Aberdeen Standard Investments (ASI) has launched a range of sustainable index funds within a tax efficient Authorised Contractual Scheme (ACS) structure aimed at pension funds and other institutional investors.The sustainable index funds each track customised MSCI sustainable equity indices that have been developed for ASI to provide materially improved, broad-based sustainability outcomes. This is achieved by excluding companies with significant sustainability risks; specifically, those companies engaged in and/or demonstrating very severe ESG controversies such as UN Global Impact fails; controversial weapons; tobacco production and distribution; and thermal coal and unconventional oil and gas.
Additionally, they target materially-improved sustainability outcomes at the portfolio level by: enhancing aggregate ESG scores (ranging from 10 to 20 per cent relative to the applicable parent index); improving green revenues (by 50 per cent relative to the applicable parent index); and
Reducing carbon intensity (by 50 per cent relative to the applicable parent index).
The customised MSCI sustainable equity indices are licensed to ASI and include the following: MSCI World Select ESG Climate Solutions Target Index – activated on Bloomberg; MSCI UK IMI Select ESG Climate Solutions Target Index – activated on Bloomberg; MSCI Emerging Markets Select ESG Climate Solutions Target Index – activated on Bloomberg; MSCI AC Asia Pacific ex-Japan Select ESG Climate Solutions Target Index; MSCI Europe ex-UK Select ESG Climate Solutions Target Index; MSCI Japan Select ESG Climate Solutions Target Index; and MSCI USA Select ESG Climate Solutions Target Index
The ASI Sustainable Index funds will track each of these indices, respectively, and initially include the following three funds (with the remaining four funds potentially launching in 2021):
1. ASI Sustainable Index World Equity Fund – launched 12 November 2020 (OCF = 0.15 per cent pa)
2. ASI Sustainable Index UK Equity Fund – launched 12 November 2020 (OCF = 0.15 per cent pa)
3. ASI Sustainable Index Emerging Markets Equity Fund – launching Q1, 2021 (OCF = 0.25 per cent pa)
David Wickham, Global Head of Quantitative Investment Solutions at Aberdeen Standard Investments, says: “The ASI Sustainable Index funds, and our customised MSCI sustainable equity indices that they track, are designed to provide institutional investors with an opportunity to address their sustainability concerns through traditional indexation. Our sustainable index funds target broad improvements in sustainability outcomes – enhanced portfolio-level ESG scores, increased ‘green’ revenues, and reduced carbon intensity in addition to specific (financially-based) exclusions – with risk controls to retain the benefits of traditional indexing. Accordingly, they may represent a suitable core investment with the added benefit of tax transparency for fund investors.”
Caroline Silander, Head of Equity Indexation at Aberdeen Standard Investments, says: “The QIS team has been managing indexation strategies with a demonstrable track record of success on behalf of sophisticated institutional investors for over 15 years. The launch of our sustainable indexation range is a natural extension of our market-leading indexing capability and, while there are a growing number of sustainable equity indices to choose from, we felt there was a gap in the market as many index designs tend to be highly specific in their purpose. However, these approaches often induce greater tracking error and greater index/portfolio turnover than we believe is justifiable for those seeking a broad market-capitalisation weighted indexing approach.”
The ASI Sustainable Index funds are authorised in the UK within an ACS tax transparent fund structure, namely the Aberdeen Standard Investments Authorised Contractual Scheme I, which means that each fund is “looked through” and investors are treated for tax purposes as if they held their proportionate share of the underlying investments directly.
The sustainable index funds are managed by the QIS indexation team who currently manage GBP37 billion in index assets across equity and fixed income (as at 30 September 2020). The QIS team is comprised of 30 investment professionals located across offices in London and Edinburgh and manages a range of systematic strategies including indexation, sustainable indexation, enhanced indexation, smart beta, and active quant powered by artificial intelligence.
