A year on from COP26 in Glasgow, and on COP27 Finance Day, we are providing stakeholders with an update on progress against our climate commitments. We have also identified a number of ongoing challenges the industry faces in tackling climate change, as well as setting out a range of further planned actions.

Last November we announced a target to reduce the carbon intensity of our assets by 50% against a 2019 baseline1 by 2030 through our Net Zero Directed Investing climate strategy. Since then, we have been partnering with our clients to take action to implement our commitments including establishing the data needed to track progress.

Against a 2019 baseline and at year end 2021, we estimate there has been a 23% reduction in carbon intensity across in-scope portfolios. While obviously a welcome indication of progress, it is important to note that this estimate is the result of analysis we have been able to complete so far based on currently available data and is driven by changes in both carbon and revenue. The number does not yet include data for Real Estate, with more complete analysis to be shared in our TCFD disclosures at Year End. We expect data coverage and quality to improve over time which will enhance our progress monitoring.

Best practice in disclosing financed emissions is important to us. To continue to champion this across our industry, we have joined the Partnership for Carbon Accounting Financials (PCAF) and are committed to aligning our reporting with industry standards.

Reflecting on the work undertaken over the last 12 months, Stephen Bird, abrdn CEO, said:

"We remain absolutely committed to the climate targets that we set out last year, and while there is a significant amount of work to be done, I am pleased with the progress we have made to date. We will continue to drive towards our commitments with a focus on transparency and engagement with our clients, investees and wider stakeholders, in order to achieve a cleaner, greener future together.”

With COP27 underway, Mr Bird also underlined the need for further action from all stakeholders, adding;

"The global commitments made at COP26 are not enough to limit global warming to 1.5 degrees, and now we need to see real, tangible action across the board at COP27 to get back on track. It’s time to turn awareness into action to close critical gaps between promises and implementation. We need stronger policies, taxation and pricing to help provide the right incentives for corporates to make quicker, more sustainable progress."

This has been a challenging year to make real progress on climate change, with turbulent macro-economic conditions impacting across markets and sectors. Within our own industry, we have faced a number of specific challenges, including;

  • Decarbonising at the scale and pace needed for net zero by 2050 is dependent on policy makers providing the right incentives for capital allocation. We have seen vastly insufficient progress on that and are not on a trajectory to meet the goals of the Paris Agreement.
  • As asset managers we are investing on behalf of our clients. Achievement of our commitment is highly reliant on clients increasing their demand for carbon targets and net zero products. We have seen some, but not sufficient, progress on that in the last year.
  • The data required to track decarbonisation is still lacking across many asset classes and regions and we have little control over decarbonisation in certain funds (for example, execution-only or third-party funds). Therefore, only 35% of our total AUM contributes to our decarbonisation target for investments. We aim to increase this over time and improve the breadth and quality of our own data as we move towards the 2030 target date.

Despite the challenging backdrop, our efforts to deliver on our climate commitments have remained focused on our three pillars of action:

  • decarbonisation
  • providing net zero solutions and,
  • active ownership.

In the table below, we detail our progress against each of these core pillars. Again, it is important to highlight that achieving our decarbonisation commitments is a journey with several phases. We do not necessarily expect linear year-on-year decarbonisation, and recognise that some progress we see will be influenced by changes in different carbon intensity drivers (such as increased revenue in the companies we invest in). That aside, we believe we are on track to deliver against our targets overall.

Our 2021 commitment

2022 implementation progress

1. Decarbonisation: we will track and reduce the carbon intensity of our portfolios aiming for a 50% carbon intensity reduction by 2030 vs 2019 for assets in scope. That means continuing to incorporate carbon analysis into the investment process and supporting credible transition leaders and climate solutions. Our equities, credit and quants investments already have the majority of assets with a carbon intensity below benchmark and our Real Estate business has committed to aligning their assets to net zero 2050 pathways.

  • We have focused on the implementation of carbon tools that deliver a range of carbon metrics and on research to understand why the choice of carbon metric matters
  • We have established our 2019 carbon baseline and initial analysis suggests a 23% carbon intensity reduction at year-end 2021 against the 2019 baseline for assets in scope. This does not include Real Estate numbers yet – official numbers will be communicated in our annual TCFD reporting early next year
  • We have committed to aligning our carbon reporting with industry best practice developed by the Partnership for Carbon Accounting Financials (PCAF)
  • We have incorporated achieving carbon targets into our Executive remuneration scorecard

2. Providing net zero solutions: we aim to increase the proportion of assets flowing into net zero-directed investing solutions.Around 30% of AUM is to be managed in line with net zero 2050.abrdn will aim to increase this by continuing to develop net zero solutions across all asset classes, actively engaging with clients as well as transitioning its fund range to support net zero goals.

 

  • We have been actively developing our net zero solution offering, for example by establishing an Active Climate Transition (ACT) proposition in Equities and Fixed Income that is based on the principles of the IIGCC Net Zero Investment Framework that we have contributed towards
  • We have been actively engaging with clients that have set net zero goals on implementing these in practice through the climate products and services we offer
  • We announced that 30% of AUM was to be managed in line with net zero goals based on commitments our clients had made. This still has to be reflected in mandates, a process that takes time and is heavily reliant on client action

3. Active ownership: we will continue to vote and engage with its investee companies to drive change and transition real assets. The team will engage with the highest financed emitters across equity and credit holdings seeking transparency on progress against clear transition milestones assessed against relevant standards – such as the Climate Action 100+ net zero benchmark. We will divest from companies where, after two years, it considers insufficient progress has been made against the transition milestones set, unless it’s not in line with the client mandate.

  • We have identified our Top 20 largest financed emitters in Equities. Fixed income analysis of largest financed emitters is to follow
  • We have initiated a two-year engagement programme with these emitters and identified clear milestones
  • We have developed a bespoke credibility assessment framework to understand the likelihood of targets being implemented
  • If we do not see sufficient progress against these milestones, we will take voting action after one year and provide a recommendation for divestment after two years where we have discretion to do so

 

Working to a more sustainable future

While COP27 marks another important milestone, it’s important to keep looking forward and building on the progress made to date. We’re currently in the implementation phase of our carbon reduction plan, and below are further actions we’re taking to take to meet our carbon targets:

  1. Active analysis of carbon risk to understand carbon leaders and laggards vs peers today and with a forward looking emission trajectory and transition view
  2. Continued investment in climate solutions and transition leaders with strong decarbonisation targets to drive the decarbonisation of assets we hold
  3. Active ownership to influence decarbonisation targets of assets we are invested in and escalate via voting and eventually divestment where progress is insufficient
  4. Actively develop our net zero directed solution range across asset classes and engage with clients to demonstrate our climate capabilities and increase flows into our climate solutions

As stated in our commitments, where the above actions do not lead to sufficient decarbonisation of our assets, we will seek to understand the drivers and may need to adjust our holdings to reduce exposure to carbon intensive companies that are not decarbonising as expected.

Further detail on our investment climate commitments, including metrics, processes and assets in scope, is provided here.

Wider business progress

While the biggest impact and most material change can be made in our investment activity, we know that it starts with us as a business. As a business, we aim to lead by example, striving for the same high standards that we expect from investee companies, with a corporate target to be net zero in our operations by 2040. In 2021 we set an ambitious interim target to achieve a 50% reduction in operational emissions by 2025, against our 2018 baseline. We are making good progress and key to delivering this is the development of our new Net Zero Pathway which is being rolled out across our business. Colleague education and engagement is critical to the delivery of Net Zero, and we are building on our pioneering partnership with the eco app Pawprint to help us deliver our net zero strategy.

At Year End in Q1 2023, we’ll be publishing our next set of reports including our Sustainability and TCFD Reports, which will provide more detail on our progress. You can read the last set of reports here:

For more insights and updates on our activity at COP27, please visit our website.

1 Assets in scope include those with sufficient carbon data and ability to influence carbon across Equities, Credit, active Quants, Real Estate and certain Multi-Asset strategies, overall 35% of total AUM

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