abrdn.com
Resilience from
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Annual report and accounts 2022
At abrdn, we are
reshaping our business
to serve a wider range
of clients to plan, save
and invest for the future.
By diversifying our business,
we are positioning ourselves
for growth in a changing
investment landscape.
This annual report and accounts 2022 for abrdn plc, and the strategic report and
financial highlights 2022 are published on our website at www.abrdn.com/annualreport
Access to the website is available outside the UK, where comparable information may
be different.
Certain measures such as adjusted operating profit, adjusted profit before tax,
adjusted capital generation and cost/income ratio, are not defined under
International Financial Reporting Standards (IFRS) and are therefore termed
alternative performance measures (APMs).
APMs should be read together with the Group’s consolidated income statement,
consolidated statement of financial position and consolidated statement of cash flows,
which are presented in the Group financial statements section of this report. The
revenue APM included within adjusted operating profit has been renamed from fee
based revenue to net operating revenue. Further details on APMs are included in
Supplementary information.
See Supplementary information for details on assets under management and
administration (AUMA), net flows and the investment performance calculation. The
calculation of investment performance has been revised to use a closing AUM weighting
basis. 2021 comparatives have been restated. Net flows in the Highlights page excludes
liquidity flows as they are volatile and lower margin. It also excludes Lloyds Banking
Group
(
LBG
)
tranche withdrawals relatin
g
to the settlement of arbitration with LBG.
APM
Adjusted operating
profit
IFRS (loss)/profit before
tax
Full year dividend per
share
£263m
(£615m) 14.6p
2021: £323m
2021: £1,115m
2021: 14.6p
Investment performance
(% of AUM above benchmark
over three years)
Net flows
(Excl. liquidity and LBG)
MSCI ESG Rating
65% £10.3bn
outflow
AAA
2021: 78%
2021: £3.2bn outflow
2021: AA
Contents
1. Strategic report
Our business at a glance 2
Chairman’s statement 4
Chief Executive Officer’s review 7
Our business model and strategy 10
Performance overview 14
Our vectors 16
Sustainability 28
Key performance indicators 48
Chief Financial Officer’s overview 50
Risk management 64
Governance
2. Board of Directors 70
3. Corporate governance statement 74
3.1 Audit Committee report 86
3.2 Risk and Capital Committee report 95
3.3 Nomination and Governance
Committee report 99
3.4 Directors’ remuneration report 103
4. Directors’ report 131
5. Statement of Directors’ responsibilities 137
Financial information
6. Independent auditor’s report 140
7. Group financial statements 156
8. Company financial statements 265
9. Supplementary information 279
Other information
10. Glossary 292
11. Shareholder information 296
12. Forward-looking statements 297
13. Contact us IBC
This symbol indicates further information
is available within this document or on our
corporate website.
Download this report from:
www.abrdn.com/annualreport
APM
1abrdn.comAnnual report 2022
STRATEGIC REPORT
At a glance
Resilience
from diversification
Note: Adjusted operating profit in 2022 is £263m, including a loss of £9m from Corporate/strategic which is excluded from the diagram above.
Our clients’ worlds are changing, and so are we
Global investments
UK savings and wealth
p
latforms
Investments
Adviser
Personal
–
Insurance companies
–
Sovereign wealth funds
–
Independent wealth
managers
–
Pension funds
–
Platforms
–
Banks
–
Family offices
–
Financial advisers
–
Discretionary fund
managers
–
Individuals
As industry trends and client behaviours have evolved, so have we.
We have focused on diversifying the earnings profile of our business –
moving away from a reliance on the market-driven revenues of a traditional
asset manager and, through the earnings potential of our Adviser and
Personal vectors, positioning ourselves to leverage opportunities in areas
that are being driven by attractive structural factors.
Investments
Adjusted operating profit
£114m
Adviser Personal
Adjusted
operating profit
£86m
Adjusted
operating profit
£72m
2 abrdn.com Annual report 2022
Our strategy is
to deliver client-led growth
Our four strategic priorities are
Asia Sustainability Alternatives
UK savings
and wealth
Our three businesses are
AUM
£376bn
Cost/income
ratio
89%
AUA
£69bn
Cost/income
ratio
54%
AUMA
£67bn
Cost/income
ratio
64%
Our purpose is
to enable our clients to
be better investors
Investments
Our capabilities in our
Investments business are built
on the strength of our insight
– generated from wide-
ranging research, worldwide
investment expertise and
local market knowledge.
Adviser
Our Adviser business provides
financial planning solutions and
technology for UK financial
advisers, enabling them to
create value for their
businesses and their clients.
Personal
Powered by the UK’s second
largest direct-to-consumer
investment platform, our
Personal business enables
individuals in the UK to plan,
save and invest in the way
that works for them.
3abrdn.comAnnual report 2022
STRATEGIC REPORT
Chairman’s statement
Progressing
against our
strategic
priorities
This period has
provided a stress test
to economies,
financial markets and
indeed to our own
business; the learnings
are invaluable.
Sir Douglas Flint Chair
2022 turned out to be a year like no other in recent
memory, with a series of unexpected events across the
globe.
Most significantly, the Russian invasion of Ukraine
brought scenes of chaos, destruction and human
suffering on a scale not seen in Europe since the Second
World War. Already fragile geopolitical tensions
intensified, in particular between the United States and
China. Energy costs rocketed, impacting all sectors of
the economy and requiring fiscal intervention to
prevent business collapse and unacceptable hardship
for people experiencing exceptionally high bills. Food
supplies also faced disruption contributing to the high
levels of cost inflation.
As inflation re-emerged from its dormancy, Central
Banks increased policy interest rates across most of the
major Western economies to temper inflationary
expectations. Critical economic cross-border
dependencies became apparent, precipitating an
exhaustive global examination of supply chain
resilience. China’s unwinding of its zero-COVID policy at
the end of 2022, while long encouraged in the West,
may in the near term add to global supply chain
uncertainties as its economy, health systems and
population adjust to living with the virus.
4 abrdn.com Annual report 2022
And here in the UK we saw unprecedented political
instability, with three Prime Ministers and four
Chancellors within a four-month period to the end of
October. We have entered 2023 facing strikes across
much of the public sector, threatening both economic
growth and higher inflation.
We adjusted our business model
to meet our clients’ needs
It was against this backdrop that we adjusted our
business model and investment priorities to meet client
and customer needs and to make our own business
more sustainable and resilient for the future.
As we stand back to reflect, we observe this period has
provided a stress test to economies, financial markets
and indeed to our own business; the learnings are
invaluable.
Embedding resilience as our
three-vector model takes
additional shape
Perhaps the most important lessons for us are the need
for resilience in our business model and, as an investor,
the enduring importance of fundamental analysis to
deliver long-term value through our investment
processes.
The unexpected and dramatic events noted above had
understandable adverse impacts both on market levels
at various points in the year and on flows as an
unprecedented level of withdrawals was made from
equity funds across the industry. We were not immune
from these impacts. What was encouraging was that
the impacts were largely seen across public markets in
the Investments vector with real assets and our other
two vectors in Personal and Adviser proving much more
resilient – reinforcing the decisions made to direct more
of our capital towards these businesses.
We made further progress against our priorities in 2022.
The development of the three-vector model introduced
in 2021 took additional shape during the year, most
markedly through completion of the acquisition of
interactive investor (ii). On top of this, the refocusing of
the Investments vector to improve productivity and play
to competitive advantage moved from the planning
phase to execution with much more to come in 2023.
Some examples include fund rationalisation, where we
are on track to consolidate or close some 80 funds this
year, having consolidated or closed 58 in 2022.
Additionally, we are focusing our real assets business on
areas such as the living sector (including residential and
student), where we are one of Europe’s largest
residential fund managers, and on industrial and
logistics real estate where our subsidiary Tritax has
grown assets under management by over 40% post our
acquisition. Activity to support repositioning has also
included moving to distribution partnership models in
Taiwan and Australia.
This report elaborates on the progress made in the
Investments vector on pages 16-19.
Financial performance reflects
expanded Personal and Adviser
contributions
Adjusted operating profit at £263m was 19% lower than
that achieved in the prior year (2021: £323m); the
decline was concentrated in the Investments vector
primarily for the reasons highlighted previously and
reflects the further work required to refocus the
Investments business. ii contributed £67m in its first
seven months of our ownership, ahead of our business
case modelling on acquisition, benefiting from the rise in
interest rates on uninvested cash balances. Together
our Personal and Adviser businesses contributed 60% of
adjusted operating profit in the year, a contribution that
is expected to grow taking into account the full year
contribution from ii from now on. Our IFRS pre-tax loss
amounted to £615m (2021: profit £1,115m) which
included the impact of impairments of intangible assets
mainly in the Investments business and lower share
prices for our significant listed investments.
Stephen and Stephanie provide greater insights into
performance across our vectors in their reports.
Continuing strong capital
management discipline
Capital management discipline was strong during the
year and remains a core philosophy of the company.
We augmented capital resources outside of operating
activity through further disposals of non-core stakes
realising £0.8bn; we completed share buybacks
amounting to £0.3bn and we invested c£1.5bn in the
acquisition of ii. We declared an interim dividend of 7.3p
per share which was paid on 27 September 2022 and
the Board is recommending a final dividend also of 7.3p
per share to be paid on 16 May 2023, subject to
shareholder approval at the AGM in May. Our
regulatory capital position remains strong. Stephanie
covers all of this in more detail in her report.
Board matters
As foreshadowed in my statement last year Catherine
Bradley, Mike O’Brien and Pam Kaur joined the Board
during the course of 2022. They have made significant
contributions to our discussions and we are delighted
with how well they have integrated into the rhythm of
our Board meetings which happily are now primarily in
person again.
Cecilia Reyes advised us in September that she would
not seek a second term when her first term concluded
at the end of that month. Cecilia brought great insight
and experience to the Board, Risk and Capital, and
Remuneration Committees. We wish her well in her
future endeavours.
5abrdn.comAnnual report 2022
STRATEGIC REPORT
Chairman’s statement continued
Additionally, Brian McBride has advised that he will not
seek re-election at our Annual General Meeting on 10
May 2023 and will stand down from that date as a Non-
Executive Director and as a member of the
Remuneration Committee. On behalf of the Board and
all my colleagues, I would like to thank Brian for his
significant contribution to abrdn. He served on the
Board, several subsidiary boards and the Remuneration
Committee. We will all miss Brian’s insights and
guidance. His direct experience of private market
investments and consumer-facing businesses has
brought significant value to our Board and Committee
discussions. We wish him all the best as he pursues his
many other interests.
Finally, I am sure shareholders will wish to join with the
Board and our colleagues in congratulating our former
CEO, Sir Keith Skeoch on his well-deserved knighthood
in the recent New Year Honours.
Looking forward to a more
sustainable world
Notwithstanding the severity and combined impact of
the events noted in my opening paragraphs, they
cannot compare to the existential threat that continues
to grow relatively unabated from failure to make
progress on constraining global warming to the agreed
target of 1.5°C.
COP27 held last year in Sharm el-Sheikh largely failed to
expand commitments made a year earlier, in our native
Scotland, to phase out fossil fuels. The one major step
forward was the agreement of a deal that has been
sought for over 30 years to launch a fund for ‘loss and
damage’ to support nations most exposed to the
consequences of climate change, but details and
financial funding remain to be agreed.
Already we can observe much greater incidence of
extreme weather events which are having devastating
effects on the impacted economies and are
contributing to the risk of a steady but dramatically
expanded flow of migrants towards more hospitable
climates. Notwithstanding the imperative of reaching
the agreed target, 2022 saw the resurgence of
investment in hydrocarbon capacity to build resilience
of supply-absent inflows from Russia. We also saw
growing pushback by many US states dependent on oil
and gas activity against financial firms restricting future
investment to this sector. These actions make
navigating our commitments to contribute to the net
zero targets more challenging, but we remain resolute.
Against the many current challenges lie the
opportunities – addressing climate change both in
mitigation and solution requires trillions of dollars of
investment annually for the next three decades at least;
reconfiguring supply chains, building security of supply
for energy and food, replacing inefficient infrastructure
for transportation and energy supply and distribution,
funding the science base and applied research needed
to create the solutions not available today, rebuilding
Ukraine – all of these add further billions of dollars of
investment demand in the coming years. The
investment industry is better equipped than ever to
steward capital into productive assets that meet
society’s expectations of it.
Policymakers are at last seeking to remove obstacles
that constrain investment flows from long-term savings
pools into infrastructure and early-stage science-based
investments, both of which require patient capital.
Industry leaders are prioritising capital investment over
share buybacks, particularly in Europe and employment
prospects are strong, particularly for younger workers
as many older workers who were close to retirement
brought that forward during the COVID-19 pandemic.
In addition, many of the mega trends that have caused
concern are forecast to improve in 2023: markets are
discounting moderation in inflation and interest rate
outlooks by the end of the current year; gas prices in
Europe have fallen back to levels pre the invasion of
Ukraine; wage levels are rising in most countries
although below inflation; China’s removal of most
COVID-19 restrictions and the re-opening of its
economy should in due course be positive for global
growth and the alleviation of inflation; and all these
factors should boost business and consumer
confidence unlocking investment funds.
Well-positioned for 2023
As in prior years we enter the new year supported by a
strong capital position, a committed leadership team
and colleagues throughout the organisation energised
by the many opportunities to make our business more
relevant and valuable to our clients and customers as
we support their ambition to become better investors.
Sir Douglas Flint
Chair
6 abrdn.com Annual report 2022
Chief Executive Officer’s review
A stronger
abrdn is
emerging
Stephen Bird outlines the progress made
during 2022, and how our strategy is
positioning our business for growth
Key highlights
– Completed the acquisition of ii in May 2022.
– Delivered £0.8bn of value through divestments.
– Returned £0.6bn of capital to shareholders
through buybacks and dividends.
– Strong progress on fund rationalisation in
Investments, where overall costs were down 2%.
– Retained position as leading adviser platform.
The global economy changed
dramatically during 2022
2022 was one of the hardest investing years in living
memory. Almost all asset classes dropped in value as
the cost of money soared to quell the rising tide of
inflation. Although market conditions have had an
impact on overall group performance, abrdn’s more
diversified model has proved resilient.
The world in which we and our clients are operating
today is radically different from the environment of the
past decade. The changing macro environment is
resulting in the acceleration of key investment trends,
notably the rise of Asia, a move to more sustainable
offerings and, at an asset class level, the growth of
alternatives and increasing client interest in fixed
income.
We are also actively assessing the impact of these new
market dynamics on pension funds and insurers, to
ensure that we provide solutions to meet their complex
needs. Each of these trends very much plays to our
existing strengths, and we are well positioned to help
our clients navigate this new investing world.
Building a stronger business model
Against this challenging backdrop, the company
continued to progress as it completed the second year
of its three-year strategy. We have transformed and
built upon our asset management heritage and abrdn is
now positioned for growth across its three businesses:
Investments, Adviser and Personal.
The shape of the group is now settled following the 2022
acquisition of ii. This significantly expands our reach into
the higher growth UK savings and wealth platform
market, which is forecast to grow at a realistic rate of
11% by 2027. Leveraging the subscription-based model
of ii, and the wider structural trends in the savings and
wealth market, we benefit from income streams less
exposed to market volatility. Looking ahead, we are set
to exploit the synergies our new model offers.
2022 performance shows our
growing resilience
The group’s adjusted operating profit of £263m is 19%
lower than in 2021. In line with the sector, the
Investments vector faced headwinds in the market.
Despite the progress made on its transformation
journey, adjusted operating profit fell by £139m,
principally due to a decline in revenue. Our focus on
simplifying and streamlining the Investments business
reduced its overall costs by 2%, although we know we
have more to do to drive this down further.
The adjusted operating profit for Adviser and Personal
combined increased by £76m including a £67m
contribution from seven months of ii. With the
Investments vector impacted by market conditions,
these businesses contributed 76% of adjusted operating
7abrdn.comAnnual report 2022
STRATEGIC REPORT
Chief Executive Officer’s review continued
profit in H2 2022, clearly demonstrating the benefits of
the new abrdn model.
Overall, we are reporting an IFRS loss before tax of
£615m reflecting the reduction of £187m in the value of
the listed stakes held on our balance sheet, and
impairments of £369m largely due to a fall in market
levels, 2022 performance and lower projected
revenues. However, with the strong discipline applied to
our capital management, I’m pleased to report that our
dividend for 2022 remains unchanged at 14.6p per
share. Stephanie talks more about our performance in
the Chief Financial Officer’s overview.
Scaling-up our UK savings and
wealth businesses
The acquisition of ii in 2022 delivered a substantial
scaling-up of our presence in the UK savings and wealth
market. This direct-to-consumer capability now sits
alongside our established Adviser business, which I’m
pleased to report remains the number one adviser
platform in the UK by AUA, with 50% of the UK’s advice
businesses using our platforms. Customer satisfaction
as at end 2022 was 95%. The recent delivery of
technology enhancements to our platforms will further
support advisers to unlock capacity and grow their
client bases.
In the seven months since joining abrdn, ii delivered
£114m in net operating revenue and £67m in adjusted
operating profit, at a cost/income ratio of 41%. Based
on the seven months profits, the £1.49bn purchase price
represents a multiple of 16 times annualised post-tax
adjusted earnings.
Reductions in gross and net flows in Personal Wealth this
year include the impact of market uncertainty which
has resulted in lower and more muted activity by
individual investors. Looking ahead, we see substantial
opportunities to evolve the newly combined Personal
vector to deliver an end-to-end customer proposition,
that stretches from simple online transactions to more
complex financial advice.
At a societal level, individuals are having to take more
responsibility for building and managing their own
savings, investments and retirements, while at the same
time becoming increasingly accustomed to using
direct-to-consumer platforms and digital tools for
financial transactions. The democratisation of financial
services, supported by technology, is driving structural
change in the investment market and we are now well
positioned to serve this growing opportunity.
Refocusing Investments
After previously competing across a very broad
waterfront, the Investments business is becoming much
more focused on the areas in which we have both
strength and scale.
We have a long heritage in public markets, including
through our capabilities in Asia and emerging markets
and our strong fixed income franchise. Although 2022
has been a challenging year, particularly for equities, we
are well placed to benefit from evolving conditions in
China and in the bond markets. Our already strong
position in alternatives is growing. Here we manage
around £87bn in assets in areas such as real estate,
infrastructure, logistics and private credit. A highlight has
been the performance of Tritax which saw c25%
growth in average AUM last year.
By focusing on these areas of strength, all underpinned
by our sustainability credentials, we believe we are in a
better position to deliver products that are more closely
aligned with current and future client demand.
In the Insurance sector, the changing approach to asset
strategies represents a headwind for the margin of this
business activity. We expect continued changes from
certain active equity and fixed income strategies to
passive quantitative strategies which, together with
related pricing changes, is expected to lead to further
margin contraction for our Insurance business in future
periods. Stephanie discusses this in more detail on page
51.
Disciplined management and
deployment of capital
Our strong capital position provides resilience in
uncertain times and enables targeted investment to
accelerate the growth of the group. As at 31 December
2022, our surplus regulatory capital was £0.7bn.
In 2022, we generated £1.1bn of capital through organic
cash generation and efficient stake sales, investing
£1.4bn in the acquisition of ii, and returning £0.6bn to
shareholders in buybacks and dividends. Over the near
term, as we continue to build capital through a focus on
profitability and ongoing monetisation of listed stakes,
we continue to expect to invest in inorganic
opportunities where we see capabilities we need that
offer compelling value. We are committed to returning
a significant proportion of proceeds from further stake
sales through share buybacks, and reconfirm our stated
dividend policy of 14.6p per annum until at least 1.5x
covered by adjusted capital generation from when it
can grow. We will continue to take a disciplined
approach to capital allocation as we drive sustainable
growth, relevance and scale for our business, in a way
that also generates value for our shareholders.
Progress on climate
We have a critical role to play as stewards of our clients’
capital, and the relationships we have with investee
companies enable us to drive positive change through
engagement.
We are targeting a 50% reduction in the carbon
intensity of our portfolios by 2030 versus a 2019
baseline. We are on track with a 27% reduction across
in-scope public market portfolios as at 31 December
2022 and a 31% reduction for in-scope real estate as at
31 December 2021. Assets in scope for our target
represent 30% of our total AUM. This is driven by data
availability, maturity of methodologies and control over
8 abrdn.com Annual report 2022
decision making (more on page 38). We recognise that
methodologies may continue to evolve over time and
we will review our approach as appropriate. We have
also been developing our net zero solutions, including an
Active Climate Transition proposition in equities and
fixed income. In compliance with level one of the EU’s
Sustainable Finance Disclosures Regulation (SFDR), we
have also been converting our range of SICAV funds to
comply with SFDR Article 8 and 9 – reflecting the
importance of ESG considerations in the investment
opportunities we seek. In 2022 we converted 27 of our
funds to Article 8 and 9. In Asia, one of our key growth
markets, we launched our MyFolio Sustainable Index
range of funds during 2022, and our Sustainability
Institute is helping us hone our expertise to deliver for
our clients.
We know that leading by example starts with our own
operations. We have a corporate target to be net zero
in our operations by 2040, and an ambitious interim
target to achieve a 50% reduction in operational
emissions by 2025, against our 2018 baseline. Colleague
engagement remains critical to delivering on this.
While a significant amount of work remains to be done, I
am proud of the progress we have made to date. We
will continue to drive towards our commitments with a
focus on transparency – through reporting and data
disclosure – and by engaging with our clients, investee
companies and wider stakeholders, with the aim of
achieving a cleaner, greener future together.
Building a culture that supports
colleagues and delivers for clients
Our culture and how it feels to work here are
fundamental to our success. We want every one of our
colleagues on board – believing in our purpose and
focusing on our strategy and their role in delivering
for clients.
Throughout 2022 our leaders worked with colleagues
across the globe to create a new set of commitments
and values that resonate with their collective beliefs,
identifying these as Client First, Ambitious, Empowered
and Transparent. We’re creating a culture that gives
talent the chance to thrive, and that empowers
colleagues to take ownership of client outcomes. A
culture of constant improvement is critical for success.
We ran our most recent all-colleague survey in January
2023 where it was pleasing to see a positive response
from colleagues around areas like our people leaders
and our strategy. Amid highly challenging market
conditions and ongoing change within the business,
employee engagement held steady, and we will
continue our focus on driving progress in this area. For
more information see pages 41 and 42.
It’s critical that diverse perspectives have an active
voice in decision-making processes. I’m pleased that
we’ve reduced our gender pay gap for the fifth year in a
row, and that we have more women on our Board, in
senior leadership and in investment decision-making
roles. But there is still much more to do. Our industry and
our wider talent pipeline need to be more
representative of the diverse society we live in, and
we’re focused on facing up to this.
In a very challenging year for the sector, in which we
have continued to go through significant change as a
business, the commitment and professionalism shown
by everyone across abrdn has been truly inspiring.
Those qualities are what give me so much confidence
about what lies ahead. On behalf of the senior
leadership and my fellow Board members, I’d like to
place on record our sincere thanks.
Focusing on the future
Although the external market environment remains
challenging, we have the right strategy, and we have
the team and the capital resources to execute it well.
Diversification of revenue streams is putting the group
on a sustainable growth trajectory.
In the Investments vector, there is further to go. This was
always the longest-cycle transformation given the
structural challenges and the nature of change in active
asset management. We have taken the hard decisions
and built the foundations for future growth. We’re
simplifying our product range and reducing cost and
complexity so that we are focused on delivering higher
margin products with the right performance. This work
should deliver net cost savings of around £75m in the
Investments vector in 2023.
Stephen Bird
Chief Executive Officer
9abrdn.comAnnual report 2022
STRATEGIC REPORT
Our business model
10 abrdn.com Annual report 2022
Read more about how we have engaged with our
stakeholders on pages 44 and 45.
11abrdn.comAnnual report 2022
STRATEGIC REPORT
Our strategy
Diversified client-led
strategy for growth
As we diversify our business, our focus on four strategic priorities enables
us to meet the changing needs of clients across a range of markets. They
are also fundamental to the continued transformation and resilience of
our business.
1. Asia
Asia remains a key market for our Investments business
and we are well positioned to drive growth. In 2022 we
celebrated the 30th year of our Investments business in
Asia Pacific and we use this expertise to support clients
in navigating this complex but vibrant market. Asia also
holds strong opportunities as we aim to be a leader of
sustainable investment solutions. This is supported by
our strong Asia-specific research and insight
capabilities.
2. Sustainability
Many of our clients seek more from their investments
than simply financial returns. We have created a
specific suite of sustainability-focused solutions to meet
client needs. We also believe that the consideration of
ESG factors is essential to more constructive
engagement and better-informed investment decisions
to help our clients achieve their financial goals. Insight
through tools such as climate scenario analysis helps
our clients to better identify investment risks and
opportunities.
2022 progress
–
Refreshed the leadership of our Client Group in Asia
Pacific, with new heads of Wholesale, Institutional,
Marketing and Client Servicing.
–
Focused our regional footprint by exiting Taiwan and
Australia and introducing distribution partnership
models.
–
Improved the performance of our flagship funds –
including our Asia-ex Japan Equity funds, which have
outperformed their benchmarks over three years;
and our China A Sustainable Equity fund, which is top
quartile over one, three and five years for funds in its
sector.
–
Launched our MyFolio Sustainable Index range in
support of clients’ ESG goals.
–
Converted 27 funds within our SICAV range to meet
the requirements for Article 8 and 9 funds under the
Sustainable Finance Disclosure Regulation (SFDR).
–
Emerging Markets Sustainable Development
Corporate Bond fund passed through the $100m
mark in its first year.
–
Initiated a two-year engagement programme with
the highest-financed emitters in our equity holdings,
identifying clear milestones.
12 abrdn.com12 abrdn.com Annual report 2022
3. Alternatives
The growing trends for urbanisation, digitalisation and
decarbonisation create significant investment
opportunities in real assets. Our Alternatives business
includes our capabilities in real assets, which comprises
real estate, infrastructure and commodities. Our
Alternatives business also offers clients access to major
areas of European private credit, as well as compelling
opportunities in the hedge fund sector.
4. UK savings and wealth
As financial responsibility continues to move more
towards individuals, we have successfully repositioned
our business towards an increasingly attractive and
growing UK savings and wealth market, as well as
focusing on creating more capacity for advisers to
serve more clients and reduce the savings and advice
gap. We are now operating across the full client
spectrum to help individuals in the UK plan, save and
invest for the future.
2022 progress
–
Within real assets, our logistics and industrials AUM
has risen since the acquisition of Tritax to £16.9bn.
–
Launched Inflation-Linked Infrastructure Debt fund in
November 2022.
–
Continued to grow our real estate footprint by
partnering with the John Lewis Partnership to build
1,000 residential rental homes in the UK.
–
Became largest external investor in regulated digital
s
ecurities exchange Archax and joined the governing
council of distributed ledger technology firm Hedera.
–
Acquisition of ii transformed our position in the UK
savings and wealth market, delivered a significant
acceleration of group revenue diversification and
brought over 400,000 new customers to the abrdn
group.
–
ii launched Investor Essentials, a part of its
subscription service designed to appeal to investors
with less to invest and those at the beginning of their
investment lifecycles.
–
Remained the only platform business ‘A’ rated for
financial strength by leading independent
consultancy firm AKG – with financial strength a key
consideration for advisers when selecting their
primary platform.
Asia and emerging markets
Our strategy
is aligned to four
key market
trends
Democratisation
of savings and
investments
Climate change
and energy
transition
Urbanisation and infrastructure
development
1.
2.
3.
4.
13abrdn.com 13abrdn.comAnnual report 2022
STRATEGIC REPORT
Performance overview
1. The revenue measure included within adjusted operating profit has been renamed from fee based revenue to net operating revenue.
Performance impacted in
a difficult macroeconomic
environment
Our full year results largely reflect the challenging global economic environment and
market turbulence that impacted across the industry. These impacts were largely seen in
our Investments vector. The reduction in profitability in the Investments vector is
disappointing, with detailed plans of work to improve the operating margin now
underway. Performance in our Adviser and Personal vectors were more resilient to the
market conditions.
Financial performance summary
Net operating revenue
1
reduced by 4% to £1,456m
(2021: £1,515m) mainly
reflecting adverse market
movements which particularly
impacted high revenue
yielding equities.
IFRS loss before tax
of £615m (2021: profit £1,115m)
was impacted by impairments
of goodwill and intangibles in the
Investments vector of £369m,
restructuring and corporate
transaction expenses of £214m
and losses of £187m from the
change in fair value of significant
listed investments.
Adjusted operating profit
reduced by 19% to £263m
(2021: £323m) due to the
impact of adverse markets on
revenue. The 2022 result
includes seven months profit
contribution from ii of £67m.
Net outflows
(excl. liquidity and LBG
tranche withdrawals)
of £10.3bn (2021: £3.2bn),
representing (2%) of opening
AUMA, largely reflected lower
gross inflows which included the
impact of the uncertain market
environment.
Cost/income ratio
worsened to 82% (2021: 79%) as
a result of the lower revenue.
We acknowledge that costs in
the Investments vector remain
too high. Read about our actions
to reduce costs on page 51.
£1,456m
(£615m)
£263m
(£10.3bn)
82%
14 abrdn.com Annual report 2022
Our capital resources provide strength to allow investment in the business, support the
dividend policy and enable capital returns. Now that the shape of the Group is largely
settled following the acquisition of ii, we expect inorganic actions on a more modest scale.
Capital performance summary
Surplus regulatory
capital
remains strong at £0.7bn
(2021: £1.8bn), with a reduction
reflecting the ii acquisition.
Value of listed stakes
of £1.3bn (2021: £2.3bn)
excluded from the regulatory
capital position. Reduction
includes impact of further stake
sales which generated net
proceeds of £0.8bn
(2021: £0.9bn).
Shareholder return
programme
of £300m completed in
December 2022. We are
committed to returning a
significant proportion of
proceeds as further stake sales
are realised.
Cash and liquid
resources
remained robust at £1.7bn
(2021: £3.1bn) following the
£1.5bn ii acquisition. These
resources are high quality and
mainly invested in cash, money
market instruments and short-
term debt securities.
Full year dividend per
share
was maintained at 14.6p
(2021: 14.6p). Our dividend
policy remains unchanged.
Read more about our financial and capital performance
in the Chief Financial Officer’s overview section of
this report.
£1.3bn
£1.7bn
£300m
£0.7bn
14.6p
15abrdn.comAnnual report 2022
STRATEGIC REPORT
Our vectors – Investments
1. Refers to total assets invested in Africa & Middle East, Asia Pacific and Latin America.
2. Includes Insurance assets.
3. The calculation of investment performance has been revised to use a closing AUM weighting basis. 2021 comparatives have been restated. See
page 55 for more information.
Refocusing our
Investments
business
Our investments solutions are built on the
strength of our insight – generated from
wide-ranging research, worldwide
investment expertise and local market
knowledge. Our teams collaborate across
regions, asset classes and specialisms,
connecting diverse perspectives, working
with clients to identify investment
opportunities that suit their needs.
“We have refocused our
offering to areas where
we provide a
differentiated proposition
to our clients.”
Chris Demetriou
CEO, UK, EMEA and Americas,
Investments
“We aspire to be the go-
to place for global
investors seeking
exposure to sustainable
solutions across Asia,
particularly in China. We
are also focused on
supporting clients across
Asia as they seek to
access global investment
opportunities.”
René Buehlmann
CEO, Asia Pacific, Investments
Highlights Investment
performance
Read more about investment
performance on page 55.
£88bn
Leading active
Asia and emerging
markets
manager
1
£145bn
AUM from
insurance clients
£120bn
AUM from our
fixed income
capabilities
2
1 year
41%
(2021: 66%)
3
3 years
65%
(2021: 78%)
3
5 years
58%
(2021: 77%)
3
16 abrdn.com Annual report 2022
1. Public markets and Alternatives AUM includes Insurance assets.
2. AUM is based on client domicile and revenue is allocated based on legal entity revenue recognition. Revenue is shown for the Investments business
only, see Note 2(c) of the Group financial statements for a breakdown of total group revenue by geographical location.
Our investment capabilities
We have simplified and focused our investment
capabilities on areas where we have both the skill and
the scale to capitalise on the key themes shaping the
market, through either public markets or alternative
asset classes.
Our broad global reach and expertise
2
Public markets
AUM
1
£289bn
Alternatives
AUM
1
£87bn
UK
AUM
£256bn
Revenue
£655m
Americas
AUM
£46bn
Revenue
£137m
EMEA
AUM
£58bn
Revenue
£114m
APAC
AUM
£16bn
Revenue
£164m
17abrdn.comAnnual report 2022
STRATEGIC REPORT
Our vectors – Investments continued
Our capabilities
Public markets
Fixed income
We are one of the UK’s leading global fixed income
managers with £120bn of AUM across credit,
government bond and money market funds in
developed and emerging markets.
The outlook for fixed income is very positive following
the 2022 reset of bond prices and years of operating in
a low-yield environment. abrdn’s deep and proven
credit expertise positions the business well to support
clients as flows into fixed income accelerate against a
backdrop of economic recession and the resulting
pressure on corporate earnings.
Equities
Our equities franchise is organised into two segments.
Our Asia and emerging markets capabilities, reinforced
by robust investment performance in China A and Asia
Pacific strategies, position abrdn well in this segment as
China reopens.
Our Global Developed Markets team generates
investment ideas aligned to three distinct outcomes:
Sustainability, Income and Small Cap. Leveraging a
globally-situated research capability, the team is
becoming more focused on these specific areas of
specialism, where we are able to offer both strength
and scale.
Multi-asset
Our multi-asset team designs solutions to meet the
needs of three client segments.
Through our historic expertise in insurance, we help to
provide clients with solutions to their complex needs,
most notably our strategic partner Phoenix Group.
Our breadth and depth of experience supporting
pensions results in a broad range of solutions, including
our UK Defined Benefit Master Trust, launched in 2022.
There are significant growth opportunities in the UK and
Asian savings and wealth markets. In the UK we
currently manage £16bn of AUM in packaged solutions,
including MyFolio and Diversified Income and Growth,
which, combined with the customer access afforded by
our Adviser and Personal vectors, position us well in this
space. We have also established our WealthTech Hub, a
cross-team group focused on commercialising our
market-leading UK investment technology solutions in
Asia.
Alternatives
Real assets
We are a leader in UK and European real estate with
notable specialisms in residential and logistics. This is
evidenced by our recent partnership with John Lewis
and our management of Tritax Big Box, the UK’s largest
listed investor in quality logistics warehouses and owner
of the UK’s largest logistics-focused land platform.
In 2022, we commenced fundraising for abrdn Core
Infrastructure III, targeting a fund size of €1bn, and by
31 December 2022 the fund had raised over €400m.
The fund aims to invest in opportunities across the
utilities, energy, transportation and digital segments.
Private credit
We offer clients access to the major areas of European
private credit, including commercial real estate debt,
infrastructure debt, corporate private debt and fund
financing among other areas.
Private equity
Our private equity and venture capital team operates
as a bespoke business unit, providing capabilities in
pooled and segregated vehicles to clients seeking
diversified exposure to primary, secondary, venture and
co-investment opportunities.
Hedge funds and ETFs
We use our global knowledge and access to hedge
fund managers to identify and bring together the most
compelling opportunities the sector can offer. We offer
global hedge fund and diversification strategies across
the liquidity spectrum. Using a disciplined and proven
research-driven investment process, we create
portfolios to target a range of investor outcomes and
risk-reward requirements.
For the third straight year, abrdn’s range of commodity
ETFs generated positive inflows, finishing the year with
£6bn of AUM.
Our progress in 2022
Achieving strategic clarity
In 2022, we made further progress on the refocusing of
the Investments vector, away from a broad waterfront
approach towards our goal of a simpler business that is
concentrated on those areas where we have strength
and scale. To achieve this, we have adopted a strategy
designed to focus on our core competencies, across the
two distinct public markets and alternatives groups.
Our Public markets business generated revenues of
£746m in 2022. We have three clear strategic objectives
with respect to the Public markets business:
– Narrow our focus to our core investments
competencies.
– Improve investment performance to underpin a
return to growth, reinforced by our recent
appointment of Peter Branner as Chief Investment
Officer, joining in Q2 2023.
18 abrdn.com Annual report 202218
– Increase operational efficiency through rationalising
funds, improving systems and closing non-core
capabilities and markets.
Demonstrating our continued commitment and
confidence in the closed-end fund space, in December
2022 we announced that we were set to acquire and
reorganise four funds from Macquarie Group
subsidiary, Delaware Investments. This would see
approximately $750m merge into three existing abrdn
closed-end funds, with minimal additional operating
cost and estimated revenues of approximately $10m.
Our Alternatives business generated revenues of
£324m in 2022. Benefiting from market trends such as
growth in urbanisation and infrastructure development,
this business has strong track records across the
significant majority of its AUM and has delivered resilient
flows and revenue growth. Our strategic focus for this
business is to accelerate asset raising.
Simplifying our business
In 2022 we undertook a review of our fund and product
suite to ensure we continue to offer what our clients
want. Having reviewed c550 funds, we concluded that
only 20%, covering AUM of around £7bn, were sub-
scale, inefficient or no longer aligned with our core
strengths. We have taken steps to merge funds where
viable to reduce duplication and simplify our offering.
Globally we merged or closed 58 funds in 2022,
primarily within equities, fixed income and multi-asset. In
2023, we intend to merge or close a further 80 funds. As
funds are merged, we minimise decline in revenue
associated with these funds while improving our
cost/income ratio and continuing to deliver client
outcomes.
As part of our commitment to exiting non-core
businesses that no longer align to our overall strategy,
we have taken steps to simplify our footprint in Asia
Pacific. In July 2022, we announced the closure of our
office in Taiwan, appointing Manulife Investment
Management (Taiwan) as abrdn's Master Agent. We
have also announced the closure of our Australia office
and our intention to establish a strategic partnership
with SG Hiscock. These partnerships help us to
reconfigure global operations around our growth
strategy and focus on our core markets.
Consolidating our middle office services onto a single
arrangement is an important step towards increasing
capacity and delivery of client service. We completed
this consolidation in October 2022, which included
migrating onto a single provider for performance and
client reporting.
Further simplification steps are planned for 2023. A
significant process execution event occurred during
2022 which resulted in a loss and has been thoroughly
investigated. See Note 34 of the Group financial
statements for further details.
Evolving our client proposition
During the year we accelerated fund development and
launches in areas of growth, with net flows into products
launched in 2022 exceeding £800m. We launched six
new products in 2022, the same number as we did in
2021, including:
– Commercial Real Estate Debt fund II, with net flows of
£205m.
– Eclipse HFRI 500 fund, with net flows of £115m.
– Global Risk Mitigation (GRM) fund, with net flows of
£178m.
We are continuing to develop new funds to support
clients’ sustainability goals including the MyFolio
Sustainable Index range launched in 2022. In
compliance with level one of the EU’s Sustainable
Finance Disclosures Regulation (SFDR), we have also
been converting our range of SICAV funds to comply
with SFDR Article 8 and 9, which reflects the importance
of ESG considerations in the investment opportunities
we seek. In 2022 we converted 27 of our funds to Article
8 and 9.
The sustainable index strategies which we manage and
developed in partnership with our client Phoenix are
used for over 90% of the assets within Standard Life’s
new default workplace pension solution, raising over
£10bn in assets in the year.
Read more about our strategic focus on sustainability on
pages 28 to 39.
We are strengthening our position in the development
of the digital assets ecosystem, establishing
partnerships to help our clients benefit from the digital
assets value chain. In becoming the largest external
investor in Archax, the UK’s first regulated exchange and
trading platform designed to bring digital assets to
capital markets, we are building important capabilities
and knowledge. We are also the first asset manager to
join the governing council of Hedera, which is at the
forefront of enabling the migration of traditional
investments onto distributed ledger technology.
Our strategic focus
for 2023
– Complete the repositioning of our Public markets
business to focus on core strengths.
– Improve investment performance, with clear
structure and leadership.
– Accelerate growth in Alternatives franchise
through dedicated and accountable leadership
and resources.
– Continued focus on growth in Asia – on enabling
our clients in Asia through our global offerings,
and on growth of clients globally who invest into
our capabilities managed in Asia.
– Delivery of net cost savings of c£75m are
targeted in 2023 – read more on page 51.
19abrdn.comAnnual report 2022
STRATEGIC REPORT
19
Our vectors – Adviser
Growing from a market-
leading position
Our Adviser business provides financial planning solutions and technology for UK financial
advisers enabling them to create value for their businesses and their clients. We offer a
combination of tools and services personalised to their needs, including access to the full
suite of investment solutions that abrdn offers as well as a wide range of open
architecture investment options.
“We want to enable
advisers to grow their
businesses in line with
their ambitions, by
helping them to unlock
capacity to serve more
clients. We are building
solutions that we believe
make us the obvious
choice for adviser
businesses to partner
with because we aim to
make it as easy as
possible for them to
focus on what’s most
important, their clients.”
Noel Butwell
CEO, Adviser
50%
of UK advice
businesses use our
platforms
430,000
customers
2,600
Adviser firms
AKG A
rating
for financial strength,
the only platform
business with this
rating
No. 1 for
AUA
13% market share
97%
client retention rate
for our primary
partners
Platinum rated
by AdviserAsset
and
Gold rated
by Defaqto
Best platform
provider over
£40bn,
Schroders UK
Platform Awards
2022 – the ninth year
running
20 abrdn.com Annual report 2022
1. Source: Fundscape Q3/Q4 2022 releases.
A compelling market opportunity
We are well-placed to drive growth in an
attractive market for UK adviser platforms.
Performance overview
Performance and profit delivered in 2022
reflect our resilience in a challenging
environment.
AUA
£69bn
Adjusted operating profit
£86m
’22
’21
’20
£86m
£74m
£48m
’22
’21
’20
£69bn
£76bn
£67bn
abrdn
Adviser AUA
£69bn
Adviser platform
market AUA¹
£542bn
'Optimistic' Adviser
platform market
growth by 2027
1
+16%
'Realistic' Adviser
platform market
growth by 2027
1
+11%
21abrdn.comAnnual report 2022
STRATEGIC REPORT
Our vectors – Adviser continued
A compelling market opportunity
The need for individuals to take on more personal
financial responsibility continues to drive the demand
for quality financial advice. The current
macroeconomic environment has created uncertainty
and, for customers, the need for advice in such
environments increases in order to navigate volatility.
However, as the demand for advice continues to far
outpace supply, the savings and advice gap in the UK
could run well beyond 20 million people. Advisers also
remain capacity- constrained, the key constraint for
which is fragmented technology for servicing clients
through the whole cycle of onboarding, reporting and
review.
Our technology solves that pain point for advisers. We
put abrdn’s strength to work for advisers, enabling them
to look after their clients’ data securely, while providing
insight to make better decisions in areas ranging from
regulation to taxation. We deliver client-led outcomes
by building technology and investment solutions around
advisers’ and their clients’ needs, delivering a
personalised service to suit every type of business and
client.
Our adviser platform is ranked number 1 in the UK with a
leading share of AUA on our platform at £69bn. We
partner with over 2,600 UK adviser firms with around
430,000 customers in total. This market for financial
advice is compelling and we can see strong growth
patterns. Over the last 10 years, the assets in the adviser
platform market have grown at a 19% CAGR and the
realistic forecasts from Fundscape for the period
through to 2027 indicate growth at an 11% CAGR in
spite of the current market conditions.
Growing from a market-leading
position
Our leading position by AUA in the market places us
right at the centre of this opportunity. Our focus is on
expanding our service to our existing clients by creating
capacity for them to further grow their business and to
attract new clients of their own.
We are building solutions that we believe make us the
best partner for advisory businesses. Our service
proposition makes it as easy as possible for them to
focus on their clients, reducing the administrative work
and enabling them to focus on delivering high quality
advice. We offer fast, self-serve solutions, along with live
support that enables advisers to simplify the way they
operate, increase capacity and therefore allow more
time to focus on meeting their clients’ needs.
We have focused our proposition on the top five things
that advisory businesses tell us they value when they
are selecting their primary platform. They want:
– good online functionality
– financial strength and stability
– lower overall cost
– efficient administration
– a full range of wrappers.
Today we have a strong position in this space, with tools
and technology underpinning our operating model. Our
Adviser Experience Programme is driving us further
forward, with huge strides being made in these key
areas. Despite some challenges around timescales, the
recent delivery of technology enhancements to our
platforms will further support advisers to unlock
capacity and grow their client bases:
– Our online functionality continually evolves, from the
basics of the look and feel moving to modern
processes, to the rewiring of journeys to remove
unnecessary steps or make them more intuitive.
– As we grow the functionality we further improve the
value for money.
– We have invested in our service technology, with
clients able to benefit from new contact centre tools,
rich management information and tracking, and we
are pushing this further with fully online processes
and transaction tracking.
– We have added the Junior ISA, with more to come
including the Junior SIPP and access to third-party
products.
– We are the only platform A-rated for financial
strength by AKG, an independent organisation
offering assessments, information and support to the
financial services industry.
– We are targeting world-class customer satisfaction
scores, building on our end of 2022 Net Promoter
Score of 57 and Customer Satisfaction Score of 95%.
According to research from Investment Trends,
advisers want to increase client numbers by an average
of 16%. Their challenge is to unlock capacity constraints
in their businesses. This is the opportunity for us as our
technology is cutting edge and solves that pain point for
advisers. The more advisers who use our technology,
the more customers we can serve.
Our progress in 2022
Putting our strength to work for
advisers and their clients
Our Adviser Experience Programme has informed our
investment decisions and we have enhanced our
offering in 2022, which has included the launch of our
Junior ISA and continued work to simplify our processes.
We have invested in delivering a new contact centre
and customer portal, and we committed to delivering in
early 2023 a new adviser interface with increased
personalisation.
1
22 abrdn.com Annual report 2022
We have partnered with industry leaders such as
Salesforce and Amazon to drive cutting edge
technology into client engagement. This technology
measures and improves service in real time. It is
therefore critical to improving the experience for
advisers and their clients and freeing up advisers’
capacity to take on new business. We answer more
than 1,000 phone calls a day, with an average speed to
answer of nine seconds on our Wrap platform, so
efficiency is critical to client service.
We launched the Junior ISA in response to increasing
demand from advisers for more family wealth planning
solutions that can be managed alongside their existing
client investments. The Junior ISA is the first step we are
taking to create a family office environment on the
platform and we will be developing a Junior SIPP as part
of our overall solution.
We continued to support advisers with understanding
and meeting their regulatory requirements. The
Financial Conduct Authority’s new Consumer Duty rules,
for example, represent a significant piece of regulation
for raising standards of consumer care across the
financial services industry. We created practical
guidance and materials to help advisers ensure that
they were ready to take the immediate steps required
in 2022, as well as to understand the longer-term
impacts.
Performance and efficiency
in a challenging environment
We are building on our Adviser Experience Programme
to drive growth in gross and net flows, through a focus
on three key pillars:
– Expanding wrappers per customer amongst our
existing base.
– Increasing the number of primary firms we partner
with (46% of AUA at the end of 2022 was from our
primary partners).
– Growing our adviser base through advocacy
and experience.
Flows have been impacted industry-wide in 2022 by
economic pressures including rising inflation and higher
interest rates. Despite this, the core drivers of medium-
term flows remain and our Adviser business saw
another year of net inflows at £1.6bn (2021: £3.9bn).
Despite challenging market conditions and lower assets
under administration, the Adviser vector’s strong and
higher-margin business model has also delivered
another year of revenue and profit growth. Net
operating revenue increased by 4% benefiting from
rising interest rates and a broadly stable platform
charge. Coupled with continued cost management, this
has delivered an adjusted operating profit of £86m, up
16% compared to 2021.
Our long-term strategic relationship with FNZ to handle
custody and administration of our platform leverages
the scale of FNZ to secure an advantageous low-cost
model.
Measuring our progress
Industry recognition can make an important difference
when advisers choose who to partner with. As well as
our ‘A’ rating by AKG for financial strength, which is one
of the stated top reasons for advisers selecting their
primary platform, we are ‘platinum’ rated by
AdviserAsset and ‘gold’ rated by Defaqto. We also won
the Schroders award for the best large platform for the
ninth year running, which importantly is voted on by
advisers throughout the UK.
We have continued to see an increase in the number of
adviser firms using us as their primary partner. In 2022
there was a 1 percentage-point increase in primary
users of abrdn Wrap, up to 11% from 10% in 2021. When
advisers use our solutions as their primary platform, we
see new business increase. Our research tells us that
more than 70% of new business from an adviser firm
goes on the primary platform, as our processes and
capabilities become more embedded in their own
business. As a result, client retention also improves.
Our strategic focus for
2023
– Continuing to focus on delivering new platform
functionality through phase 2 of our Adviser
Experience Programme, to maintain our market-
leading position and deliver increased capacity
for our clients.
– Launch of our new fully online abrdn SIPP and
Junior SIPP products, creating new revenue
streams with no additional cost to clients.
– Establishing new growth opportunities
associated with model portfolios for advisers
across the UK, more firmly integrated into our
platform solutions.
– Increase in the number of products held by
existing customers through the launch of a new
SIPP, Junior SIPP and increased consolidation
within existing wrappers.
– Extending our primary partnership penetration
by leveraging our total offering to all sizes of IFAs
in the UK.
– Preparing our clients for the successful and safe
launch of the Consumer Duty later in 2023.
2
3
23abrdn.comAnnual report 2022
STRATEGIC REPORT
Our vectors – Personal
A leading direct-to-
consumer business
Powered by the UK’s second largest direct-to-consumer investment platform, our
Personal vector enables individuals in the UK to plan, save and invest in the way that works
for them. The acquisition of interactive investor (ii) has transformed abrdn, positioning us
for growth as one of the UK’s leading personal wealth businesses in a market with strong
long-term structural dynamics.
“The continuous evolution
of our proposition will help
us to deliver better
customer outcomes. With
ii joining the abrdn family,
we are positioning the
vector to serve customers
at all life stages,
harnessing abrdn’s
broader capabilities to
develop and grow what is
already one of the UK’s
leading direct-to-
consumer wealth
platforms.”
Richard Wilson
CEO, Personal
AUMA
£67bn
Adjusted operating profit
£72m
interactive
investor
Personal
Wealth
402,000
Total customers
27,000
Clients
1
29,000
New customers
added in 2022
£440m
Financial planning
gross flows to
abrdn Wrap
£435
Revenue per
customer
Top 10
UK financial
planning platform
for gross flows
(Finscape, 2022)
£134,000
Industry-leading
AUA per
customer
17.3k
Daily average
retail trading
volumes
’22
’21
’20
Personal Wealth
ii
(
7 months
)
£8m
(£5m)
Total £72m£5m £67m
’22
’21
’20
£13bn Total £67bn
£14bn
£54bn
£13bn
24 abrdn.com Annual report 2022
1. Includes double count of clients of both the discretionary and financial planning businesses.
2. Adjusted operating profit for FY 2021 has been presented to exclude losses relating to Share Limited (‘Share’) to provide a more meaningful
comparison to the go-forward position. The FY 2021 adjusted operating profit of £45m excludes losses relating to Share of £9m while part of this
business was wound down. Including losses from Share, the FY 2021 adjusted operating profit was £36m. The FY 2022 impact was £nil. See Section
9.1.4 of Supplementary information for further details.
3. Net operating revenue includes trading transactions, subscription fees and treasury income. See Section 9.1.4 of Supplementary information.
4. Cash dividends which are retained on the ii platform are included in net flows for the ii business. See the Glossary for further details.
Focus on ii
We completed our acquisition of ii, the UK’s second
largest investment platform for private investors and
the number one subscription-based provider, in May
2022. The acquisition has transformed our position in
the UK savings and wealth market. ii’s platform enables
retail investors to access a broad range of investment
and savings products and its simple subscription-based
pricing model helps to set ii apart. ii brings additional
growth opportunities and diversification to abrdn’s
revenue streams and its subscription-based model and
efficient operating model provide a high degree of
financial resilience.
As well as helping us to build a leading position in the UK
direct investing market, ii complements and adds
strength to our existing offering for individual investors
where our financial planning capabilities support clients
with larger, more complex financial needs.
Challenging market conditions in 2022 have impacted
short-term investor confidence and customer
acquisition has decreased from the highs seen in 2021
as a result. However, ii’s leading proposition and
platform have led to ii continuing to increase its market
share of AUA compared to prior year (Source: Compeer
Q3 2022 report) and deliver strong growth in both
revenue and operating profit.
Financial performance
Results for ii are included within abrdn’s full year 2022
results only for the seven-month period to 31 December
2022 following the completion of the acquisition.
For comparative purposes, ii’s results for the 12 months
to 31 December 2021 and 2022 are set out below:
FY 2022
12 months
£m
FY 2021
12 months
£m
excl Share
2
Change
Net operating revenue
3
£176m £128m 38%
Adjusted operating
expenses
(£82m) (£83m) (1%)
Adjusted operating profit £94m £45m 109%
Cost/income ratio 47% 65% (18ppts)
Key operational metrics:
FY 2022
12 months
FY 2021
12 months
AUA £54bn £59bn
Net flows
4
£3.6bn £5.8bn
Total customers at period end 402k 403k
Total customers excluding EQi and
Share Centre migrated customers
300k 292k
New customers 29.2k 47.4k
AUA per customer £134k £145k
Daily average retail trading volumes 17.3k 21.9k
ii performance highlights
(full 12 months)
– ii has performed ahead of our original expectations
and is on track to deliver the planned double-digit
earnings accretion in 2023.
– Revenue was up 38%, with a reduction from lower
trading transactions being more than offset by an
increase in treasury income as interest rates
recovered from the historic lows seen in 2021.
– ii’s operational leverage achieving an efficiency ratio
of 15bps/AUA means this translates into a 109%
increase in adjusted operating profit with
cost/income ratio improving to 47%.
– Total customer numbers were 402,000 at
31 December 2022, compared with 403,000 at
December 2021. Over the year ii added 29.2k new
customers. This was offset by the loss of mainly less
active customers who had been brought onto the
platform through historic customer book acquisitions.
Excluding the tail run-off of the two most recently
acquired books, Share Centre and EQi, net customer
growth for the year was 3%.
– Net flows remain strongly positive at £3.6bn albeit
down from the record levels seen in 2021.
– AUA per customer of £134,000 is industry-leading.
25abrdn.comAnnual report 2022
STRATEGIC REPORT
Our vectors – Personal continued
Transforming our position in the
UK savings and wealth market
More and more people are now investing independently
of the institutions they previously relied on. With
improved direct-to-consumer technology and lower
costs to investment many are now accustomed and
confident to operate self-service for investments and
other financial transactions. Better tools continue to be
developed to help these consumers make informed
investment decisions for themselves and to enable
participation of many others in the market. This
notwithstanding, we see an enduring need for the
reassurance of financial guidance, support and advice,
demand for which, we believe, will continue to grow.
Within our Personal vector, we empower clients to be
better investors at all stages of their financial journey. To
maximise growth synergies, we realigned our existing
Personal Wealth business – discretionary, digital advice
and financial planning – to sit under Richard Wilson’s
leadership when he was appointed CEO of our entire
Personal vector in August 2022. Richard joined the
abrdn group in May 2022 as CEO of ii.
We aim to leverage the deep knowledge within the
Personal vector and its digital operating platform to
transform ii from the UK’s leading subscription-based
self-directed platform into the UK’s leading D2C wealth
platform.
Together, the high-tech, high-touch models of ii and
abrdn offer a range of propositions to enable clients to
become better investors. Richard is evolving the newly
combined Personal vector to deliver an end-to-end
client proposition, from simple online transactions to
more complex financial advice, ensuring its offerings
and scale are appropriate to deliver growth in revenue
and operating profits.
The Group has agreed the sale of abrdn Capital, its
discretionary fund management (DFM) business, to
LGT. The sale is expected to complete in the second
half of 2023, following satisfaction of certain conditions,
including receipt of customary regulatory approvals.
In order to succeed in the longer term in the DFM
market, abrdn’s view is that this part of the business
would need to build much greater scale. With abrdn’s
strategy for its Personal vector focused on integrating
the high-tech, high-touch model of ii with financial
planning, abrdn has concluded that another owner
would be better placed to invest to deliver greater scale
in the DFM business.
abrdn’s Managed Portfolio Service (MPS) business,
which is currently part of the DFM business, is better
aligned to its group strategy and will be carved out and
retained prior to completion of the transaction. abrdn
views MPS as an important growth channel that aligns
well to the way that the UK personal investment market
is developing. The MPS team will be moved to sit within
abrdn’s Adviser vector in order to maximise
opportunities available through that business’
distribution model.
A resilient operating model
benefiting from strong operational
leverage
The current economic environment in the UK remains
challenging for all industry participants. Volatile market
conditions and increasing economic uncertainties have
impacted the rate of new customer acquisition and,
since the first half of 2022, the levels of customers’
trading activity.
ii has diverse sources of income which continue to
record strong overall growth in continually changing
market conditions. This is underpinned by its
subscription-based model which means ii is less
dependent than others on stock market levels. This
model is favoured by customers because customers’
costs do not increase with the value of their investments,
which means more money working for them.
Revenue from subscriptions has continued to grow,
increasing by 17% to £56m for the full 12 months,
reflecting growth in average numbers and quality of
customers. Despite flat year-on-year total customers,
the number of customers holding a SIPP account
increased by 17% to 51.5k.
Although ii’s share of the UK cash market trades
increased by 2 ppts to 25% (Source: Compeer Q3 2022
report), ii’s daily average retail trades reduced to 17.3k
as a result of the reduction in investor confidence,
leading to a drop of 30% in revenue from trading
transactions to £55m. Whilst down from the peak
experienced in 2021, they remained above the levels
seen pre-COVID.
Revenue benefited from interest rates rising significantly
throughout 2022 following the exceptionally low levels in
2021. Treasury income contributed £71m compared
with £9m for 2021. Over the year ii’s average cash
margin was 120bps and the indicative ii average cash
margin for 2023 is 160-170bps. Customer cash
balances at 31 December 2022 were £6.0bn, around
11% of AUA.
ii’s operating model also benefits from strong
operational leverage. This is combined with a focus on
cost effectiveness which is embedded across the
organisation. This means that ii has delivered a net
operating revenue increase of 38%.
Our progress in 2022
In 2022 we made significant progress towards our
objective of becoming the UK’s leading direct-to-
consumer wealth platform. This has been driven by ii,
which is the largest part of our Personal business. Its
growth is underpinned by three drivers: strength of the
platform, compelling pricing and scale of the customer
base.
26 abrdn.com Annual report 2022
Strengthening our platform
ii already has a highly scalable platform powered by
future-fit digital and data infrastructure that will support
substantial further growth. The ii platform was further
strengthened over the past year:
– Expanded its pension offering, launching a low-cost,
standalone Pension Builder SIPP.
– Upgrades delivered to its mobile trading application,
with enhancements to information on transaction
history, cash withdrawals and regular investments.
– Core website improvements implemented in
January 2023.
The strength of the platform has also been recognised
externally:
– Consistently rated ‘Excellent’ on Trustpilot, with more
five-star ratings than the combined total of the rest of
the D2C sector.
– Platform of the Year and Best Low-Cost SIPP at the
Celebration of Investment Awards, as voted by
readers of Investors Chronicle.
– ii’s SIPP is recommended by Which? and gives people
choice and flexibility to support a wide range of direct
pension investors.
– ii’s Stocks and Shares ISA was rated the best low-cost
ISA over £50,000 by Boring Money.
Compelling pricing
ii continues to innovate its subscription-based pricing
bundles. The Friends and Family pricing bundle is
designed to attract younger customers and those with
smaller investment portfolios. It enables up to five
friends and family of existing customers to each join ii
without paying a monthly subscription fee.
In February 2023 ii launched Investor Essentials, an
entry-level addition to its subscription service. Through
this service plan customers can now invest up to
£30,000 for £4.99 a month. They benefit from free
regular investing and competitive trading fees of £5.99
for funds, investment trusts and UK/ US shares, all with
the same choice of investments.
Evolving the customer base
An important focus during 2022 has been on growth
through ii’s existing customer base:
– ii has substantially increased the scale of our Personal
vector, adding over 400,000 customers.
– While the impact of market conditions and
increasing economic uncertainties meant that
customer numbers remained relatively flat during
2022, ii has seen a continuing trend for a reduction in
customer lapse rates – the rate at which customers
choose not to renew their accounts – across all
segments. In 2022, ii added 29.2k new customers. This
was offset by customer lapses. After several years of
acquiring customers through customer book
acquisitions, ii’s customer lapsing rates remained
inflated in 2022 from the natural lapsing and inactivity
of some low value acquired customers. Acquired
customers were migrated from Share Centre and
EQi in 2021 and in 2022 books had lapse rates of 12%,
compared to the wider customer base where lapsing
was 5%.
– ii’s focus on its SIPP continues. ii has 51.5k SIPP
customers, which represents 13% of ii’s customer
base, and there is potential for that to increase
significantly to peer levels which are around 25-30%.
SIPP customer lapse rates are significantly lower than
non-SIPP holding customers.
– The launch of Investor Essentials allows ii to attract a
new customer demographic. This plan is designed to
appeal to investors with less to invest and those at the
beginning of their investment lifecycles. This product
is well positioned to deliver strong customer growth
and we also expect ii to be able to upsell these
customers to its full offering during their investment
journey.
As we move ahead, there is an increasing focus on
diversifying the client base through the connectivity
within the vector and our three-vector model:
– We are increasing the digital content and online
capability for clients through online tools and
resources in addition to the support they receive
from an adviser.
– We are exploring how we connect ii and abrdn
clients so that they can benefit from all of our
offerings. This ranges from simple online transactions,
advice and support with investing, to wealth
management for private clients, including tax, trust
and estate planning.
The need for financial advice is increasing. In November
2022 the FCA outlined plans to create a new regime
aimed at giving ‘mass market’ consumers access to
simplified advice. This presents an opportunity for ii to
explore new customer segments, as the wider financial
services industry looks to find simple solutions that can
break down barriers to advice, increase customer
confidence in accessing investment markets and
thereby, crucially, reduce the advice gap.
Our strategic focus for
2023
– Integrate our Personal vector and ii, and leverage
abrdn capabilities in investments and advice.
– Focus on organic growth with targeted
investment in brand, marketing and product.
– Introduce auto-investing solution.
1
2
3
27abrdn.comAnnual report 2022
STRATEGIC REPORT
Sustainability priorities – 2022 in review
Strategic focus
on sustainability
1. Net Zero Tracker. Energy and Climate Intelligence Unit, Data-Driven EnviroLab, NewClimate Institute, Oxford Net Zero. 2022.
Delivering for our clients, our people, and supporting a credible transition toward
a better world.
While a significant amount of work remains
to be done, I am proud of the progress we
have made to date.
Stephen Bird
Chief Executive Officer
The existential challenges the world is facing are
evolving at an unprecedented rate and continue to
increase in complexity. The pressures on businesses to
take stronger stances and help solve these crises have
also increased. Our role is to enable our clients to
navigate the sustainability impact of their investments,
lead by example in our own operations and by
collaborating with partners and third sector
programmes to drive societal change.
Climate change continued to dominate the
sustainability landscape in 2022, with extreme weather
devastating many parts of the globe. At the same time,
it is estimated that over 90% of global GDP has been
committed to net zero
1
. However, there is increasing
scepticism around the credibility of decarbonisation
actions towards net zero by 2050. COP27 was an
important milestone focused on addressing climate
justice and adaptation but did little to provide the
credible policy incentives needed to limit warming to
1.5°C. However, we saw encouraging progress in
moving action forward to preserve natural capital
through the Global Biodiversity Framework.
2022 was also a year in which the spotlight has been put
on transparency, with some progress being made
towards disclosure standardisation. Expected changes
to mandate clear, comparable disclosures from
companies across jurisdictions and a focus on
greenwashing mean the landscape has, and will
continue to, evolve awareness, and increase
expectations. We are supportive of consistent
mandatory disclosures as we believe they will provide
decision-useful information for investors and drive
positive change from a corporate perspective. That
said, it is acknowledged that international standards are
yet to coalesce and there are uncertainties related to
interoperability between jurisdictions. This will be a
challenge to manage both as a corporate, and as
investors as we assess the relative risks and
opportunities of the companies we invest in on behalf of
our clients.
Evolving our transparency
We continue to evolve our governance frameworks,
most notably in 2022 through increased collaboration
with our finance and audit functions. We are focused on
this in readiness for the emerging global standards for
sustainability disclosure.
In 2022, a new phrase entered the sustainability
vocabulary – ‘greenhushing’, as the antithesis of
‘greenwashing’, is used to label companies lacking
transparency as to their sustainability-related actions,
and intentions. The introduction of greenhushing
highlights the delicate balance between overstating our
actions and being transparent about our activities. To
help manage this, we have increased our efforts to drive
education across our business and evolve our
marketing and communication approval process.
Taking collective action
If 2022 was the year of transparency, 2023 must be a
year of collaborative action. A significant acceleration
of activity – individually, collectively, and globally is
required to address material sustainability topics.
We are focused on addressing our material
sustainability topics and our public targets address the
issues commonly considered material for our business –
as we look to reduce the impact we have on the climate
and support a fairer and more inclusive society.
The evolving sustainability landscape means periodic
assessments of material sustainability topics are more
relevant than ever to ensure we understand the
potential impacts to our business, communities, and the
natural world. Our most recent assessment, completed
in early 2023, reflects our latest understanding and will
support our thinking as we increasingly integrate
sustainability into our business and strategy. We detail
the process, and outcome of our assessment in our
Sustainability and TCFD report on pages 83 to 86. Our
strategic focus on sustainability is a commitment to
invest in our own capabilities, follow our view of best
practice, and enable better investment for our clients.
28 abrdn.com Annual report 2022
1. See the Glossary for definitions of key climate-related terms including net zero.
Environment
Progress and ambition
Our focus
–
Reducing the carbon intensity of our portfolios and absolute emissions from our direct operations.
–
Acting as a positive catalyst for the net zero transition and influencing real-world decarbonisation.
Our targets
–
Reduction of the carbon intensity of assets we invest in by 50% by 2030 from a 2019 benchmark.
In-scope assets for this target represent 30% of our total AUM with Phoenix accounting for 30% of
the total public market assets in-scope as at 31 December 2022. Read more on page 38.
–
We are targeting net zero
1
by 2040 in our direct operations, with an interim target of a 50%
emissions reduction by 2025 versus our 2018 base year. Read more on page 39.
Our progress
–
We set our target for the reduction of the carbon intensity of assets we invest in 2021 and report
our first progress against this target. As at 31 December 2022, in-scope public market portfolios
achieved a carbon intensity reduction of 27% versus a 2019 baseline. As at 31 December 2021,
in-scope real assets achieved a 31% reduction in carbon intensity versus a 2019 baseline.
–
We have reduced our operational emissions by 56% since 2018 (2021: 62%), with emissions from
business travel increasing in 2022 following the easing of travel-related restrictions associated with
the COVID-19 pandemic.
Our Task Force on Climate-related Financial Disclosures (TCFD) summary report is on pages 30 to 39 and our full TCFD
disclosure is included in the Sustainability and TCFD report, available at www.abrdn.com/annualreport
Social
Inclusivity and opportunity
Our focus
–
Increasing diversity, equity, and inclusion at all levels, and in all areas, of our business.
–
Supporting a fairer and more inclusive society and creating opportunities for our communities.
Our targets
–
Board and senior leadership targets of 40% women, 40% men and 20% any gender by 2025.
–
Equal gender representation in our global workforce by 2025 (+/-3% tolerance).
–
One additional board member who identifies as ethnic minority by 2025.
Our progress
–
Board comprised 45% women, 55% men and Senior Leadership comprised 39% women, 61% men
at 31 December 2022.
–
Gender representation of global workforce was 43% women, 57% men at 31 December 2022.
–
We have reduced our UK gender pay gap for the fifth year in a row and are listed as having the
highest percentage of female fund managers of any large firm in Citywire’s Alpha Female Report.
–
52% of graduates joined abrdn from a diversity partnership in 2022 (up from 37% in 2021).
–
We continued to support tomorrow’s generation through our charitable giving. More on this on
page 43 and in our Sustainability and TCFD report at www.abrdn.com/annualreport
You can find out more about our people strategy, including more detail on our targets, on pages 40 to 43.
Governance
Integrity and transparency
Our focus
–
Operating with integrity and transparency at all levels of our business.
–
Continuing to integrate sustainability risks and opportunities into our strategy and decision-making.
Our progress
–
In 2022 we integrated climate-related performance metrics into our executive remuneration
scorecard. The scorecard continues to include people metrics. Read more on pages 103 to 130.
–
We received a AAA MSCI ESG Rating in April 2022 and continue as constituents of the Dow Jones
Sustainability Indices (DJSI) in the 2022 assessment year.
Read about our stakeholder engagement and Section 172 statement on pages 44 to 47.
29abrdn.comAnnual report 2022
STRATEGIC REPORT
Sustainability – Environment
1. Highest-financed emitters refers to the absolute tonnes of CO
2
equivalent that are financed across both equity and credit holdings. The metric
attributes ownership of emissions based on the percentage of enterprise value including cash (EVIC) owned by the investor.
Our commitment to
tackling climate
change
Last year, we outlined our net zero-aligned
ambitions and continue our progress, with a
focus on enabling clients to achieve their
climate goals through real world impact.
To achieve a credible and just net zero transition, we all
need to do more. Globally, 2022 was another year of
rising emissions and limited progress for climate policy
that provides effective incentives to decarbonise at the
pace and scale needed to achieve net zero by 2050.
Our ambition is to be a catalyst for net zero, in support
of Paris Agreement objectives, and we can report
progress against our target to reduce the carbon
intensity of the assets we invest in on behalf of our
clients. We are targeting a 50% reduction in the carbon
intensity of our portfolios by 2030 versus a 2019
benchmark and we are on track with a 27% reduction
across in-scope public market portfolios as at 31
December 2022 and 31% reduction for in-scope real
estate as at 31 December 2021. Assets in-scope for our
target represent 30% of our total AUM. This is driven by
data availability, maturity of methodologies and control
over decision-making (more on page 38).
It is important to reflect that this process will not be
linear and that a credible transition requires real-world
decarbonisation, not just in portfolios. Our climate
strategy therefore centres on active investments in
transition leaders and backing firms on paths from high
to low carbon intensity. It is not enough to simply divest
from carbon intensive companies, which is why a focus
on transition credibility is key to our process. We assess
this through proprietary analysis and through direct
engagement with our highest-financed emitters where
we believe we can actively influence decision-making
1
.
In our own operations, we are targeting net zero by
2040, with an interim target of a 50% emissions
reduction by 2025 (versus our 2018 base year). We
continue our progress towards this target and a 56%
reduction as at 31 December 2022. Our own transition
to net zero is underway and we will outline our pathway
in line with the UK Transition Plan Taskforce Disclosure
Framework in 2023.
The 27th United Conference of the Parties on Climate
Change (COP27) took place in Egypt in 2022 and we
joined others in advocating for binding policy
commitments to address the implementation and
credibility gaps we have observed. Alongside
highlighting the role investors can play in achieving real-
world decarbonisation, which we believe requires an
enabling policy environment with the right incentives for
capital allocation.
Statement of the extent of consistency
with the TCFD framework
We continue to support disclosure against the
recommendations of the TCFD framework. This is
critical for us as investors as we assess our exposure
to climate-related risks and opportunities beyond
our physical operations.
We believe our own disclosure is consistent with the
11 recommendations of the TCFD framework. In line
with our 2021 approach, we provide disclosure at
two levels of granularity. The following 9 pages of
this report provide a concise overview against the 4
recommended pillars, and the full required
disclosure is provided as a discrete section of our
Sustainability and TCFD report. We believe this
approach is currently necessary to reflect the
detailed and technical nature of the
recommendations.
The availability of climate-related data continues to
be a challenge, with inconsistent disclosures by
region. We recognise that methodologies and our
internal data processes may continue to evolve over
time and we will review our approach as
appropriate. This may lead to changes in our metrics
and our reporting of progress in future periods.
However, we advanced our capabilities in 2022, with
the introduction of expanded metrics related to our
investments that align with the recommendations of
the Partnership for Carbon Accounting Financials
(PCAF), which we have joined. We will continue to
evolve and enhance our TCFD reporting, in line with
data and industry developments.
Location in
this report
Location in
Sustainability and
TCFD report
Governance Page 31 Page 9-10
Strategy Page 32-34 Page 11-21
Risk management Page 35-37 Page 22-27
Metrics and targets Page 38-39 Page 28-37
What is net zero?
It is generally accepted that net zero is the target of
completely negating the amount of greenhouse
gases produced by human activity. The following
pages outline our ambition to decarbonise in line
with this view, and in support of the objectives of the
Paris Agreement. We do not yet have all the data
required to determine what ‘completely negating’
means for abrdn, but we do have sufficient data to
monitor our progress against specific interim
milestones, which are outlined in this report. Our
next milestone will be to produce a Transition Plan,
in 2023, which will build on our existing objectives
and consolidate our long-term approach.
30 abrdn.com Annual report 2022
Governance
Our approach
In line with the recommendations of the TCFD, we have
an established climate governance framework with
defined responsibilities for our Board and Committees,
alongside management’s role in assessing climate-
related risks and opportunities.
We are also taking a forward-looking view and are
advancing our governance beyond climate and
towards sustainability as a whole. This approach is
aligned to emerging global standards for sustainability
disclosure and will strengthen our governance due to
the interlinked nature of sustainability topics. Related
risks and opportunities can manifest differently across
our diverse business and this approach will leverage the
strength of our vector model as we apply diverse
perspectives, and expertise, to emergent sustainability
topics. Our intention in 2023 is to establish a group-wide
sustainability decision-making forum to ensure a
cohesive abrdn view.
Our Sustainability and TCFD report illustrates our
approach in more detail.
The Board’s role in oversight
Climate change is a material issue for our business and
this is reflected in strategy, risk management, and
company culture. The Board and Directors oversee
these matters and provide challenge and approval to
management recommendations on both defined and
emergent issues.
Our Chief Executive Officer takes responsibility for
climate-related risks and opportunities and is
incentivised, alongside our Chief Financial Officer,
through climate-related remuneration targets in
variable bonus scorecards, which is aligned to company
objectives and set by our Remuneration Committee
(more detail on pages 103 to 130).
Our Board and Board Committees oversee a number of
climate-related issues and reports. The Board provides
oversight for our Sustainability and TCFD report and the
Audit Committee provides challenge to management
to support readiness for future disclosure requirements.
During 2022, Board agenda items included discussion
on progress against our climate commitments, the
challenges we face in achieving them, challenges in
data quality and availability, and how we engage with
our clients on climate change.
Management’s role in assessment
Our Chief Executive Officer delegates authority from
the Board to our Executive Leadership Team, and in turn
to our climate working groups, to support the
assessment of climate-related risks and opportunities
and to provide related recommendations.
We continue to benefit from the capability of our two
climate change working groups – covering both our
operations and investments respectively. These groups
are key to our climate-related governance structure
and consist of subject matter experts from across the
business. The groups meet quarterly to review and
discuss material climate risks and opportunities and
shape strategic approaches to climate change. These
groups are key forums for identifying material matters
to be escalated through the Executive Leadership
Team and to the Board for consideration.
In 2021, a primary focus for the groups was the
development of our targets and ambitions – in 2022 the
natural focus for our investments working group has
therefore been the implementation of our net zero
directed investing strategy. With specific focus on net
zero aligned investment solutions, climate research and
tooling, as well as active ownership.
Our wider sustainability expertise
In early 2022 we announced the evolution of our
sustainable investing approach with the appointment of
a Chief Sustainability Officer for the Investments Vector
alongside a newly established leadership team. The
team takes a global view and leads on sustainable
investing, active ownership, climate strategy, and
sustainability research capabilities. This is further
supported by our Sustainability Institutes in APAC and
Americas, which provide relevant regional capabilities
for our clients and wider reporting obligations. Our
abrdn Research Institutes also deliver sustainability
research including our climate scenario analysis.
Our operational activity is supported by a distinct
sustainability team, which includes a dedicated
Environment Manager with focus on climate and
advancing our operational net zero ambitions.
These teams support our climate working groups
through subject matter expertise – providing insight to
enable effective assessment of risks and opportunities
and as dedicated resources to support Board oversight.
Our Sustainability and TCFD report includes a visual to
illustrate our sustainability governance framework.
31abrdn.comAnnual report 2022
STRATEGIC REPORT
Sustainability – Environment continued
Overview of climate-related risks
and opportunities
Our sector is exposed to material climate-related risks
and opportunities. We continue to assess the potential
impacts and monitor this with a view to the resilience of
our operations and investment strategies.
The two types of climate-related risks – transition and
physical – are linked but will manifest differently. The
transition to a low-carbon economy will reflect in
markets, policy, and corporate reputation. The physical
consequences of climate change will be far-reaching
and impact individual operations and communities
without discretion. Our day-to-day business is
predominantly exposed to transition risk (and
opportunity) in the short, and medium term as markets,
policy, and reputations come to terms with alignment to
a net zero world. This is something we monitor through
our climate risk and opportunity radar to ensure we are
positioned to realise opportunities and mitigate risks.
The focus of the radar is likelihood and impacts of
material risks and opportunities to our business in the
short, and medium term. Our climate scenario analysis
enables a long-term view of potential implications for
our investments and the resilience of our strategies
(page 33).
One of the most material transition risks for us relates to
enhanced reporting regulations and costs of analysing
and gathering climate-related data. We expanded our
capability in 2022 but this remains an area of focus as
we build out more advanced tools and analysis. Our
most material opportunity is the anticipated need for
low-carbon financial products and services in line with
global economic transitions. This also represents a
significant risk should we not be positioned to respond
to shifting client preferences. We have outlined
sustainability as a strategic focus for abrdn, with further
detail on page 12.
Climate-related risks Potential financial impact to abrdn
Transition
Policy and
legal
Enhanced reporting
regulations
Cost of analysis, data gathering and publication
Cost of inadvertent non-compliance due to volume of regulation
Market Significant shifts on
consumer
preferences
Reduced revenue from decreased demand for products
Research highlights a high appetite for sustainable investing but education
on the topic is a barrier and can create missed opportunities
Lack of public policy
means emissions still
increasing
Uncertainty of pace and direction of public policy evolution creates
uncertainty for investing
Climate-related risks
impact the market
Lower AUMA, impacting clients and reducing revenue
Reputational Increased
stakeholder concern
or negative feedback
Reduced revenue from decreased demand for products
Growing litigation risk – both direct and from divestment decisions
Physical
Acute Increased severity of
extreme weather
events
Cost associated with damage to office facilities
Costs associated with transport and power disruptions
Costs associated with damage to IT networks and infrastructure
Climate-related opportunities Potential financial impact to abrdn
Transition
Products and
services
Development of
lower carbon
products and services
Revenue opportunity from demand for lower-carbon products and services
and products with enhanced sustainability performance
Resource
efficiency
Move to more
efficient buildings
Reduced operational costs, increased quality of working environment
Use of more efficient
modes of transport
Reduced operating costs
Use of more efficient
technology
Reduced operational costs of technology
Additional detail in our Sustainability and TCFD report.
32 abrdn.com Annual report 2022
Our climate scenario analysis journey to date
2020 Feb 2021 Nov 2021 Feb 2022 May 2022 2023
Research
and year one
analysis
Publication
of our first
white paper
Research
and year two
analysis
Focus on
sovereign
bonds
Focus on
APAC energy
transition
Year three
analysis and
platform
expansion
Building a more resilient strategy
using climate scenario analysis
Taking a long-term view
It is vital that investors understand how climate change
may affect the investment return of the companies and
markets they invest in. The impacts of climate change
will be felt across generations. Our climate scenario
analysis takes this long-term view to better understand
the impacts of physical and transition risks at sector,
regional, and individual security levels.
We have been developing our scenario analysis
platform for three years and consider this to be an
integral part of our climate strategy. We use a
combination of bespoke and industry standard
scenarios across a range of temperature rises
(between 1.3 and 3.2˚C by 2100) and transition
pathways up to a time horizon of 2050. This includes a
mean probability-weighted scenario that captures our
view of the most plausible energy transition.
This year we have expanded our scenario analysis to
incorporate company targets. It reflects that
companies have the opportunity to proactively alter
their strategies and take advantage of transition
opportunities. Many companies have set ambitious
targets, but some are more credible than others. In
response, we have built a bespoke credibility
assessment framework to assess target credibility,
which will enable us to value securities more accurately
and draw finer conclusions from our scenario analysis.
We will publish more detail on the application of the
credibility framework during 2023.
Climate scenario analysis is a strategic platform for
abrdn and we are committed to updating our insights
year-on-year. Our analysis is also expanding in 2023 to
look in detail at the physical and transition risk for our
real assets. It is however important to reflect the output
cannot be applied mechanically to investment
decisions due to a range of limitations and uncertainties.
Key uncertainties are present in relation to policy,
technology, and the modelling is reliant on high-quality
emissions data at company level.
Our insights from climate scenario analysis are
supporting key stages of our investment processes
across research, engagement, strategic asset
allocation, and investment product solutions.
Resilience of our strategy against climate
scenarios
We use scenario analysis to understand how resilient
our portfolios are to uncertain future transition
pathways. Our core insight is that there is a large
dispersion of risks and opportunities both within and
between sectors but relatively little impact at the
aggregate index level. In general, downward revisions to
long-term fair valuations are more common than
upward revisions, so greater discrimination in stock
selection is required to capture opportunities.
At fund level, our tools enable fund managers to use
scenario analysis results to test the valuation impact
under different scenarios and against the benchmark. It
is important to reflect that this is applicable to in-scope
asset classes and the use of the platform is not
mandatory for fund managers. Our climate scenario
analysis has focused on asset classes in which
valuations are largely derived from future corporate
earnings streams: listed equities and corporate bonds -
our analysis focuses on the financial impacts of climate-
transition and physical risk, though in most sectors the
financial impact is largely determined by transition
drivers.
Our Sustainability and TCFD report includes more detail
and initial conclusions from our year three analysis.
33abrdn.comAnnual report 2022
STRATEGIC REPORT