SRI - Aberdeen Asset Management

The performance question
Many investors were resistant to SRI in the
early years, believing that it could restrict
opportunities for performance. However, as
the track records of SRI funds mature, this
scepticism is gradually evaporating. A recent
study conducted by Mercer in conjunction
with the UN concluded that investors who
factor in ESG issues do not have to sacrifice
returns 3 . In addition, investors now recognise
that examining a company from an SRI
perspective may add a further layer
of safeguards.
SRI at Aberdeen
Growth in AuM for SRI
Aberdeen has developed a structured and
thoughtful approach to SRI. Our clients have
invested more than £630 million in our
ethical equity strategies, benefiting from our
expertise and experience. We began offering
SRI back in 1988 and have grown to become
one of the UK’s leading SRI investors. Over
this time we have developed a thorough and
common sense approach, putting in place a
set of rigorous criteria.
Screening techniques
Our main strategy for building core SRI
portfolios is to subject the companies on our
buy-list to a second layer of research, filtering
out those who do not meet our standards.
Negative screening
With negative screening, we examine
companies to see if they are or have been
involved in what we determine to be “areas
of concern.” Trends in adverse behaviour
may suggest longer-term problems for an
organisation. Our active screens eliminate any
company that derives a significant amount
of its revenue from particular areas – alcohol,
tobacco, and gambling, for example – making
Aberdeen’s funds suitable for demanding
investors such as charities or religious
groups. We can also exclude companies
demonstrating poor records over a three year
period in areas such as business practices,
the environment, labour relations and human
rights. (This is an approach taken by the
Aberdeen Ethical World Fund).
Engagement approach
A second strategy we use for SRI is an
engagement approach. This is popular
with clients (like pension funds) who find
negative screening too limiting. Our funds
using this approach invest in well-managed,
solid companies with which we then
engage on matters pertaining to ESG, or
the environment, social (labour and human
rights) and corporate governance. Where our
research shows that companies fall short of
set standards, we engage directly with them
to encourage improvement in these areas.
The Hybrid -- engagement + negative
screening
A third approach we use for SRI is a hybrid
approach for screening purposes. With
this, companies must (as with the other
approaches) pass our first hurdle of financial
strength. Then we screen the companies
again to understand the relevant ESG issues
to discuss with our investments. On top of
this we place a third overlay: negative screens
for alcohol, tobacco, gambling, military,
pornography and weapons. Any company
with more than 10% turnover from activities
in these six areas will not be included in
the fund. (This is an approach taken by
the Aberdeen Responsible World Fund and
Aberdeen Responsible UK Equity Fund).
Aberdeen’s fifteen key screens of
socially responsible investing
• Alcoholic beverages
• Gambling
• Military
• Nuclear energy
• Pornography
• Tobacco
• Weapons
• Environment
• Labour
• Human rights
• Business practices
• Product quality
• Community involvement
• Corporate governance
• Animal testing
Stephen Docherty
Head of Global Equities
Aberdeen Asset Management
“SRI investment is set to
increase over the next 10
years and Aberdeen is
positioned well to serve that
growing demand. Our SRI
investment process is well
tested and designed to offer
clients the opportunity to
invest in global companies
which have track records
of financial strength and
good corporate citizenship.”
3 Mercer/UN, October 2007