ClimateWise principles report 2009

How does Aviva lead in risk analysis?

Last year Aviva provided a secondee to the ABI to develop further understanding around climate change adaptation issues particularly in respect of flood and surface water drainage challenges. He assisted with the joint Industry/Government review of the 2000 Statement of Principles for Flood that will run until 2013.

Aviva continues to be represented at a number of different ABI working groups and steering groups around various aspects of climate change, including the steering group looking to produce the 2009 ABI Financial Risks of Climate Change research paper due to be published towards the end of the year.

The sequestration of carbon is an important area of research in climate change mitigation and adaptation. Aviva is providing five year's funding for an Earthwatch investigation into the sequestration potential of mangroves. It will demonstrate how much carbon can be stored in mangroves over time any may lead to the development of carbon finance generation. The project will also provide an economic model for avoiding deforestation and ensuring sustainability of these natural flood defences. The findings of the research will be made publicly available.

Towards the end of last year Aviva designed and produce a community behavioural simulation exercise to look at a local community response to flooding. (see response to principle 3). The findings were presented at a joint Lighthill Risk Network/ClimateWise event along with a toolkit for other communities to undertake a similar project www.floodplanuk.org/

In the area of investment risk, Aviva believes that companies adopting sustainable practices can gain competitive edge, reduce costs, increase their market share and boost shareholder value.

Having evaluated the possible associated risks of the installation of solar panels and mirco windturbines on houses, Aviva charges no additional premium in our buildings insurance policy for these items. On the commercial side we also will insure the physical assets of micro run-of-river hydro electricity.

How does Aviva inform public policy making?

One area of Aviva's Climate Change strategy is the "sphere of concern" which focuses on working with likeminded business partners, associations and companies to reach common understanding, communication and action on climate change issues. We have a role to play is shaping public policy and have done this through various channels over the past year.

Through the ClimateWise group we have signed the UNFCCC statement for negotiation for the Conference of Parties at Poznan and the Prince of Wales Business and the Environment Corporate Leaders Group on Climate Change statement. We will also be seeking to sign the CLG statement in our own right.

The Geneva Association, the leading think tank of the world's largest insurers and reinsurers is launching a report on 2 July entitled Insurance and Climate Change - contribution to the global debate. Andrew Moss, Aviva's chief executive has recently signed the Geneva Association's Kyoto Statement on Climate Change which accompanies the report.

Aviva's chief executive also joined with other members of the CBI Climate Change Board in an open letter to the UK Prime Minister, urging him to continue to press for robust and effective climate change package.

http://climatechange.cbi.org.uk

Aviva Investor's is an active member of the Institutional Investors Group on Climate Change (IIGCC). During 2008 we collectively issued a public policy lobbying statement signed by 152 global investors worth over $9 trillion. It called on world leaders to negotiate a strong and binding successor to the Kyoto Protocol in order to ensure that investors receive the market signals critical to funding the transition to a low carbon economy.

Aviva's SRI team was part of a small delegation to for the climate conference in Poznan during December, where Aviva hosted a dinner for a number of diplomats, negotiators and investors - including Yvo de Boer, the executive secretary of the UN Framework convention on Climate Change.

In January 2009, we fed back to the other investors within IIGCC regarding our conclusions from the conference in Poznan. Our key points were:

• Not to underestimate the scale of the challenge of getting an agreement from a process involving over 1,000 diplomats, with 10,000 delegates and hundreds of non governmental organisations seeking to influence the process
• The diplomats understood and welcomed the argument that investors shared their interests in the long term health of the economy as a whole - rather than one specific company or sector - and that investors were therefore useful allies in the discussions regarding the financial consequences of their actions
• There was significant interest in our ideas for creating funding mechanisms such as inter-governmental bonds for climate change mitigation and adaptation
• There was concern about our criticisms of the current workings of the Clean Development Mechanism and a clear sense that the CDM was one of the best outcomes generated by Kyoto so far.

2009 is an important year for the climate change negotiations. The Copenhagen debate in December is set to provide the litmus test of whether President Obama will be able to put the US in the leadership position that he has indicated he intends to take. While there are a significant number of political and economic risks to the process, on balance, our experience in Poznan has led us to be more confident of a strong post Kyoto deal on climate change at or shortly after the Copenhagen debate.

Aviva Investors also participated in a broad coalition that included companies, some investors and over 60 MPs, calling on the Government to set out a more robust framework for the introduction of a mandatory carbon reporting standard.

Our open letter to the Prime Minister challenged the Government's current position regarding the corporate disclosure of carbon emissions. It is also highly critical of the decision to weaken a provision in the Climate Change Bill for a clear path to legislation at the earliest practical opportunity.

The letter argues that the Government's new strategy, which includes a review in over three years time, "does not reflect the urgency or magnitude of the issue, nor correspond with your (Gordon Brown's) vision for robust and transparent carbon accounting under the (Climate Change) Bill."

Floodplanuk.org

Flood Plan UK was developed in response to the 2007 floods, the Pitt Review and our expertise in the area. We are trying change the way people think about flood preparation - through community education and planning which leads to resilience - which in turn challenges both the trauma and cost of a flood. The idea came from us, started with a community consultation in North Yorkshire and is now a major resource for homeowners, communities and local authorities. We were requested by Cabinet Office to share findings on local stakeholder engagement.

Launched on 14 January 2009, Floodplanuk.org is a comprehensive source for information and practical advice on flooding and community engagement. The free website will help professional and lay community leaders together with individuals prepare for potential flood incidents.

The website hosts a downloadable "Community Flood Planning" toolkit, which provides a simple step-by-step guide to engaging communities and running a flood scenario exercise. The toolkit was prepared by The Environment Council, in partnership with Aviva, and reflects key learnings from the pilot project. The website features a forum for people to share experiences and advice about flooding; a case study from Boroughbridge; useful and topical flooding information and further links.

The initiative at Boroughbridge was endorsed by the National Flood Forum and the Environment Agency. The workshop guided groups of participants through a series of realistic flood scenarios that have been devised in close collaboration with the local Environment Agency.

Sponsorship of Flood Resistant architecture

Norwich Union, with the support of the Royal Institute of British Architects (RIBA) has worked to design a flood proof home fit for the future. Whilst building in flood risk areas is a contentious issue, we recognise that it may become inevitable given the lack of available land in the UK and the Government's plans to build three million new homes by 2020. As such, we decided to launch a competition to see how architects would tackle the problem of building on flood plains in a liveable, workable and insurable way.

We received a total of 85 entries worldwide which delivered plans for a one bedroom home and garden to form part of a larger residential development which is situated on a flood plain. A booklet was produced to showcase a selection of the design entries we received, including the four overall winners:

• Nissen Adams LLP, based in London
• Eleena Jamil Architects, based in Malaysia
• Pohkit Goh, based in Edinburgh
• Hopper Howe Sadler, based in Newcastle.

Entries included floating homes, sunken pontoons and timber drawbridges presented by architects across the world in a bid to design a flood proof house for the future.

While presenting some unique new ideas from timber-skinned glass living rooms, to concrete dados and roof gardens to raised footpaths, three main solutions were evident throughout the entries. Raising properties and their surroundings above ground level, allowing part, or all, of the house to float in the event of a flood and allowing the continuous use of a property if water does enter the home.

Floating homes, sunken pontoons and timber drawbridges are just some of the innovations presented by architects across the world in a bid to design a flood proof

house for the future.

Floodsim.com

Aviva has launched an online interactive simulation to helps families understand the UK's risk of flooding, and the policy decisions needed to make sure the UK is protected against floods. Around 45,000 Norwich Union customers were affected by the floods in 2007.

Floodsim.com, developed by London based computer game company PlayGen and funded by Aviva, puts the player in charge of all flood policy decisions. In the simulation, floods hit the UK each year, and success is determined by how many people and how much of the economy is affected by flooding.

The project has received backing from environment minister Phil Woolas. He said: "The floods of 2007 show just how serious flooding can be, and I am glad to see that this project has been developed to enable people to have a greater understanding of the risk of flooding.

"A number of decisions need to be taken when we look at managing the risk of flooding - including our annual spend on flood defences, where and how we build new houses, and the emergency response procedures we have in place for times of flood. This game gives the game player the opportunity to make informed decisions about all of these policy areas."

PlayGen's managing director, Kam Memarzia, said: "We are extremely pleased to have been involved in this project. This is a new way of making people aware of an issue of huge importance to the UK, and we hope that players will not only enjoy the game, but it will also encourage them to be more interested and engaged in the tough political decisions needed to deal with flood risk. Through the website, we want people to respond to consultations, write to their local MP, find out their flood risk - and make their voice heard."

Our job is twofold; to put things right for our customers as quickly as possible, and secondly, work in partnership with the Government, agencies and the general public to ensure the UK is better prepared for the effects of flooding in future. The interactive simulation can be played online at www.floodsim.com/

Bluecycle parts recycle

Bluecycle is an Aviva subsidiary that specialises in automotive, motorcycle, plant, marine, equipment and commercial salvage. They have also created markets for non-automotive and non-salvage related items, including end of fleet vehicles and equipment, repossessions and part exchange.

With environmental concerns high on most people's agendas, a pilot recycling scheme in bluecycle was set up in response to a survey in which 60% of bluecycle customers who said they would welcome a recycled parts service. The pilot saw the integration of the bluecycle website with partner company Actual Systems' website with stunning success.

Customers now have access to an inventory of over 450,000 recycled parts, from engines to bodywork, saving bluecycle customers between 30% and 80% on the retail value. More than 2,500 part requests and 12 supplier registrations were received in the first 48 hours alone. By purchasing recycled parts, customers can save between 30% and 80% on the cost of the retail value of a new part.

Plus, having all parts in one place saves a great deal of time shopping around. Also, our new service is in line with the European ELV (End of Life Vehicle) Directive. A key statement of the Directive says that by 2015, a reuse and recovery target of 95% will apply to all vehicles at the end of their life.

Aviva Investors

Aviva Investors regularly publishes thought leadership briefing for investment professionals. The latest briefing in June 2009 is on Climate Change and the role of investors. It discusses the challenge, the present position of public policy on the subject and forthcoming negotiations and some examples of how Aviva Investors are involved in developing picture.

Work with ClimateWise

As part of ClimateWise, Lloyds of London and Aviva had an initial meeting with Senior managers of the large loss adjusting companies in the UK to drive the ClimateWise Principles through the Supply Chain area of the industry and see how insurers and loss adjusters could work better together to create a more sustainable claims reinstatement process. Aviva and Lloyds talked through presentation of what we are doing in our own businesses and how we thought we could work further with loss adjusters in this area.

Aviva is also involved in two other workstreams in respect of this principle. Firstly, a group exploring recent reports the effect of climate change on health / life assurance issues to see if there were areas where collaborative action we could take going forward. Secondly, involvement in the consultation process looking at the proposal from the Munich Climate Insurance Initiative (MCII) that sets out an international architecture and funding mechanism for insurance as part of an adaptation strategy to be used as the UNFCCC negotiation in Copenhagen.

Aviva's global asset management fund under management equated to £236 billion at the end 2008. Of that £1.4 billion is managed in Aviva Investors Sustainable Future funds.

SRI Funds and Voting

Aviva believes that companies adopting sustainable practices can gain competitive edge, reduce costs, increase their market share and boost shareholder value.

Moreover, the growing demand for sustainable products such as renewable energy, organic food and healthcare has created new markets in which far sighted companies can reap rewards. We therefore seek to invest in sustainable and responsible companies that can provide solutions to issues such as climate change whilst avoiding companies that create or add to the problems.

Using our proprietary methodology and tools, we screen a broad spectrum of medium to large capitalisation companies for best ideas. Our research team analyses how ideas identified are affected by major sustainable development trends in four areas including climate change. Our fund range covers a breadth of equity classes and investment opportunities from low carbon technologies to sustainable forestry.

We also use our influence as shareholder to promote good practices among those companies in which we invest, focusing on areas where we believe improved management of social environmental or governance issues will enhance or protect shareholder value.

Last year Aviva Investors London commenced a programme to broaden its AGM voting remit. In 2001, Aviva Investors legacy company in the UK, Morley, was the first institutional investor to begin using its AGM vote on companies report and accounts to transmit its views on the quality of disclosure on material corporate responsibility information.

This applied to FTSE 100 and has since been expanded to apply to the FTSE 350 and Eurofirst 300 holdings. Aviva Investors London is introducing a global approach for AGM voting on corporate responsibility over the next 24 months and will apply this to all of our key global holdings in the MSCI world index.

We use the disclosure or otherwise of companies to the Carbon Disclosure Project process to engage companies of concern in the area of climate change.

Responsible Investment Management Agreements

Aviva Investors has created the first contract-based initiative of its kind. It means that Aviva Investors are setting a new threshold for global best practice by including UN Principles for Responsible Investment(UN PRI) in its contracts. Aviva Investors include a clause on responsible investment in all of the contractual Investment Management Agreements proposed to clients. Clients will be able to see the PRI assessment of our performance and they will be able to hold us to account for delivery on our responsible investment commitments.

European Renewable Energy Fund

Last year, in recognition of investor demand, we launched the European Renewable Energy Fund that specialises in developing and financing renewable energy infrastructure projects located throughout the European Union. The new fund aims to capitalise on investor interest and binding targets of the EU to increase sustainable energy consumption to 20% from 8.5% by 2020.

The fund portfolio will include solar photovoltaic, geothermal, biomass, biogas and wind assets. The geographic focus will be across the European Union, primarily in the more mature markets but also in member countries which have relatively immature renewable energy production capabilities. Initial gross assets of €500 million have been targeted.

Igloo Regeneration Partnership

The igloo Regeneration Partnership is a partnership of pension and life funds managed by Aviva Investors which invests in and develops urban regeneration sites across the UK. Igloo's unique combination of funds, expertise and social and environmental responsibility is its fundamental differentiator driving successful urban regeneration. The UN has endorsed our approached by calling it the first socially responsible property fund. It is backed up by £300 million fund generated from private and public investors. Its green principles mean that it works with communities from the start and supports independent businesses.

Igloo has just been included in a recent piece by MONOCLE magazine as one of five developers from around the world "putting passion, innovation and social conscience back into the world".

www.igloo.uk.net

Work with ClimateWise

Two senior representative from Aviva UK Life and Aviva Investors joined the Rainforest Bond working group (in conjunction with the Prince's Rainforest Project) arranged by ClimateWise which aims to understand the possible process that would be required to generate financial mechanisms of avoiding deforestation.

Through our ClimateWise membership we are involved in the co-funding of UNEP FI's research into Public Finance mechanisms to leverage private infrastructure investment for climate change mitigation and adaptation.

Our work in respect of our own Climate change impact continues. Our worldwide CO₂ emissions this year reduced by 3% from 127,022 tonnes CO₂ (2007 restated) to 123,040 tonnes CO₂. Our carbon reduction target for 2009 is 5%.

Aviva's CO₂ emissions

Alternative to travel

Aviva has installed eight telepresence suites on a worldwide basis since April 2008. Telepresence is the latest video conferencing technology and its aim to reduce the amount of emissions, financial cost and unproductive travel time for our employees. Its acceptance and take up by employees has been impressive and air travel related CO₂ emissions reduced by 25% in the first nine months for those employees using it from its launch.

Such is the demand for the use for the telepresence system, we are adding two further suites in our UK business. Although, it is difficult to quantify how much of the reduction in air travel CO₂ emissions is due to the increased use of the telepresence system and how much is due to the economic downturn. We will gain a better understanding of this as the economy picks up again, if the use of the telepresence system still remains constant or continues to increase.

Energy Saving technologies

We have trialled and installed load balancers for our boilers to reduce our gas consumption (the case study included in the CBI brief - Less is More April 2009), water saving devices such as flow straighteners, low water consumption urinals, reduced water consumption toilet cisterns, and e-cubes in refrigerators to reduce the consumption of electricity. All of which have a payback period of less than a year.

Transport fuel reductions

Our UK company car policy has a cap of 200g/kms in respect of the type of vehicle available. We are working to further reduce this cap to 160g/kms. We also provide the choice of alternative fuel vehicles.

We have also started to address the fuel consumption of our RAC rescue fleet, firstly by trying to solve the customers car breakdown over the phone, secondly by fitting speed limiters to all the vehicles which has reduced fuel consumption by 7.5%. Thirdly, we are trialling retrofitted hybrid drive systems into two vehicles we are anticipating that this will reduce fuel consumption, emissions and fuel cost by approximately 20% in the vehicle in which it is installed. The payback for this technology is estimated to be three years.

We are also seriously considering the use of RAC electric vans for city centre areas.

We feel it is our responsibility to encourage our suppliers to manage the carbon footprint of the products and services they provide to us. As such all our suppliers are required to sign and Corporate Responsibility Code of Conduct.

In respect of suppliers, we have included requirements around environmental impact reductions in contracts. This includes the working around the outsourcing of our UK data centres. We included a "green" Service Level agreement covering areas such as sourcing of renewable energy and agreement to sign up to the EU Environmental Code of Conduct for Data Centres.

Employee Engagement

We have created a toolkit for Corporate Responsibility which contains ideas, documents and campaigns that can be used in our businesses to raise awareness and gain buy in from our employees. For UK employees we have made available the option to purchase carbon credits under out flexible benefits package.

The FORGE climate change employee engagement document is widely used, as well as posters for local campaigns. We have a worldwide intranet which is currently regularly accessed by over 25,000 employees, we have forum discussions on the use of energy, climate change and environmental management. We have also just started an iSave campaign which provides financial incentives for employees ideas on how to cut the impact of energy consumption and looks for smart solutions.

We have an annual employee survey in which we ask employees as to whether they agree to the statement that "I think Aviva acts responsibly in respect of the

Environment". Last year, 77% of employees who completed the survey were positive to the statement. This is greater than the Financial Services norm for this question.

Emission reductions have also been achieved through the increase use of renewable electricity on a worldwide basis. Aviva currently purchases 65% of our electricity worldwide from renewable sources.

We are currently in the process of offsetting 105% of our 2008 unavoidable CO₂ emissions by purchasing 128,000 tonnes of voluntary carbon credits.

Procurement

Corporate Responsibility targets, including adherence to the Supplier Code of Conduct, have been included in our Purchasing and Supply Chain areas on a worldwide basis. These have been set and are being monitored by our Global Procurement Council and will be reviewed by Aviva's Board CR Committee in their November meeting.

Aviva's Executive team and Regional CEOs have the group carbon reduction target in their personal objectives. Corporate Responsibility and key aspects of climate change are included in the Group Strategic plan. The Board Committee of Corporate Responsibility discusses climate change and Aviva's response at their meetings which take place three times a year. Environmental risks are included in the Group risk and compliance process.

Aviva Investors

The CEO of Aviva Investors spoke at the Triple Bottom Line Conference in November stating

"The climate is without question the most important contemporary example of a range of natural resources that will cause complex and profound economic development issues if used unsustainably... I particularly welcome the UK's leadership with the passage of the climate change bill and the government's decision to further reduce the target for emissions from 60 to 80% by 2050 - and to make the emissions reduction target legally binding

We believe that where carbon emissions are a material commodity with a financial value, they should be properly defined, measured, accounted for, audited and reported in a similar way to other physical commodities and financial instruments.

As a global firm, we not only report on and offset our own emissions, but we expect other companies to act accordingly or explain why they are not.

It is our belief that external costs such as carbon emissions will become internalised into company profits and balance sheets over the next several years. This is why we approve of the UK Governments recent decision that they are likely to make greenhouse gas emissions reporting mandatory by 2012. This is a welcome development and represents something of a success for the Aldersgate Group - which we have been supporting - in its engagement with Gordon Brown.

We have been advocating this disclosure of emissions in our AGM voting for some years and we have embedded a requirement for some companies to respond to the Carbon Disclosure Project in our global proxy voting."

Accounting for Sustainability

Aviva is a member of Accounting for Sustainability supported by our Chairman, Lord Sharman, which seeks to provide a framework for the integration of financial and non-financial data. We have used the framework in our 2007 and 2008 Annual Report and Accounts to provide a comprehensive picture of our impacts in respect of climate waste and resources and are looking to expand this to other areas in 2009.

www.aviva.com/reports/cr09/page33/

www.accountingforsustainability.org/home/

We have also responded to the CDP 2009 (CDP7).

This statement is Aviva's response to the ClimateWise principles for 2008/09.