Whilst Environmental, Social and Governance (ESG) factors alone are not the over-riding criteria in relation to the investment decisions taken by the Manager for the Company, ESG is fully integrated across the Manager’s investment process. The following pages highlight the way that ESG factors are considered by the Manager. These processes are reviewed regularly and liable to change and the latest information will be available on the Company’s website.
Responsible investing – integration of ESG into the Manager's investment process
“By embedding ESG factors into our active equity investment process we aim to reduce risk, enhance potential value for our investors and foster companies that can contribute positively to the world.” Aberdeen Standard Investments (“ASI”)
Core beliefs: Assessing risk, enhancing value
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 material 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:
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 thattake their ESG responsibilities seriously tend to outperform those that do not
Systematically assessing a company’s material ESG risks and opportunities alongside other financial metrics allows the Manager to make better informed investment decisions.
Informed and constructive engagement helps foster better companies, protecting and enhancing the value of the Company’s investments
“We believe that the market systematically undervalues the importance of ESG factors. We believe that in-depth ESG analysis is part of both fundamental company research and portfolio construction and will lead to better client outcomes” Aberdeen Standard Investments
Researching companies: Deeper company insights for better investor outcomes
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 key ESG issues. The Manager’s investment managers, on-desk 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.
ASI’s Global ESG Infrastructure
ASI 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 ESG team and on-desk 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 aberdeenstandard.com/en/uk/investor/responsible-investing.
Investment Managers All ASI equity investment managers seek to engage actively with companies to gain insight into their specific risks and opportunities and provide a positive ongoing influence on their corporate strategy for governance and environmental and social impact.
ESG Equity Analysts ASI has dedicated and highly experienced ESG equity analysts located across the UK, US, Asia and Australia. Working as part of individual regional investment desks – rather than as a separate department – these specialists work side by side with investment managers and are integral to preinvestment due diligence and post-investment ongoing company engagement. They are also responsible for taking thematic research produced by the central ESG Investment Team (see below), interpreting and translating it into actionable insights and engagement programmes for our regional investment strategies.
ESG Investment Team This central team of more than 20 experienced specialists based in Edinburgh and London provides ESG consultancy and insight for all asset classes. Taking a global approach both identifies regions,
industries and sectors that are most vulnerable to ESG risks and identifies those that can take advantage of the opportunities presented. Working with investment managers, the team is key to the Manager’s active stewardship approach of using shareholder voting and corporate engagement to drive positive change.
From laggards to best in class: rating company ESG credentials
A systematic and globally-applied approach to evaluating stocks allows the Manager to compare companies consistently on their ESG credentials – both regionally and against their peer group. The Manager captures the findings from its research and company engagement meetings in formal research notes. Some of the key questions include:
- Which ESG issues are relevant for this company, how material are they, and how are they being addressed?
- What is ASI’s assessment of the quality of this company’s governance, ownership structure and management?
- Are incentives and key performance indicators aligned with the company’s strategy and the interests of shareholders?
Having considered the regional universe and peer group in which the company operates, the Manager’s equity team then allocates it
an ESG Quality score (ESG Q Score) between one and five (see below) which will be applied across every stock that the Manager covers globally.
The Manager also uses a combination of external and proprietary in-house quantitative scoring techniques to complement and crosscheck analyst-driven ESG assessments. ESG analysis is peer-reviewed within the equities team, and ESG factors impacting both sectors and stocks are discussed as part of the formal sector reviews. To be considered ‘best in class’, the management of ESG factors must be a material part of the company’s core business strategy. It must provide excellent disclosure of data on key risks. It must also have clear policies and strong governance structures, among other criteria.
Working with companies: Staying engaged, driving change
Once ASI 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. ASI actively engages with the companies in which it invests to help them improve 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.