For the past several years, in an attempt to uphold their sustainability chops, many investors turned to a strategy called exclusion screening, where they avoided stocks of companies that do not fit into some environmental, social and governance (ESG) criteria. By wielding this “stick”, so the thinking goes, companies will be rewarded for showing that they have achieved certain ESG standards.
As a result, so-called “brown” companies — which are in the midst of their transformation — were cut off from the funding, thereby hampering a bigger number of companies from turning “green”.
But global asset manager abrdn — previously known as Aberdeen Standard Investments — believes that investing in companies that are transitioning from “brown” to “green” would bring about a much bigger change.
“We want to invest in firms that have a very clear plan which demonstrates how they would reduce their carbon footprint and water pollution over time. I think this is a bigger, better way to help prevent climate change compared to exclusion,” René Buehlmann, abrdn CEO of Asia Pacific, tells The Edge Singapore.
He adds that this is especially important in Asia, as four of the world’s top 10 greenhouse gas emitters are located in the region, with China and India in the top four. It could also help expedite ESG standardisation in Asia, which has lagged compared to Europe.
As Buehlmann explains, abdrn is an active investor that spends time engaging with a lot of the firms looking to transition, and that the firm has ways to specifically identify those with a good transition plan. Via these engagements, abrdn can also help shape the discussion, bridge the gap between what its clients the investors should be looking for, and what the companies should do if they are to continue to access the funding.
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“We believe that by doing this, we can contribute to the change,” says Buehlmann, who was appointed to his role last March. For nearly three decades, he was with Swiss bank UBS, where he was the group managing director for UBS Asset Management’s Asia Pacific operations between 2014 and 2020.
Moving forward, abrdn is looking to highlight and elevate more sustainability agenda globally, says Buehlmann. For instance, the firm has worked together with the Asian Infrastructure Investment Bank (AIIB) to manage a US$500 million ($695 million) AIBB ESG Enhanced Credit Managed Portfolio, comprising mainly of Asian infrastructure-related bond — including both “green” and unlabelled issuances.
The AIIB ESG Enhanced Credit Managed Portfolio is the first project under the Sustainable Capital Markets Initiative, which aims to drive green and sustainable capital markets across the continent. As at December 2020, more than 37% of the portfolio was invested in either sustainability bonds or green bonds.
Buehlmann believes that there will always be opportunities to invest in transitioning companies as regulators, investors as well as society at large further favours ESG-compliant companies. He adds that companies that make sustainability a big focus typically have better governance, better structured around understanding the implications of decisions across the governance structure. This will drive performance in the long-term horizon, says Buehlmann.
Building the ESG skills
As an organisation, abrdn has gone through some changes recently. Marking its 30th year in Asia this year, Aberdeen Asset Management was a high-profile fund manager operating out of a modest office along Boat Quay before moving to swankier premises. Under Hugh Young, its long-time managing director, the firm gained a reputation for taking significant, long-term stakes in the winners of tomorrow across emerging Asia.
In 2017, Aberdeen Asset Management merged with Standard Life to form Standard Life Aberdeen, one of the largest investment companies at the time with assets under administration of GPB670 billion.
In 2018, Standard Life Aberdeen announced that it was selling its UK and European insurance operation, Standard Life Assurance, to one of UK’s largest insurance services providers, Phoenix Group, in a deal worth GBP3.24 billion. The firm continues to be Phoenix’s in-house manager while its investment businesses are known as Aberdeen Standard Investments.
As part of its company-wide rebranding, the firm officially changed its name to the current abrdn on July 5, 2021. This removal of vowels is done to differentiate itself from the city of Aberdeen as well as multiple organisations, landmarks and the football club with the same name, says Buehlmann.
When asked about his favourite club, Buehlmann — who is a Swiss — replies: “My favorite football club in the UK is not in Scotland but in England, Liverpool…mostly because until recently they featured a famous Swiss player named [Xherdan] Shaqiri.”
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Today, abrdn is essentially focused on three parts — asset management, financial advisor technology provider and wealth management. The firm is also ramping up on its digital offerings, evident by its purchase of online investment platform Interactive Investor last year from shareholders including private equity firm JC Flowers for GBP1.5 billion ($2.6 billion).
“The UK is our home market where we have set up shop for a very long time. Over those years, we have built a lot of digital technology and mobile offerings that we want to bring to Asia as well,” explains Buehlmann.
“Secondly, we want to build our capabilities surrounding sustainability in Asia. abrdn is one of the very first in the region to be focused on ESG. We are an active asset manager that really digs deep into understanding the companies we invest in, analysing them across the value chain — ESG has been ingrained from the very beginning,” he adds.
In July last year, the firm established abrdn Sustainability Institute, a fully integrated sustainability innovation hub that brings together experienced ESG experts from its Asia Pacific business to drive sustainability outcomes for investors. Buehlmann says the firm had also doubled its sustainability headcount in Asia over the past six months, on top of hiring an ESG regulatory specialist to help the firm better understand ESG framework development in the Asia Pacific region.
Additionally, the firm has set the ambition to reduce the carbon intensity of all of the assets it is managing by 50% by 2030. To achieve this, it has developed climate analytics tools to allow it to measure a portfolio’s carbon footprint, enabling it to help clients achieve their sustainability objectives, Buehlmann explains.
Plans in the pipeline
As abrdn continues to help its clients construct more sustainable portfolios, it is also looking to introduce more sustainability-linked funds. Buehlmann says the firm is working on launching a sustainable real estate product as well as some sustainable fixed income product “fairly soon” before the end of the year.
In 2020, abrdn launched the Asian Sustainable Development Equity Fund, which is aligned with the United Nations’ Sustainable Development Goals (UN SDGs). The fund seeks to invest in quality companies in Asia Pacific ex-Japan, aiming to outperform the MSCI AC Asia Pacific ex-Japan Index.
The fund invests in companies with a minimum of 20% of their revenue, profit, capital or operating expenditure or research and development linked to the UN SDGs. For companies classified in the benchmark as ‘“financials”, alternative measures of materiality are used based on loans and customer base.
The Asian Sustainable Development Equity Fund also invests up to 20% in SDG leaders. These are companies that are considered to be integral to the supply chain for progressing towards the UN SDGs, but do not currently meet the 20% materiality requirement.
As at April 30, abrdn’s Asia Sustainable Development Equity Fund’s top five holdings were semiconductor firm Taiwan Semiconductor Manufacturing Co (8.7%), insurance firm AIA Group (5.8%), biotechnology company CSL (4.2%), financial services company Housing Development Finance Corp (3.7%) and industrial and property owner-manager Goodman Group (3.2%). Since inception, the fund has provided 2.62% annualised return on the net asset value.
As the firm celebrates its 30th anniversary in Asia — having opened the doors to its first office in Singapore in 1992 — Buehlmann is hopeful that the firm can further contribute to making an impact on the ESG front.
“Over the years, we have seen Asia evolve from being the factory of the world into a driver of innovation. We hope this innovation marries both technology and sustainability.
And I think this is really where we have pivoted our business model to adapt and be part of the change, finding companies that help the transition with sustainable business models that incorporate new technologies,” says Buehlmann.