Congratulations on the third anniversary of strategy. Looking back, what led you to develop the strategy?

Sam: We saw a gap in the market. At the time, there were numerous impact strategies in the private sector aligned with the UN’s Sustainable Development Goals (SDGs), but hardly any in public markets.

Liam: And when it came to emerging market corporate bonds, the number was a resounding zero.

Sam: Our goal was to bring the innovation we were seeing to a broader client base, helping shift capital towards investing in sustainable solutions and meeting the SDGs.

Was there much pushback?

Liam: Internally? No. Externally? It was more challenging. Many investors were sceptical that you could invest for impact without compromising on returns. But we were confident that it was possible to invest in a way that delivered ‘profit with purpose’.

Sam: And I’m glad to say, three years on, our strategy has delivered in terms of both real-world impact and financial outperformance.

How did you go about creating the strategy?

Liam: Luckily, abrdn already had a pioneering Global Equity Impact strategy and a deep sustainability team, so we were able to collaborate with them to create our own process and framework.

Without getting too technical, how does that look in practice?

Sam: Our first step is to identify companies that are attractive from a financial standpoint. If they fail here, then we won’t consider them for our portfolio.

Liam: Then we want to find firms whose products and services demonstrate clear and material positive alignment to the SDGs, specifically reducing inequalities or providing climate solutions. We’ve distilled the 17 SDGs into eight pillars of impact that represent investable themes, such as sustainable energy, financial inclusion, and water & sanitation.

Sam: Next we apply our Theory of Change. This starts by using the SDGs to pinpoint an unmet need, which we see as a source of potential demand. After that, we make sure a company's activities directly address this need.

Liam: This contribution must be material, and we focus on expansion capex to demonstrate this.

Sam: Finally – and most importantly – we aim to measure the company’s impact and then report it.

Do you have any examples of the companies you’re talking about?

Liam: One name we like is Filipino utility Manila Water. The company’s impact is impressive. It successfully increased access to clean water in Manila from under 30% of the population in 1997 to 98% today.

Sam: The focus now is on increasing sewage coverage from 30% today to 99% by 2037. Almost all of the company’s capex is dedicated to expanding and upgrading its network. We’ve engaged with Manila Water several times to improve disclosure and better integrate sustainability metrics. This has led to upgrades of its external ESG ratings. It’s also delivered from a financial standpoint, with the bonds outperforming peers.

How has the market developed over the last three years?

Liam: It’s certainly evolved, and we’ve seen a significant increase in first-time SDG-aligned bond issuers. This has added further depth and diversity to the universe. We’ve added several names to the portfolio, including a Peruvian oncology specialist, sub-Saharan telecoms names, and Indian microfinance lenders.

Sam: We’ve also seen a sizeable uptick in green, social, and sustainable bonds. When we launched, these assets represented about 5% of new issuances. Now, they're over 30%. And yet despite this, there are only a handful of SFDR Article 9 EM corporate bond funds in the market, which underlines the uniqueness of our product and our first-mover advantage.

What are you most proud of with the strategy?

Sam: There have been several highlights, but we’re particularly proud of our annual report. This comprehensive document (it was 55 pages last year) really brings to life the innovative companies in our portfolio and demonstrates the real-world impacts they’re having.

Liam: From the feedback we’ve received, we know the report gives our clients confidence that the companies we invest in deliver what they say they will.

Finally, what’s the outlook for sustainability in the asset class?

Liam: There’s no denying that overall progress in meeting the SDGs has been disappointing. We’re now at the halfway point for the 2030 goals, and only 15% of the targets are on track.

Sam: But this only encourages us to double down on our mission. Governments, businesses and investors need to refocus on the 2030 targets and make them an integral part of their decision-making. The significant increase in the adoption of renewable power, particularly solar, shows it can be done.

Liam: So, overall, we’re optimistic and expect more emerging market companies to prioritise sustainability. We will navigate the twists and turns of markets and look forward to continuing to deliver for our clients over the next three years and beyond.

Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.