At abrdn, we hold majority positions in most of our infrastructure assets. This enables us to put in place the appropriate governance structures to allow us to generate positive outcomes for our investors.
Board composition
The key to good governance is ensuring a company’s board composition is appropriate. What does this look like? Is there appropriate experience and independent expertise on the board to support management and, where necessary, to hold it to account?
The key to good governance is ensuring a company’s board composition is appropriate
Within our portfolio, non-executive directors are chosen based on their industry expertise, and local networks and relationships. Their ability to provide oversight and to challenge management is important. Effective boards need a mix of skills, personalities and experience. They also need a culture that enables different perspectives to be raised on key issues that the company is facing. It is essential to have people in place that have a deep understanding of the business, in addition to senior shareholder representatives who can drive the intended strategy. This combination of different interests and expertise can be effective at holding management accountable in terms of working towards the long-term success of the business.
Transparency and accountability
Transparency and accountability are key to minimising operational risks. It is important that the companies have regular board meetings with sufficiently detailed information to enable the board to fully understand the on-going performance of the company and any issues. This includes clear financial information, market analysis and other key items, such as environmental, social and governance (ESG) strategy and metrics.
By having early sight of potential issues or strategic considerations, the board is able to work with management to address issues and to ensure successful outcomes. In addition, it allows the board to assign clear responsibilities and expectations to management team members.
Management
Ensuring the right senior management is in place to deliver the company strategy is probably the single most important role of the shareholders and board. It is the key factor in the long-term success of the business. Senior advisers employed by shareholders can be brought in as an additional source of expertise to address certain topics, such as cyber security or ESG matters. When acquiring an asset, we often organise a workshop with one of our senior advisers who specialise in identifying gaps in the management team. This enables us to recruit the appropriate individuals with the skills and expertise to achieve the strategy – and, ultimately, to make it a successful investment for our investors.
It is also important that a company can set the right long-term incentives to ensure that management goals are aligned with those of the shareholders, such as ensuring that renumeration is linked to long-term value creation.
Case study 1 – Auris, Finland
Auris is a gas distribution network business that we own in Helsinki, Finland. It predominately supplies gas to homes for heating and cooking. We were able to recruit a strong management team that has the necessary direct industry expertise. We also appointed a board that has extensive experience in the country and sector, which means it is able to oversee the management team effectively.
Auris has had a very successful track record of organic growth, including a number of accretive add-on acquisitions, which has enabled it to grow its network and customer base. It has also been diversifying its revenue streams into renewable products and services, such as increasing its use of Biogas. In addition, the board has been working with management to ensure it is a forward-looking company that is actively working to future-proof the business in light of the energy transition. As a result, it has invested in cutting-edge geo-thermal technology, which should enable it to provide customers with zero-carbon heat services. With its various ESG initiatives, the company aims to contribute to a sustainable, greener future.
Case study 2 – CERI, Poland
CERI is a solar platform that we have developed in Poland. In terms of decarbonisation, Poland is behind other countries in Europe. Our investment in CERI is helping to accelerate the shift from fossil-fuel generation to renewables in Poland. In order to support this investment, we recruited a senior non-executive with extensive experience in the Polish energy market to join the board as chairwoman and to act as a senior adviser to our fund.
By working closely with a number of the leading solar photovoltaic (PV) developers in Poland, we have successfully acquired nine portfolios of solar PV plants. This has created a sizeable platform that generates 385 megawatts of energy across 400 sites. The scale of the platform has also enabled us to realise operational efficiencies in terms of maintenance, insurance, security and financing – all while helping support and accelerate Poland’s transition away from fossil fuels.