Music for Youth, the national charity that promotes music teaching and performance among young people.
Managing investor relations
Glancing at the cover of Aviva’s latest CSR report, one could be forgiven for thinking it has neglected its own shareholders in the communication of social and environmental issues. Customers, community, suppliers and employees all figure prominently. But the CSR programme is clearly not aimed at investors as a separate stakeholder group.
But this doesn’t mean shareholders have been forgotten, argues Sampson. Since both institutional and private shareholders have traditionally benefited from a comprehensive range of information on the company’s performance in a wide range of areas, it would not be particularly pertinent to address them separately, he explains.
“Investors are self-identifying, always were, and have been in there talking to us anyway. In many ways, SRI investors are drivers of the CSR movement.”
The content of the CSR report is entirely based on what people want to see in it, Sampson says. Aviva already has regular contact with a range of SRI analysts, providing it with an opportunity for it to assess exactly where their interest lies. Most of the time, one of the CSR team in London is devoted to overseeing such specialist areas as investor relations, although communicating with shareholders in general is an activity very much left to investor relations.
“Communicating with shareholders generally is investor relations’ responsibility. If we’re talking about the specialist SRI community, IR will have nominal responsibility, although we would be the people that meet the information needs,” Sampson says.
Investor responsibility
Although Aviva does not have a group-wide policy on responsible investment practices, the fund managers under its ownership – Morley Fund Management being the biggest – formulate their own. The company has a significant international fund management presence, including France’s Gestion d’Actifs and Australia’s Navigator.
“The investment practice throughout the group is perfectly clear,” Sampson says. “After all there is only a need for a policy if there is a need for change. He explains that Aviva has implemented and developed the practice of responsible investment in the UK over a number of years, exporting this to other parts of the world. “We have made progress without an explicit policy,” he argues.
At year-end 2003, Aviva managed £240bn of assets, with industry leader Morley having £121bn of these under its direct control. As well as being a fund manager in its own right, Morley is the asset manager for all of Aviva’s UK assets and as such its explicit policies on institutional shareholder activism and corporate governance apply directly to the group as a whole.
Engagement with companies lies at the heart of Morley’s investment practice, both at the SRI and mainstream level, in order to encourage best practice in SEE and governance matters and eventually maximise returns to shareholder. Every year, Morley publishes its voting guidelines, summarising its policy on exercising its vote as a beneficial owner of shares in companies. The fund believes strongly in voting against companies with inadequate policies and performance in any of their investment areas, not only those in SRI funds. Morley also votes against FTSE 350 companies that do not disclose sufficient information on how they manage the environmental risks affecting their businesses.
Outside the UK, the issue of implementing active shareholder engagement, and therefore the whole concept of SRI, is more problematic, explains Dr Peter Michaelis, SRI fund manager at Morley FM. “The whole concept of engagement in the Anglo-Saxon world is very different from that in Europe, where it’s a lot harder to get involved, and indeed it sometimes seems that the whole system is designed to deter this,” Michaelis tells Briefing in an interview.
Examples of recent engagement projects include the pharmaceutical shareholder engagement group – where Morley acted as an advisor for an investment statement outlining concerns about the long-term impact of the public health crisis and access to medicines in emerging economies – and the Extractive Industry Transparency Initiative – calling on extractive companies to be more transparent about the payments they make to governments.
As a fund manager, Morley has to tackle the potentially tricky issue of investing in, and overseeing as an active institutional investor, its own parent company, Aviva. Michaelis shrugs this off: “As a company, Aviva is very open to criticism,” he says.
CSR review through partnership
The value of consultation with partners is very much demonstrated in Aviva’s CSR review. “At Aviva, we believe in the value of building and maintaining long-standing partnerships with leading organisations committed to developing and shaping the CSR agenda,” the company says in its report. As well as being a signatory to the UN’s Global Compact – Aviva chairs the group of UK signatories – the company is associated with Business in the Community (BITC) and is a member of the Institute of Business Ethics.
The main forum for assessment of CSR performance is the annual ‘away day’ meeting in June of the CSR review group, bringing together representatives from head office, the businesses, including Morley, partner NGOs and auditors. The group reviews strategy, policy, past progress and future plans. In 2003, the main outcomes included the revision of Aviva’s standards of business conduct and human rights and the enhancement of the CSR reporting template. Business in the Community , WWF-UK and Amnesty International Business Group are members of the review group, Sampson says.
Conclusion
Aviva demonstrates both innovative thinking and an extensive capacity to constantly develop its approach to the implementation of CSR policies throughout its international network of subsidiaries. And the group clearly takes a serious and proactive approach to tackling the implementation of CSR across key stakeholder groups of customers, employees, suppliers and the community. After all, CSR is an integral part of the way Aviva does business.
Perhaps surprisingly for a financial services group whose main activity is the investment of policyholders’ money, an explicit policy governing investor responsibility across the group is conspicuous by its absence. But as Sampson questions, why would there be a need for such a policy if responsible investment practices were already deeply embedded throughout the company’s global operations? Moreover, if a clear need for an explicit policy was actually identified through its well-established review process, Aviva would do its utmost to develop one.
Anthony Sampson Director of Corporate Social Responsibility, Aviva
With a career in the banking and insurance sector, Anthony has, for the last 14 years, specialised in CSR-related issues for the financial sector. At Aviva he has developed a group-wide programme which has resulted in three annual environment reports, followed by three annual CSR reports. He has chaired a number of different multi-stakeholder groups in the development of detailed guidance for insurers and bankers on management and reporting of both environment and CSR. He has chaired the development of the Acorn Trust, which developed environmental accreditation for SMEs. Anthony is the chair of the Global Compact UK Forum, which was formed in the summer of 2003 and he is also a member of the Programme Committee of the WWF UK. (www.aviva.com)
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