PP: Three Minutes With Aviva's Zoe Austin and Luke Layfield Aviva, decarbonization, real assets, real estate, climate change, infrastructure, digitalisation

To discover more about the Aviva Investors Climate Transition Real Assets LTAF strategy visit our website

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The fund is daily priced, monthly traded and is managed with liquidity in mind with appropriate redemption limits in place

We employ a “brown-to-green” strategy: this means we aim to upgrade buildings to make them more energy-efficient

How can investors gain exposure to the climate transition through real assets?

Luke: Climate change is humanity’s most daunting challenge. As global temperatures climb, the urgency of aligning greenhouse-gas emissions to the Paris Agreement intensifies. For real asset investors, the risks and opportunities are becoming increasingly clear. Buildings and infrastructure networks are major contributors to carbon emissions. Currently, 38% of global energy-related greenhouse-gas emissions are attributed to buildings and construction and 85% of today’s buildings will still be in use by 2050. This underscores the need to decarbonise the built environment, minimise the emissions real assets produce and improve the energy efficiency of buildings. Zoe: Our Climate Transition Real Assets Long Term Asset Fund takes a multi asset approach to target direct investments in real assets that are oriented to the transition – chiefly low-carbon and brown-to-green transition led real estate and transition-aligned infrastructure, as well as nature-based solutions such as afforestation. We think it’s a great time to invest in real assets at this stage of the market cycle and a great time to invest in transition as we see increasing tailwinds from changes in regulation and market demand.

You can watch the interview here or read their views below

Climate change is driving a shift towards low-carbon real assets. Buildings and infrastructure are major carbon emitters, creating both risks and opportunities. Portfolio Manager Zoe Austin and Luke Layfield, Head of Portfolio Management, Private Markets, explain that investing in low-carbon real estate, infrastructure, and nature-based solutions can enable investors to capitalise on the growing demand for climate-friendly assets.

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A real assets strategy could deliver growth and income while contributing to the transition to a low-carbon economy, say Zoe Austin and Luke Layfield

For professional clients only. Capital at risk

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INTRODUCTION

Video interview

ESG considerations

Environmental impact

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Climate Transition Real Assets LTAF key risks Investment risk: The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency and exchange rates. Investors may not get back the original amount invested. Past performance is not a guide to future returns. Real estate/infrastructure risk: Where funds are invested in real estate or infrastructure investors may not be able to switch or cash in an investment when they want because the assets may not always be readily saleable. If this is the case we may defer a request to switch or cash in units. Valuation risk: Investors should also bear in mind that the valuation of real estate is generally a matter of valuers’ opinion rather than fact. Valuations for other assets may also contain subjective elements and are unlikely to be based on a public market price. Illiquidity risk: Recipients of this marketing should note the inherent illiquidity of the intended investment universe and the fund should not be considered suitable for investors with a short-term investment outlook. Asset backed securities: If these securities are paid off substantially earlier or later than expected, lower earnings than expected may be experienced. These securities also carry market risk, interest rate risk, and above-average liquidity risk. ESG risk: Investing on basis of ESG factors may limit the choice of investments and performance of the fund may be impacted (either positively or negatively). Dealing arrangement risk: Where a fund requires investors to sign up to a Subscription Agreement, committing to subscribe an amount to the relevant fund, these amounts will only be drawn down from investors at the discretion of the ACS Manager and Units will only be issued to the investors based on the prevailing net asset value at that point. Redemption arrangements: Specific redemption arrangements are in place for this fund. These may not fully reflect the time typically needed to sell, liquidate or close out the assets in which fund invests in. This means there will be significant time lag between instructions being accepted and processed and investors will bear the risk of any unit price movements in these periods. Uninsured losses: As the fund is a pooled investment fund, the total assets may be at risk in the event of an uninsured liability to third parties. Development and construction risks: Where the fund has exposure to investments involving purchase of land for development and require permissions/licenses and permits to be obtained first, the fund may receive little or no icome during this time. There may also be delays in the administration of these requests and there is also the risk the relevant authority refuses to grant them. Risks related to external counterparties: The Fund could lose money if an entity with which it does business becomes unwilling or is unable to meet its obligations to the Fund. Investment in unregulated collective investment schemes: Investments in unregulated collective investment schemes are generally considered high risk investments than in regulated schemes. There are limited if any, restrictions to how they are managed. They are also valued less frequently and there is a risk that any market movements will not be reflected in the daily price of the fund and that investors may miss out on unrealised profits from underlying investments. Investors should be aware that market timing is strictly prohibited. Liquidity of unregulated schemes is not assured and cannot be relied upon to meet redemption requests as and when made. Lack of liquidity may affect the value and lead to units being suspended. Net zero and carbon removal certificates: To formally offset carbon emissions carbon removal certificates have to be formally retired and once this happens, they cease to have value. This means when the certificates are retired this will impact financial performance. Investments outside of commitment queues: Potential unitholders may be impacted by elongated timescales for drawing down commitments into the fund and the fund may experience cash drag, impacting on returns. Important information THIS IS A MARKETING COMMUNICATION Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as personalised advice of any nature. This document should not be taken as a recommendation or offer by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. Portfolio holdings are subject to change at any time without notice and information about specific assets should not be construed as a recommendation to buy or sell any assets. The Aviva Investors Climate Transition Real Assets (LTAF) is a sub-fund of the Aviva Investors LTAF ACS, an umbrella structure comprising different sub-funds and taking the form of a co-ownership scheme. The Prospectus and annual reports are prepared for the umbrella. The Fund is a Long-Term Assets Fund. The Prospectus and the annual and interim reports are also available on request. Copies in English can be obtained, free of charge from Aviva Investors, PO Box 10410, Chelmsford CM99 2AY. Issued by Aviva Investors UK Fund Services Limited, the Authorised Fund Manager. Registered in England No. 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119310. Registered address: 80 Fenchurch Street, London, EC3M 4AE. An Aviva company. 608350 – 31/07/2025

Zoe: Third, emissions can be removed from the atmosphere. Investors can choose to offset emissions indirectly by buying carbon removal credits. But real asset investing also offers another way to offset remaining carbon emissions through direct investment in nature-based solutions. Even best-in-class real assets will continue to generate some carbon through their lifetime; CTRAF will offset these residual emissions via nature-based solutions, such as sustainable forestry or peatland assets that seek to capture and sequester significant amounts of carbon from the atmosphere. Sustainable forestry can generate long-term returns, as well as carbon credits that act as a hedge against rising carbon prices. The investments we have made in this area will aim to sequester around 1.6 million tonnes of carbon from the atmosphere over the hundred-year lifetime of the projects, generating credits we will retire to offset emissions elsewhere in the fund. Luke: Fourth, and finally, the fund invests a small amount indirectly into private equity solutions to align to the climate transition. This means investing in emerging climate technologies that are being developed to help speed the transition. To date we have invested in three venture capital funds focused on climate tech, each addressing the transition to a sustainable economy in slightly different ways. The value of these investments in early-stage companies lies primarily in their ability to diversify our portfolio and provide early insights into potential future investments in infrastructure or real estate; they may also introduce us to new technologies that can help us to decarbonise our existing assets.

Can investors achieve net zero in a real asset portfolio?

Zoe: Direct investors can take control of their portfolios' emissions trajectory in a number of ways. Our Climate Transition Real Assets Strategy adopts an approach based on four categories: we seek to avoid emissions, reduce emissions and remove emissions from the atmosphere, as well as align our portfolio to the broader climate transition through investments in cutting-edge technologies. This approach helps us segment and contextualise how we view the broader private-market landscape. First, emissions can be avoided through investments in green infrastructure sectors such as renewables and digital assets. Many investors focus solely on so-called Scope 1 and 2 emissions, as outlined under the Greenhouse Gas Protocol. CTRAF is investing in greenfield and brownfield renewable energy infrastructure, such as wind and solar power projects. Luke: Second, the “reduce” part of our approach refers to actions that can be taken to decrease GHG emissions where avoidance is not possible. For example, it might mean enhancing fuel efficiency in vehicles, or improving energy use in buildings. This aspect is crucial because, while not eliminating emissions entirely, it can “buy time” to enable the development of more sustainable solutions and reduce the need for offsetting in the future. We employ a “brown-to-green” strategy: this means we aim to upgrade buildings to make them more energy-efficient. Take the average office building: with its air-conditioners, heating, lighting, computers, printers and steaming coffee machines, it’s a relatively energy-intensive asset. But its emissions can be significantly lowered by installing solar panels and heat pumps; upgrading insulation and undertaking other refurbishments that improve energy efficiency; and moving occupiers onto green electricity tariffs.

Zoe: The fund is daily priced, monthly traded and is managed with liquidity in mind with appropriate redemption limits in place. Regulated as a Long Term Asset Fund it is a particularly good fit for defined contribution pension schemes and wealth investors, providing them with access to private market opportunities at a particularly opportune moment in the market cycle. Real assets can offer a useful inflation hedge via secure long-term cashflows and since the drivers of investment returns are often uncorrelated to more liquid public markets, allocating capital to private real assets should also help to diversify client portfolios. Sustainable forestry assets are a good example. Returns are driven primarily by wood prices and the biological growth of trees. This means it has little correlation to liquid markets and can offer attractive long-term returns that don’t move in line with other markets.

Society benefits

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Portfolio benefits

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Achieving net zero

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Climate transition exposure

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What are the portfolio benefits of the Climate Transition Real Assets LTAF?

RISK: Diversification and asset allocation may not fully protect you from market risk.

1. Source: LGIM internal data as at 31 May 2024.

RISK: Diversification and asset allocation may not fully protect you from market risk.

What are the tangible benefits to society?

Luke: Real assets are critical to society and, managed well, can bring benefits to communities. For example, fibre broadband enables a range of social benefits by improving connectivity, including access to online medical appointments and social events, which provided lifelines for many people during the COVID-19 pandemic. The fund is also committed to paying a living wage and to supporting charitable initiatives. Traditionally, asset managers have presented their clients with two options: either seek strong absolute returns or put their capital to use to deliver non-financial outcomes, like an ESG or net-zero outcome. But the accelerating climate transition offers a potential beyond this binary choice. By accessing private real assets, investors have the potential to take advantage of a wealth of long-term opportunities for income and capital growth through the transition, while simultaneously future-proofing their portfolios.