Environmental, Social and Governance

Whilst the management of the Company’s investments is not undertaken with any specific instructions to exclude certain asset types or classes, the consideration of ESG factors is a fundamental part of the Manager’s investment process and has been for over 30 years. It is one of the key dimensions on which the Manager assesses the investment case for any company in which it invests for three key reasons:

Financial returns: ESG factors can be financially material – the level of consideration they are given in a company will ultimately have an impact on corporate performance, either positively or negatively. Those companies that take their ESG responsibilities seriously tend to outperform those that do not. 

Fuller insight: Systematically assessing a company’s ESG risks and opportunities alongside other financial metrics allows the Manager to make far better investment decisions. 
Corporate advancement: Informed and constructive engagement helps foster better companies, protecting and enhancing the value of the Company’s investments.

Please see pages 15 to 17 of the annual report for more information.

The Manager conducts extensive and high-quality fundamental and first-hand research to fully understand the investment case for every company in its global universe. A key part of the Manager’s research involves focusing its extensive resources on analysis of ESG issues. The Manager’s investment managers, ESG Equity Analysts and central ESG Investment Team collaborate to generate a deep understanding of the ESG risks and opportunities associated with each company. Stewardship and active engagement with every company are also fundamental to the investment process helping to produce positive outcomes that lead to better risk-adjusted returns.

Please see pages 15 to 17 of the annual report for more information.

abrdn has around 150 equity professionals globally. Each systematically analyses ESG risks and opportunities as part of the Manager’s research output for each company. Its central team and ESG equity analysts support the investment managers’ first-hand company analysis, producing research into specific themes (e.g. labour relations or climate change), sectors (e.g. forestry) and ESG topics to understand and highlight best practice. Examples of thematic and sector research can be found on abrdn.com/en/uk/investor/responsible-investing.

Please see pages 15 to 17 of the annual report for more information.

Having considered the regional universe and peer group in which a company operates, the Investment Manager allocates it an ESG score between one and five. This is applied across every stock covered globally. Examples of each category and a small sample of the criteria used are detailed below:

1. Best in class

• ESG considerations are a material part of the company’s core business strategy 
• The company provides excellent disclosure on ESG issues 
• The company provides opportunities from strong ESG management.

2. Leader

• ESG considerations are good but not market-leading
• Disclosure is good but not best in class
• Governance is generally very good.

3. Average

• ESG risks are considered as a part of the principal business
• Disclosure is in line with regulatory requirements
• Governance is generally good but with some minor concerns

4. Below average

• There is evidence of some financially material controversies
• There is poor governance or limited oversight of key ESG issues
• There are some issues in treating minority shareholders poorly.

5. Laggard

• Many financially material controversies
• Severe governance concerns
• Poor treatment of minority shareholders.

Please see pages 15 to 17 of the annual report for more information.

Once abrdn invests in a company, it is committed to helping that company maintain or raise their ESG standards further, using the Manager’s position as a shareholder to press for action as needed. abrdn actively engages with the companies in which it invests to help them stay good companies and become even better businesses. The Manager sees this programme of regular engagement as a necessary fulfilment of its duty as a responsible steward of clients’ assets. It is also an opportunity to share examples of best practice seen in other companies and to use the Manager’s influence to effect positive change. The Manager’s engagement is not limited to the company’s management team. It can include many other stakeholders such as non-government agencies, industry and regulatory bodies, as well as activists and the company’s clients. What gets measured gets managed – so the Manager strongly encourages companies to set clear targets or key performance indicators on all material ESG risks where appropriate. 

Please see pages 15 to 17 of the annual report for more information.