Emerging markets and private markets offer essential sustainable investment opportunities, explains Karsten-Dirk Steffens of abrn.
“The price of greatness is responsibility”: these words of Winston Churchill could have inspired Aberdeen, one of the largest British asset managers with 572.4 billion francs in assets as of December 31, 2021. And this because this Scottish company of origin has not sacrificed the expertise that contributed to its reputation, emerging markets and private equity in particular, on the altar of sustainable finance regulations. On the contrary, it has strengthened in these segments with the aim of financing their transition towards durable solutions. Without sacrificing profitability objectives, explains Karsten-Dirk Steffens, responsible for Switzerland within the abrdn group.
How do you reconcile your commitment to sustainable finance and your investment strategies in emerging markets?
Launching funds in the shares or debt of companies in emerging economies is the surest way to help them collect the resources necessary to finance the 2.5 trillion dollars a year in investments they need to achieve the objectives of sustainable development (SDGs) by 2030. In particular in the areas of financial integration, food security, access to healthcare, infrastructure and energy transition. This is why we have just launched a bond fund (Emerging Markets Sustainable Development Corporate Bond Fund), which complements the two emerging equity funds linked to sustainable development (Emerging Markets Sustainable Development Equity Fund and Asian Sustainable Development Equity Fund) to offer investors a diversification of sources of returns and solutions.
“The challenges are less on our side as investors than on that of our targets, who lack the means to live up to the standards of the SDGs.”
There is no contradiction, quite the contrary, in our strengthening our commitment to emerging markets and our search for sustainable investments. That it is not easy is far from discouraging us: our teams, mobilized in the adaptation work that we started in 2017 to move from a fund universe that meets the requirements of Article 6 of the SFDR directive to a offer complies with Articles 8 and 9, are experienced in the exercise; applying it to emerging countries does not pose an insurmountable problem for them.
Not insurmountable: what are the challenges encountered and how do you meet them in practice?
The challenges are less on our side as investors than on that of our targets, who lack the means to live up to the standards of the SDGs. To help these companies that our analysts have identified as good students, they retain them even if they do not meet 100% of the criteria. In other words, the selection is made on the potential for alignment of such and such a company with the criteria of sustainability, for example of reduction of CO emissions.2. Our philosophy is to encourage companies on the right path, rather than penalize them for conditions they do not yet meet. The objective is to create value and return while giving meaning to the investment, that is to say by investing in companies that provide solutions to the major issues facing the world today, from climate change to growing social inequalities to unsustainable production and consumption. It is clear that this approach has been crowned with success, judging by the performance of the equity fund (11.9% in 2021 compared to 5.2% for the benchmark index, the MSCI Emerging Markets), whose universe (between 30 and 60 lines) served as the basis for the recent bond fund.
“It is essential to encourage exchanges between investors and all economic players to give sustainable finance every chance.”
Do you think this approach is enough to incentivize companies in emerging markets to change their operations and meet sustainability requirements?
It is a sine qua non of the solution. Another avenue that we are exploring involves education, knowledge sharing, the implementation of good practices. It is in this spirit that abrn has joined the community of more than 3,000 members of the Emerging Markets Investors Alliance (EMIA), which brings together experts in ESG strategies, investors, public and private issuers of emerging debt. , and listed companies in emerging countries. We want to actively contribute to promoting the values that guide our investment decisions. This is also why we are members of Swiss Sustainable Finance. It is essential to encourage exchanges between investors and all economic players to give sustainable finance every chance.
Are your developments in private markets part of the same ambition?
Providing diversification tools to long-term, institutional investors, while financing infrastructures that meet energy efficiency requirements, is another axis of the Group’s strategy, which is experiencing strong growth. Investments in the private markets are concentrated in Europe, particularly in the North, and concern wind farms as well as commercial and residential real estate. The current inflationary environment is conducive to the rise of these solutions, which require patience (10 to 15 years) and greater investment (5 million euros minimum).
Emerging markets, private markets, does this positioning give you a competitive advantage in Switzerland?
Switzerland is attracting more and more large managers who sacrifice margins to gain market share. Product quality and an experienced and proven team are essential in this context. That said, these strategies, emerging and private markets, are global and all designed to give everyone a chance to contribute to a sustainable world.