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abrdn - How to invest to help address the world’s big challenges

While some progress was made at COP26, it is clear that there is a large credibility gap between words and actions. In our view, official country pledges still fall short of meeting the goals of the Paris Agreement.



However, we believe overall positive environmental and societal change can still come – in part through the choices each of us makes. This includes how we invest for our own financial future. Here, there is reason for optimism. Not least when it comes to numerous investment solutions for those looking to help address the world’s big challenges while seeking to secure their own financial futures. So, how does this look in practice?


Walking the walk


First, it starts with us. At abrdn, we believe we have to show that we are serious about helping our clients achieve their net zero ambitions by 2050. That’s why we joined the Net Zero Asset Managers initiative. We’ve also developed a climate change strategy focused on Net Zero Directed Investing (NZDI).


Through this, we seek to be a positive catalyst for net zero through a holistic set of actions. These include rigorous research into different climate trajectories, developing net-zero-directed investment solutions and active ownership to influence corporates and policymakers.


We aim to reduce the carbon intensity of our assets by 50% by 2030 versus a 2019 baseline. Furthermore, we plan to increase the proportion of assets that are aligned to Net Zero 2050 goals by actively working with our clients. For our operations, we have committed to a 50% emission reduction by 2025 and net zero by 2040.


Actively tackling climate change – equities, multi-asset and bonds


Many believe the best way to tackle climate change is to allocate capital to companies and portfolios with a low-carbon footprint. That could mean simply avoiding carbon-intensive sectors, such as oil and gas producers, utilities, materials and energy companies, and instead opting for those at the other end of the carbon spectrum, such as technology, financials or consumer firms.


But in the real world this won’t help cut greenhouse gas emissions. It also means investors risk missing out on areas where the greatest positive change is possible and where some of the best investment opportunities exist.


We believe investors should instead consider investment solutions that allocate capital to, and engage with, companies that are innovating to create meaningful climate solutions.


We believe investors should instead consider investment solutions that allocate capital to, and engage with, companies that are innovating to create meaningful climate solutions. In our view, these companies are the best way to help the world achieve net zero while, at the same time, offering attractive risk/return potential. You can read more in our article A low-carbon portfolio by itself won’t save planet Earth.


Of course, we all have different investment objectives. Many clients want exposure to the climate theme, but are concerned about the risks that sometimes accompany a higher return potential. One way to do so is through a multi-asset approach. Here, investors can potentially experience a smoother investment journey by investing in a diverse range of assets. Within equities, multi-asset investors can have broad exposure across the full range of companies geared into the climate theme. At the same time, they can diversify across asset classes. For example, by holding pure climate exposures in ‘green bonds’, renewable-energy infrastructure and ‘green equities’. You can read more in Climate change – time to consider a multi-asset investment strategy?


And then there are bonds – specifically, ‘green bonds’. These are designed to direct capital towards projects with a positive environmental impact. The idea is that issuers use this money to mitigate the causes of climate change and build a greener future.


But, while green bonds are important, there are concerns. The data reveals that not all sectors – and certainly not all the relevant sectors – are issuing enough green bonds. Furthermore, there’s insufficient oversight to measure the differences green bonds make. A bond can be called ‘green’ even if it doesn’t require the issuing company to reduce emissions. And, of course, this opens up the concerns of ‘greenwashing’.


So, should investors avoid green bonds? Not at all. In our article, we look at the best ways to uncover true green bonds. We also detail some of the companies leading the way within this arena – and what it all means for investors. Check out Climate-focused investing – why the ‘green bond’ label isn’t enough.


Beyond climate – impact investing


Of course, climate change isn’t the only big challenge facing the world. There are numerous issues around inequality, healthcare, education, nutrition and more. Many of these challenges are interlinked. One method to help address these is impact investing.


Impact investing is distinct within sustainable investing. It does not focus solely on avoiding business practices. Nor does it only assess business operations. It’s about investing in activities that address global issues. For us, this entails investing in financially attractive companies that are intentionally developing products and services that contribute to quantifiable, positive social and environmental outcomes.


Types of activity include:


  • expanding education opportunities to rural and low-income students
  • improving treatments for priority health concerns
  • conserving natural resources by offering closed-loop solutions
  • expanding access to nutrition.

Given the goals clearly expressed by governments and corporations, it’s no longer a stretch to argue that companies providing solutions to the most pressing global risks have the opportunity to profit. You can read more in our article Impact investing – where next?


Asian and emerging markets – SDG-aligned investing


In our final article, we look at investing aligned with the UN’s 17 Sustainable Development Goals (SDGs). Launched in 2015, the SDGs are a policy blueprint designed to help governments, companies and society achieve a better and more sustainable future for everyone.


SDG-aligned investing aims to deliver both an attractive return and a positive societal impact where it matters most. This type of investing is particularly suited to Asian and emerging markets. Many have fast-growing economies but still face the ongoing negative impacts of underinvestment in major areas. Crucially, however, these regions host some of the most innovative companies that can help solve a variety of problems. Asset managers can be an important part of the capital chain that supports the allocation of resources into countries and sectors that need it most – and where potential relative returns are high. You can read more in our article The SDGs – seeking a positive societal impact where it matters most.


Final thoughts…


As we have shown, there are several different investment solutions depending on an individual’s objectives and tolerances to risk. We believe these strategies will only grow in popularity and availability as their benefits become more widely apparent. And that’s good news for us all.



Important Information


The value of investments, and the income from them, can go down as well as up and you may get back less than the amount invested.


The information herein should not be considered an offer, investment recommendation, or solicitation to deal in any financial instruments or engage in any investment service or activity. The information is provided on a general basis for information purposes only, and is not to be relied on as advice, as it does not take into account the investment objectives, financial situation or particular needs of any specific investor. It does not constitute investment research and whilst every care has been take in its preparation the accuracy, adequacy or completeness of the information contained herein is not warranted and liability is expressly disclaimed for errors or omissions.The information herein is protected by copyright, however it may be quoted, provided the source is acknowledged. It may not be reproduced, copied or made available to others for commercial

purposes without our permission. Abrdn reserves the right to make changes and corrections to the information, including any opinions or forecasts expressed herein at any time, without notice.




February 2022

Please note that these are the views of abrdn and should not be interpreted as the views of RL360.



Author

Jamie Govan


Senior ESG Investment Manager


abrdn


February 2022


Please note that these are the views of abrdn and should not be interpreted as the views of RL360.

360 fund links

A range of abrdn funds can be accessed through our guided architecture products Regular Savings Plan, Regular Savings Plan Malaysia, Oracle, Paragon, Quantum, Quantum Malaysia, LifePlan, and also through our PIMS portfolio bond.