abrdn plc                            FSUK0032

Written evidence submitted by abrdn plc


About us:


  1. abrdn plc is a leading global investment company. We have offices in over 50 locations worldwide and employ around 6,000 people. Our strategy is to enable our clients to be better investors and through that to deliver client-led growth in revenues and operating profits. Operating across three vectors – Investments, Adviser and Personal – that reflect how our clients interact with us, abrdn has the full ecosystem of capabilities that enable our clients to be better investors. Our expertise and resources give us a holistic view of retail customers through participation in provision of our platforms, financial advice business, discretionary services and investment management. abrdn offers a wide range of investment solutions and services designed to meet our clients’ needs today, tomorrow and for the longer term. We manage and administer £542 billion of assets worldwide (as at 31 December 2021).


  1. Wherever we are in the world we strive to make a positive long-term impact. This means delivering world-class investment solutions. It also means operating ethically, encouraging and where necessary mandating good practices among companies we invest in, and providing support and expertise for the benefit of the communities in which we operate.


  1. abrdn plc is headquartered in Scotland. It has over 1 million shareholders and is listed on the London Stock Exchange.




  1. Our vision for a better future starts with asking more of ourselves. We have been integrating environmental, social and governance (ESG) considerations into our investment process since the 1990s. Investing responsibly is not only the right thing to do, it also helps us to identify opportunities and manage risks. ESG investment is about active management, with the goal of improving the performance of assets we manage around the globe. We want to make a difference – for our clients and customers, society and the planet.


  1. abrdn is a proud member of the Glasgow Financial Alliance for Net Zero (GFANZ) and alongside other members, we have committed to engage with clients to develop solutions that align with net-zero and to help develop industry best practice.


  1. In this response, we consider our own role in the UK’s net-zero transition and, while we work across three areas (Investments, Adviser and Personal), our response is particularly focused on the work of our Investment vector. We set out our approach to climate change, including our efforts to reduce the role of fossil fuels in the economy and replace them with lower-carbon solutions. We describe how we are using active ownership as a powerful tool to influence real-world decarbonisation by challenging companies on their transition strategies and influencing corporate behaviour. Our response highlights some of the climate policy initiatives that we believe are fundamental to enabling capital allocation in line with net-zero 2050 and we urge governments globally to step up ambition action. We also consider the social impacts of the energy transition and the geopolitical pressures arising from Russia’s invasion of Ukraine.


Our approach to fossil fuels:


  1. At abrdn, we fully acknowledge the role of fossil fuels in causing and exacerbating climate change. We support the Paris Agreement, and believe that urgent action is required to limit global warming to 1.5⁰C. This means aiming for a global net-zero emissions economy by 2050, in which fossil fuels will only play a minor role.


  1. Our Climate-Change Approach for Investments is built around six areas of focus. High-level objectives for each area are provided below (Chart 1). Our approach to climate change is closely aligned with the PRI Investor Agenda. This is an initiative for investors to demonstrate their contribution to transitioning the world’s financial capital to low-carbon opportunities. It encourages investors to demonstrate action across four areas: investments, corporate engagement, investor disclosure and policy advocacy.




  1. We consider climate-change risks and opportunities as an integral part of our investment process across all asset-classes and sectors. We carefully consider fossil-fuel related risks and the ability to transition to alternatives in our investment decisions. We undertake in-depth analysis on the financial implications of different climate scenarios and the risk of demand destruction, particularly for fossil-fuel related assets. Not all fossil fuels are equal, as we detail below.


    1. Coal is the most carbon-intensive fossil fuel, and using it has significant negative implications for air pollution and biodiversity. Unabated thermal coal used for electricity production should be eliminated as soon as it is practical. In line with the Intergovernmental Panel on Climate Change (IPCC) 1.5⁰C special report, global power generation should be free from thermal coal by 2050, and by 2030 for Organisation for Economic Co-operation and Development (OECD) countries, preferably even earlier. We are members of the Powering Past Coal Alliance (PPCA) and strongly encourage the phasing out of coal within these timelines. But we also need to understand the impact it will have on communities and employment in regions that are heavily reliant on coal. Metallurgical (bituminous) coal, which is mainly used for steel production, is more difficult to replace and will therefore require a more considerate phase-out.


    1. Oil is still used significantly in transportation and industry, but alternatives are emerging and growing. It is likely that oil demand will peak in the next decade if policies are implemented to achieve the goals of the Paris Agreement. This creates a stranded-asset risk. We want to see oil & gas companies reduce their investments in fossil fuel exploration and shift it towards low-carbon energy sources.


    1. Natural gas has the lowest carbon intensity of all the fossil fuels. It is an important transition fuel in many regions, and we support the transition from more carbon-intensive fuels to gas where alternatives are limited. However, we also consider the risk of gas utilities and infrastructure becoming stranded in the medium to long term. Transition directly to low-carbon energy sources such as renewables is our preference – one we strongly encourage. It is also important to differentiate between conventional and unconventional production methods for oil and gas as they have different risks and impacts. For example, oil sands and unconventional gas have higher risks, so involvement should be minimised.


  1. As a large asset manager, we have an important role to play in influencing the transition to a low-carbon world and in reducing the reliance on fossil fuels. In our view, the solution is not simply divest from all fossil fuels today.


Active ownership:


  1. In our actively managed investments, corporate engagement is essential to enable and support a ‘just’ energy transition. We believe that engagement on climate and Environmental, Social and Governance issues with fossil fuel-related companies allows us to better understand their exposure and management of climate change risks and opportunities. It also provides us with the ability to influence and outline our expectations in relation to the Paris Agreement and the PPCA. We want to steer companies towards setting ambitious targets and increasing capital allocation towards low-carbon solutions. For example, we have engaged with European oil majors on aligning their strategies and investment plans with the Paris Agreement and setting targets that include Scope 3 emissions.


  1. We also engage with other asset managers and asset owners as part of Climate Action 100+, a five year initiative to engage and influence high-emitting companies collaboratively. We believe that engagement is more powerful for an effective energy transition than an absolutist approach to fossil-fuel divestment. Divestment would simply transfer our ownership to another investor who may not take their stewardship responsibilities in relation to influencing fossil-fuel companies as seriously as we do. We set clear milestones for our engagements and expect to see evidence of action. If we find that there is limited progress in response to our engagement, our investment teams will carefully consider the consequences. This may mean reducing our positions or completely selling our holdings in fossil-fuel-related companies.


  1. As active managers, we have another important means of influencing when our engagement hasn’t succeeded: escalation via voting and support of shareholder resolutions. That’s how we can publicly reflect our view on the need for a Paris-aligned low-carbon transition. At abrdn, we have a well-resourced stewardship team with dedicated proxy-voting capability that can provide escalation on climate-related matters. We have developed an approach to provide informed voting on the increasing number of climate-related shareholder resolutions. In 2020, we voted in favour of 62% of these shareholder resolutions, demonstrating that we are actively analysing and considering these resolutions and not just applying a blanket tick-box approach.


  1. Many of today’s energy companies need to become the leaders of a successful energy transition and align themselves with the Paris Agreement to limit warming to 1.5°C. We want to support companies in their transformation where they have or are developing credible strategies to become transition leaders. In our view, companies that successfully manage climate-change risks and reduce their emissions will perform better in the long term.


  1. To identify the highest-emitting companies in our portfolios, we have developed the capability to analyse the carbon footprint of portfolios and incorporate this into our investment process. This includes Scope 3 emissions, which are important as they represent 85% of the oil & gas industry’s greenhouse-gas emissions. We also use the analysis undertaken by the Transition Pathway Initiative to assess the quality of management and targets in relation to Paris Agreement goals.


Providing net-zero solutions:


  1. While it is critical to influence the capital allocation of fossil-fuel companies, we also invest capital directly in low-carbon assets to help reduce reliance on fossil fuels. We have increased our investment in green infrastructure, such as renewables, and have committed to net-zero-carbon-emission buildings by 2050 in all our real estate investments. We also provide capital indirectly, through investments in infrastructure funds and provision of equity and debt capital to companies that provide solutions for the energy transition. This includes renewable energy developers, utilities and providers of energy efficient technology. To grow our role in supporting the financing of the transition, we are continuously exploring opportunities. This includes energy efficiency and energy storage.


  1. We are committed to increasing the proportion of assets flowing into our net zero directed investing solutions. Around 30% of our AUM is currently expected to be managed in line with net zero 2050. We aim to increase this by continuing to develop net zero solutions across all asset classes, actively engaging with our clients as well shifting the abrdn fund range to support net zero goals - starting with a review of the carbon targets within our Article 8 & 9 funds.


Policy frameworks to support the decarbonisation of the economy:


  1. We would like to see governments continue to build on the momentum of the achievements made at COP26 in order to set a clear direction of travel towards a net-zero economy, whatever economic/geopolitical challenges may arise. In Glasgow last year we saw ambitions outlined at a very high level. We now need countries to back up their targets with concrete measures such as binding legislation, more onerous carbon pricing, joined up policy across all levels of government, and greater zero-carbon research spending. We operate and hold assets globally. Upgrading our commitments needs more than stronger UK commitments – it needs much larger change worldwide.


  1. Carbon pricing is a key tool that governments can use to reduce the attractiveness of both existing and planned fossil fuel projects. However, carbon pricing policies are still woefully inadequate in nearly every economy. We hope this will change. We are strongly supportive of a global carbon price as the best way to drive decarbonisation and encourage the transition from high-emitting fossil fuels. While international negotiations on carbon pricing are ongoing under Article 6 of the Paris Agreement, we support nearer term, national-level action, such as focusing on a robust carbon price under the existing UK Emissions Trading System (ETS). Efforts to link the UK ETS with other jurisdictional schemes would also be encouraged.


  1. As investors, we believe comparable climate-related data is necessary to enable effective decision making to reduce emissions and investment in fossil fuel extraction. As such, we were strong supporters of the UK legislation that requires firms to disclose climate-related risks and opportunities, in line with the Task Force on Climate-related Financial Disclosures (TCFD) framework. We also support the work of the International Sustainability Standards Board to create a global framework for sustainability disclosures. We are currently reviewing the draft Exposure Standards and will provide feedback. The UK’s upcoming Sustainability Disclosure Requirements regime should incorporate the work of the TCFD and ISSB in order to ensure workability across borders.


The need for a just transition:

  1. Environmental and social issues are inextricably linked. If left unabated, climate change will have a tangible, negative effect on human lives. Climate change, therefore, is a human rights issue as well as an environmental one. However, the social impact of global energy transition on people varies by stakeholder and geographical location. This gives rise to the concept of “the just transition”. A just transition aims to ensure that everyone shares in the benefits of transitioning to a low-carbon world, including workers, communities and consumers. It means combining urgent action to address climate change with a continued focus on decent work, reducing inequality and upholding human rights.


  1. We are a member of the Financing a Just Transition Alliance (FJTA), coordinated by the Grantham Research Institute on Climate Change and the Environment at the London School of Economics. The objective of the Alliance is to translate the growing commitment to a just transition across the financial sector into real world impact. We are also a signatory to the Statement of Investor Commitment to support a Just Transition, which was also coordinated by the Grantham Research Institute in 2018.


  1. The just transition is still a developing area for the investment industry. Since becoming a signatory, we have participated in multiple events and workshops aiming to advance industry thinking on the investor’s role in a just transition. We also hosted a webinar, contributed to external panels and published thought pieces on the social dimensions of climate change. Going forward, we will continue our research in this area, in line with our commitments to address and promote a fairer society.


The effect of the 2022 Russian invasion of Ukraine:


  1. Russia’s invasion of Ukraine coincides with a crucial period in the fight against climate change.


  1. As far as we are aware, there have been no significant, credible and binding climate policy changes resulting from the crisis to date among the major emitters. Investors and businesses who have committed to supporting net zero 2050 goals will therefore still struggle to achieve their goals in the long run unless that changes. Announcements in the lead up to COP27 in November are the key waymark we are monitoring for signs that the ground is shifting more decisively.


  1. Nevertheless, the war is clearly going to impact demand for different energy sources and commodities and hence investment risks and opportunities. As investors, we are considering the greater potential for stranded assets – not just in Russia – but also in other commodity exporting autocracies as energy importers and financers of foreign direct investment reassess their risk profiles. One thing is certain – the war in Ukraine has highlighted the extreme uncertainty surrounding the energy transition and the evolution of the energy mix over different timescales.


Contact details:


  1. For further information contact:

Kate Ballantyne

Public Affairs Manager


July 2022