Company: Aberdeen Standard Investments
Category: Real World Impact Initiative of the Year (shortlisted)
In the spirit of showcasing leadership and raising standards of responsible investment among all our signatories, we are pleased to publish case studies of all the winning and shortlisted entries for the PRI Awards 2019.
Project overview, objectives, and reasons for undertaking it
Aberdeen Standard Investments launched its Global Equity Impact Fund in October 2017 following three years of research and analysis. Its strategy is built around mobilising capital towards achieving the UN’s 17 Sustainable Development Goals (SDGs), while also generating a strong financial return.
The firm decided to focus on investing in public markets, not just because it is an effective way to stimulate positive change, but also because it enables a wider range of clients to invest. Private markets, on the other hand, often require higher levels of upfront capital, longer commitments to invest, and higher risk levels.
How companies operate and the services and products they provide have a lasting effect on employees, customers, the environment, society and the economy. While this influence presents risks, it also creates opportunities. With over 45,000 companies listed on stock exchanges globally, the combined efforts of the capital markets can be hugely powerful. Importantly, the success of these companies can create substantial value for their long-term investors, both financially and socially.
Financial scale of the project and impact
The fund’s strategy draws on the coverage of Aberdeen Standard Investments regional equity teams, and is supported by debate and discussion by the firm’s internal impact management group. The group consists of the fund’s portfolio managers, as well as specialist impact analysts and senior members of the ESG investment team. Members of the equity investment teams regularly join discussions on ideas and contribute research for the fund. The impact investing strategy has US$76 million in assets under management via two vehicles.
Aberdeen Standard Investments believes that supporting the SDGs creates tangible opportunities for companies to contribute positively to society and the environment, while simultaneously enhancing the long-term financial value of the business.
Project delivery and challenges overcome
The fund aims to invest in companies that deliver measurable, positive environmental and social impact alongside strong financial returns. To apply the SDGs at a portfolio level the fund focuses on the eight pillars of impact, with key performance indicators for each. The pillars are:
- circular economy;
- health and social care;
- sustainable energy;
- financial inclusion;
- food and agriculture;
- sustainable real estate;
- water and sanitation;
- education and employment.
The UN’s underlying SDG indicators form the basis for the indicators, linking a company’s ability to make positive change back to overarching global challenges. The fund focuses on the company’s business model, products and services to identify ways its financial success is driven by progress towards these indicators.
The investment process starts with the strongest ideas across the firm’s equity desks. The equity teams then decide whether each company is having a meaningful impact on the SDGs and assess them on three stages of impact maturity:
- Intentionality – a clear strategy to pursue an impact agenda, supported by investment.
- Implementation – putting strategy into practice and making money.
- Impact quantification – measuring and reporting on outputs.
Identifying companies with these credentials is not easy, and Aberdeen Standard Investments sets a high bar. A robust research process and transparent reporting are essential to maintaining the integrity of the firm’s impact strategy. A key challenge is the availability and homogeneity of data and measuring intended and unintended outcomes. This is addressed through:
- An active engagement policy to learn more about a company’s strategy and impact, appraise company management, encourage best practice and/or exchange views.
- An annual impact survey, which enhances and supports impact measurement and reporting.
- Participating in industry-wide discussions on standardising data and measurement.
Measuring success and lessons learned
In its annual impact reporting, the firm aggregates company data by impact pillar to demonstrate the positive effects delivered. Where possible, it compares the data to datasets from reputable organisations, such as the World Bank and the World Health Organisation. It then examines where the outputs from the companies in the portfolio occur, how these outputs contribute to the SDGs, and what conclusion can be drawn about the ultimate outcome.
For example, the financial inclusion pillar highlights bank or mobile-money service penetration globally. Examining accounts created in Turkey, the fund’s managers considered income levels and income definitions (among other factors) and determined that holdings in the fund had created 783,333 new accounts for under-banked demographics in the country. This represents about 8.5% of new accounts opened between 2014 and 2017 in Turkey. In Egypt, financial account ownership improved from 14% of the population to 32.8% of the population between 2014 and 2017. Using the same analysis, the accounts created by holdings in the fund correspond to 35% of new accounts in the country. This analysis was expanded to map the impact of holdings in the fund globally on basic financial services penetration.
The fund uses a similar exercise for all eight of its impact pillars in its annual impact report. While the impact measurement approach relates specifically to the firm’s impact investing strategy, the value of its insights has helped to inform the firm’s wider ESG integration. The research of its ESG Investment team is now organised to focus on the following areas:
- environmental responsibility ;
- climate change ;
- employment and labour practices;
- human rights and community ;
- business ethics and governance.