REG - abrdn PLC - Final Results - Part 2 of 8
01/03/2022 07:15
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RNS Number : 1203D abrdn PLC 01 March 2022
abrdn plc
Full Year Results 2021 Part 2 of 8
When our clients invest with abrdn, they invest in more than you think.
Our focus on the future helps to create more progress, insights and
opportunities to change things for the better.
This is the power of investing with abrdn.
The annual report and accounts 2021 and the strategic report and financial
highlights 2021 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.
APM Certain measures such as fee based revenue, cost/income ratio, adjusted
operating profit, adjusted profit before tax and adjusted capital generation
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 IFRS consolidated income
statement, IFRS consolidated statement of financial position and IFRS
consolidated statement of cash flows, which are presented in the Group
financial statements section of this report. Further details on APMs are
included in Supplementary information.
See Supplementary information for details on AUMA, net flows and the
investment performance calculation. 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 relating to the settlement of
arbitration with LBG.
All figures are shown on a continuing operations basis unless otherwise
stated.
Highlights
Adjusted operating profit (APM) IFRS profit before tax Full year dividend per share
£323m £1,115m 14.6p
2020: £219m 2020: £838m 2020: 14.6p
Investment performance Net flows Dow Jones Sustainability Indices (DJSI) ranking
(% of AUM above benchmark (Excl. liquidity and LBG )
over three years)
£3.2bn Top 3%
67%
outflow
of companies in our sector
2020: 66% 2020: £12.3bn
outflow 2020: Top 2%
About our business
Our purpose
Enabling our clients to be better investors
Technology and Powerful partnerships help to enhance Enabling clients to invest responsibly helps us to build a better world
insight help empower clients to make better decisions
the expertise that
we offer
Our connected global team
Clients worldwide trust us to find future-fit
investment opportunities globally to deliver
the outcomes they want.
We manage and administer £542 billion of assets for clients We have around We have 800 investment professionals in over
5,000 employees globally
30 locations
Our business
Our business is structured around three vectors, focused on the constantly
changing needs of our clients.
Investments
Across markets globally, we build investment solutions to enable clients to
create more opportunities for their futures.
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.
Fee based revenue
£1,231m
£464bn AUM
Read more on page 20
Adviser
Our platform technology and tools help UK wealth managers and financial
advisers create more opportunities for their clients and their businesses.
We provide technology, expertise and support to make it easy for our clients
to run their business and deliver the outcomes their clients want. We offer
content and experiences that can be personalised to suit every type of
business and client, giving advisers powerful data and insight to make better
decisions.
Fee based revenue
£178m
£76bn AUA
Read more on page 25
Personal
Our personal wealth business offers tailored services to help individuals in
the UK create financially secure futures in a way that works for them.
We integrate a full range of services from high-quality financial planning and
discretionary investment management capabilities, through to hybrid advice and
digital investing tools. Our proposed acquisition of interactive investor
transforms and broadens these capabilities.
Fee based revenue
£92m
£14bn AUMA
Read more on page 27
Invest in this
And you invest in that
Across our business we connect our clients with wide-ranging investment
solutions, giving clients more confidence to achieve their goals.
Investments
52
investment strategies are positively rated by investment consultants, who are
used by 93% of institutional investors in the UK and 88% in the US to advise
on their diverse investment needs (2020: 52 strategies).
131
funds independently rated 4/5 stars by Morningstar, based on the investment
performance of the funds we offer our wholesale clients (2020: 117 funds).
Adviser
'A' ratings
The first and only UK adviser platform to receive the highest rating for
financial strength from AKG, one of the top factors advisers consider when
selecting their primary platform.
Gold award
from Defaqto for platform service, based on survey findings from across the
financial adviser community.
Personal
4.9 out of 5
average rating from clients for our hybrid retirement advice service.
94%
of AUM for discretionary investment management business aligned to strategies
which outperformed the benchmark over three years (2020: 72%).
Invest in this
And you invest in that
The insight, expertise and innovation of our team help clients create more
ways for their investments to make an impact.
Connecting expertise and perspectives
Wide-ranging research
Insight through tools, such as climate scenario analysis, helps our clients to
better identify investment risks and opportunities.
Global expertise with local knowledge
Our investment specialists collaborate across regions and specialisms to
create investment solutions.
Our transformed investment platform
By integrating our portfolios on a single global investment platform, we are
consolidating our data, applications and reporting process to improve the
experience for clients.
Empowering better investment decisions
Finimize helps us bring further insights and information to a highly engaged
community of digital investors.
Strength in our real estate capabilities
Our acquisition of a majority interest in Tritax supports our ambitions in the
high-growth logistics and e-commerce real estate market.
Harnessing technology
Our digital capabilities enhance the flexibility and choice we offer
individuals to create portfolios around their individual goals, risk profiles
and preferences, as well as making our services easier to access.
Improving the adviser experience
Continuously striving for excellence, our vision is to enhance our
capabilities and technology to create an effortless experience for advisers
and their clients.
Making individual savings easy
Our Stocks & Shares ISA takes minutes to set up, can be managed online at
any time, and can be tailored to individual needs.
Invest in this
And you invest in that
Creating solutions that can be measured beyond money alone. With our clients,
we are helping to build a better future for all of our stakeholders.
Responsible business
Net zero(1) target in our operations by 2040 with an interim target of a 50% reduction by 2025.
Board and senior leadership level targets of 40% women, 40% men, 20% any gender by 2025.
AA score in MSCI ESG Ratings Index achieved, demonstrating our resilience to long-term ESG risks.
Reduced our operational emissions by 62% since 2018 including pandemic related reductions.
Supporting the bridging of the digital divide through our £1m Hello World partnership.
Top 3% in the Dow Jones Sustainability Index for our sector.
Responsible investing
ESG embedded across all of our actively managed portfolios.
Driving opportunities in Asian markets through our APAC Sustainability Institute.
Joined the Net Zero Asset Managers initiative to work collaboratively in support of decarbonisation towards net zero.
Majority of our SICAV funds will be converted to promote increased 'E' or 'S' characteristics or have specific goals (Article 8 & 9 funds) in next 12 months.
Target to reduce the carbon intensity(1) of the assets we invest in by 50% by 2030 vs a 2019 baseline.
Supporting client transparency and understanding via improved sustainability reporting.
1. See the Glossary for definitions of key climate related terms including
net zero.
Chairman's statement
Creating a better future
As we close out another year, our first as abrdn, resilience and agility have
once again been important aspects of our company's development. In what has
been another challenging year, it is worth reflecting positively on how much
has been achieved to reshape our business to meet both society's expectations
of us and our own statement of purpose. That statement of purpose - to enable
our clients to become better investors - is a constant in all that we do, and
is far reaching in its influence. Investing effectively, recognising the
powerful impact that the allocation of capital can have on facilitating
positive outcomes, not only for people and their families, but also for the
communities around us, the environment in which we live and the industries
that play an important role in shaping our futures, is what we stand for.
Our global brand
Symbolic of the renewed sense of purpose within our business was the launch of
the abrdn brand. Like all brand changes, particularly one involving a change
from such well-established names, we attracted considerable media attention
and comment, and feedback from individual shareholders covered the entire
range from dismay to scepticism to excitement.
While not without its challenges, developing a single brand represented an
important milestone in positioning ourselves for the future. We needed to have
a brand name that was unique to us, one that we could protect and that worked
well in the increasingly important digital world.
Having licensed the Standard Life brand when we sold the UK and European
insurance business to Phoenix, continuing to use that brand was not an option,
and the name Aberdeen could never be unique to us. The sale of the Standard
Life brand, which we announced as part of a simplification and extension of
our strategic partnership with Phoenix early last year, brought urgency to
this rebranding opportunity.
What is important is that, as we have rolled out the brand formally during the
second half of 2021 and tied it to our purpose, both internal and external
reaction has grown positively. Stephen Bird covers our brand in more detail in
his report, as well as highlighting how his organisational redesign into three
distinct client-focused areas, our 'vectors' of growth, is driving
performance.
Positivity towards our brand is growing at the same time as our colleagues are
returning to the office in ever greater numbers, a trend we are encouraging.
As we transition to a blended model of working, both colleagues and clients
are seeing the value of combining more flexible working arrangements with
face-to-face collaboration and team building.
Strategic steps for building growth
The commitment our colleagues have evidenced, delivering for our clients,
while adapting to an operating environment that continues to evolve, has been
impressive, and is reflected in our results. We have seen a marked improvement
in investment flows (excluding liquidity) in our Investments vector during
2021, augmenting continuing positive flows in our Adviser and Personal
vectors. Combined with improved operational leverage and higher markets, this
drove an increase in adjusted operating profit to £323m (2020: £219m), an
increase of 47% over the prior year. Our IFRS pre-tax profit amounted to
£1.1bn (2020: £0.8bn), boosted by further disposal gains from our listed
Indian stakes and an accounting gain from reclassifying our investment in HDFC
Asset Management from associate to investment status, consequent upon selling
a portion of our stake in September 2021.
In line with the guidance we gave with our 2020 results the Board is
recommending a final dividend of 7.3p per share, making a total of 14.6p for
the full year, both amounts the same as delivered last year.
Our capital and liquidity positions are strong, with the proceeds of sale from
our Indian stakes during the year creating capacity to invest in reshaping the
company. This has enabled us to take the strategic steps needed to build
further growth.
In late October, we announced the acquisition of Finimize, a global leader in
providing digital content designed to equip investors with the information and
insights they need to make their own informed investment decisions. The unique
technology and content capabilities that Finimize offers means we are also
able to extend the reach of our own insight and expertise, further supporting
our transformation into a truly client-led organisation and driving a step
change in our capabilities.
We have also expanded the reach we have across the Personal vector, supporting
our ambition to enable our clients to be better investors. In early December
we announced our plans to acquire the UK's leading subscription-based
investment platform, interactive investor, for £1.49bn in cash, subject to
certain adjustments. This acquisition constitutes a major step forward in
realising our ambitions for our Personal business, and provides us with a
leading position in the fast-growing direct investing segment of the consumer
market. Subject to shareholder and regulatory approvals we expect to bring
interactive investor formally into abrdn by the mid-year.
This redeployment of capital, from third party stakes to our own business,
offers additional growth opportunities, adds diversification to our revenue
streams and is accretive to earnings based on adjusted diluted earnings per
share. We recognise the responsibility we have as a Board to manage our
capital resources in the best interests of all stakeholders and, looking to
the disruptive transition taking place within our industry, we believe these
acquisitions are vital to reposition abrdn for a future where individuals will
have greater responsibility for building their own savings resources. These
acquisitions will also generate additional insights to help us better
understand different customer needs and preferences.
Alongside the disposals of non-core assets, we acquired a 60% interest in one
of Europe's leading logistics real estate fund managers, Tritax. In his
report, Stephen Bird illustrates in more detail the opportunities these
businesses will bring.
Harnessing the power of investment
The insights we gather from our customer-facing activities and research are
increasingly important as these make clear that individual investors, both
direct and intermediated, increasingly want to feel that their investments are
having a positive impact on the world around them, and the society they will
leave for future generations. At abrdn, we believe our clients are right to
expect more from their investment activity, no matter how modest, than simply
financial returns. Together with our clients we can make a difference - we
call this the 'power of investment'.
Nowhere was this more evident during 2021 than at COP26 in Glasgow. The
landmark conference saw political leaders, policy makers, non-governmental
organisations (NGOs), scientists, corporate leaders and individual citizens
from all corners of the world, with a vast range of economic circumstances and
climate vulnerabilities, come together with the goal of keeping alive the
Paris Agreement's objective to keep warming below 2°C, and ideally 1.5 °C.
Even as a leading global asset manager, we should not exaggerate the
contribution we can make on our own to meeting the commitments needed to put
our planet more firmly on a course to achieving net zero. However, neither
should we underestimate the aggregate impact our industry can make. The
announcement in January this year, for instance, of the partnership that abrdn
and Tritax will form with electric-vehicle battery pioneer Britishvolt, to
fund and deliver the UK's first full-scale Gigaplant in Northumberland, will
help support the UK's energy transition to a greener future.
We must use all of our combined efforts to advocate for the policy and legal
frameworks needed to deliver the desired outcomes. Additionally, we must hold
companies in which we invest to account for the rigour and timely delivery of
their transition plans and be held to account ourselves for the effectiveness
of that engagement. Finally, we need to help our clients understand, simply
and transparently, how they can invest responsibly to meet both their
financial and societal objectives.
Maintaining the strength of our Board
The long-term success of our business relies heavily on the way the Board
fulfils its responsibilities to its stakeholders. This means operating in the
interests not only of clients and shareholders, but also in a way that
acknowledges the role we must play in wider society. This includes matters
concerning those in our employment and many groups and individuals more
widely, from the need to foster the company's business relationships with
suppliers, to the impact of our operations on our local communities. The Board
discusses these obligations throughout the year, and you can read more about
how stakeholder engagement is incorporated into our long-term decision-making
on pages 74 to 75.
In September we were pleased to welcome Hannah Grove to the Board. Hannah
brings more than 20 years of experience in leadership positions in marketing
and communications within the global financial services industry, in
particular from her time at State Street. Hannah has also succeeded Melanie
Gee as the Board's Non-Executive Director with specific responsibility for
employee engagement. We bade farewell to Melanie at the end of October as she
completed her second three-year term. She has been an outstanding colleague,
serving at various times on all of our committees and taking the lead as our
first designated Board member responsible for employee engagement, a role she
accomplished with great success, leaving a very sound framework for her
successor. On behalf of her colleagues and shareholders I want to express our
sincere thanks for her dedication and commitment throughout a transformational
period in the company's history.
At the start of 2022 I was pleased also to welcome Catherine Bradley, CBE as a
Non-Executive Director. Catherine has more than 30 years of executive
experience advising global financial institutions and industrial companies on
their most complex transactions and strategic opportunities. Her knowledge and
experience gained from working across Europe and Asia, in serving on the
Boards of leading consumer facing companies and her experience gained working
with regulators and standard setters will bring considerable and incremental
value to our discussions.
As we have now announced, Jutta af Rosenborg and Martin Pike will be retiring
at the end of the AGM in May. I would like to thank Jutta and Martin for their
dedicated service to abrdn during a period of great change and transformation.
As our two longest-serving directors, they were instrumental in the vision
that brought Standard Life and Aberdeen Asset Management together and the
transformation of the Company to a capital-light business. They both brought
technical skills and expertise to the Committees they served on and Martin has
chaired our Risk and Capital Committee very effectively during a period when
the workload of the Committee has been demanding. The Board has greatly
benefited from their experience and knowledge of abrdn's business and we wish
them well in the next chapters of their careers.
We have also announced that, subject to shareholder approval at the upcoming
AGM, Mike O'Brien and Pam Kaur will join the Board on 1 June 2022. Together
they bring extensive asset management and audit, risk and compliance knowledge
which compIements the Board's current skills in these areas. I, and the rest
of the Board, are looking forward to working with them.
Looking ahead
As I write this the world is once again facing the horror of brutal military
aggression in Europe with no current line of sight as to the objectives of or
the limits to that aggression; we are facing circumstances beyond our control
or understanding which make it infeasible to predict how the coming year will
play out.
This aggression represents a major setback for the world as there had been
growing optimism across a number of major economies in early 2022 that
restrictive measures to protect citizens and national health systems from the
pandemic's threat could be relaxed. The resulting boost to economic recovery
could be seen primarily within the developed world which continues to benefit
from the success of mass vaccination and booster programmes. However, the very
low vaccination rates in low-income countries continue to pose risks of new
variants emerging while at the same time undermining global economic activity
and widening economic imbalances. Many of these economic imbalances have been
exacerbated during the pandemic, contributing to a complex investment
environment.
Supply chains remain under strain as they are restructured for security of
supply and as recovering demand exposes shortages of critical components, such
as microchips. Inflationary pressures abound in freight, logistics, energy and
food processing to name but a few industries.
Confidence that such inflationary pressures are transitory has receded in most
countries, with expectations around the timing and number of interest rate
rises brought forward. Following COP26, the urgency of climate change
mitigation policies is ever more apparent, but a clear line of sight as to how
the cost of these policies can be made politically acceptable, including
justifying transfers to support lower-income countries in their transition
planning, has yet to emerge.
The outlook is not universally bleak. Until the recent escalation in
geopolitical turmoil, there were many encouraging signs. Much was learned
during the pandemic around working practices, both for companies and
individuals, that can drive the productivity needed to build the higher-wage
economies that we desire. The transition to the lower-carbon future needed to
mitigate the impact of climate change and to protect global biodiversity will
involve huge investment in skills, training, technology and in fundamental
science and its application. The trillions of dollars of investment needed
will create a multitude of attractive investment opportunities globally for
those prepared to undertake the thorough sector-specific and company-specific
research needed to identify long-term winners. Success will come through
multilateral international co-operation and public-private collaboration. We
should be emboldened by the incredible success of the vaccine development
programmes that illustrated public-private co-operation at its best.
But difficult times certainly lie ahead and it is undoubtedly a time to be
grateful for our capital strength. We enter this period with a refreshed
leadership team aligned to our revitalised strategic focus and considerable
human talent committed to supporting our clients, as they navigate through a
new and unwelcome geopolitical landscape.
At Board level we remain committed to supporting the investment in the
insight, innovation and talent needed to protect stakeholder interests and
underpin the future growth that will deliver sustainable value over the long
term. I look forward to updating you on progress in due course.
Sir Douglas Flint
Chairman
Chief Executive Officer's review
Delivering on our strategy for growth
2021 was a significant year for abrdn. We set out our clear strategic vision
and the financial benefits that we expect the strategy to deliver; firstly, by
arresting the decline in revenue in the near term and then by establishing a
healthy pattern of growing revenue and improving efficiency and returns
thereafter. We have made good progress towards achieving these objectives in
the first year of our plan.
We have delivered fee based revenue growth of 6%, reduced adjusted operating
expenses by 1%, increased adjusted operating profit by 47% and delivered an
improvement in our cost/income ratio to 79%. IFRS profit before tax was
£1,115m (2020: £838m) benefiting from an accounting gain resulting from the
HDFC Asset Management stake sale in 2021. The second half of 2021 saw greater
momentum in the financials as the new strategy built traction in delivery. I
am pleased to announce that our dividend will be 14.6p. Stephanie Bruce talks
more about our performance in her Chief Financial Officer's review.
In our new strategy, launched in March, we outlined how we will deliver value
for our shareholders based on our purpose of enabling our clients to be better
investors. Our business exists to meet and exceed our clients' expectations
and that is why we have reorganised around our clients. Each vector is built
to understand clients' needs, wants and aspirations and has the accountability
and the tools to deliver on them. Our Investments vector is a leading active
asset manager in over 30 locations globally with deep expertise across asset
classes and a successful track record of investing in emerging markets. The
Adviser vector is the UK's leading platform for financial advisers offering
solutions that enable advisers to serve their clients efficiently and to run
their businesses at scale. Our Personal vector is focused on digital
investing, financial advice and discretionary investment management.
By building these three businesses we are diversifying our revenue streams,
accessing new growth opportunities and serving new clients.
For the first time since the merger we have reported increased revenue and
reduced costs for the full year. We are diversifying our revenue streams and
broadening our growth opportunities.
Our execution priorities
Effective delivery of strategy must be backed up by the right structure, clear
priorities, and empowered decision makers. During 2021 we took several
immediate actions to reduce complexity and connect our businesses more closely
to our clients. In the first half we simplified our business through the sale
of Parmenion and also the Nordic real estate operation. We made significant
progress on our technology transformation enabling us to further simplify
operations and free up resources for the growth agenda. We simplified our
management operating model by localising decision-making closer to client
needs, removing unnecessary layers and costs and improving efficiency and our
speed of action. We moved the business from five brands to one, uniting our
entire operations and culture under the exciting and differentiated abrdn
brand. Our new brand is unique, builds upon our global name recognition and is
distinctive and attractive across all digital and physical domains.
Phoenix Group Holdings is both our largest client and a strategic shareholding
because together we can develop better client offerings and drive more
sustainable growth. It was particularly exciting to announce a simplification
and extension of this relationship in early 2021. The strategic asset
management partnership where abrdn manages c£176bn of assets has been
extended to at least 2031 to the mutual benefit of both companies.
In January 2022, we announced the sale of approximately 4% of Phoenix's share
capital. Our strategic partnership remains important to us and following
completion of the sale, abrdn's holding will represent approximately 10.4% of
Phoenix's issued share capital and abrdn will continue to appoint a director
to Phoenix's Board. I'm pleased that through our disciplined management of
capital, we are well positioned to return the proceeds of this sale to
shareholders.
Our Investments business accounts for over 80% of our revenue and has been the
subject of high historical outflows caused principally by the cyclical decline
in the 'super funds' GARS and GEMS and the decision by LBG to withdraw assets
from abrdn. Our objectives here have been clear: stabilise, focus and position
for growth across our geographies with a particular focus on emerging markets.
I am pleased to say that in 2021, and under new leadership, we significantly
improved net outflows (excluding LBG and liquidity), and achieved positive
overall Group net flows (excluding LBG and liquidity) for the first time in
the year during the fourth quarter. Of course, performance drives flows and
across a number of our funds we have seen strong performance and stand-out
ratings in small cap, emerging markets and real estate assets. Investment
performance improved slightly over the key three-year period to 67% (2020:
66%).
Leadership, accountability and a winning culture
Sustained improvements in operating performance requires focused, accountable
and effective leadership. Alongside simplifying our operating model we made
several new senior leader appointments, drawing on existing and external
talent. These included René Buehlmann as our new CEO of the Investments
business in Asia Pacific, Caroline Connellan as our new CEO, Personal Wealth,
Tracey Hahn as our new Chief People Officer and a range of new hires across
the businesses. In addition the acquisition of Finimize brings its CEO Max
Rofagha to the Executive team and, subject to completion of our proposed
acquisition of interactive investor, I am delighted that its CEO Richard
Wilson will also join the team.
I want abrdn to be a magnet for talent and we have introduced a
performance-based reward model to better connect individual reward with
client-based returns and group success. I have been impressed by the way
colleagues have responded and continued to deliver performance.
Enabling our clients to become better investors has to start with enabling our
people. I have communicated a very clear strategy, aligned with our purpose
and underpinned by strong behaviours, and we have reshaped the business around
our three vectors. All of this has been done at pace, in the context of a
global pandemic. I want to say thank you to our people for all they have done
through 2021. We took a temperature check last May on employee engagement, and
our most recent employee survey shows an increase in engagement of 8% to 51%.
Whilst more to do, this is encouraging a year into our transformation. We have
a huge opportunity here and clear actions in place that will ensure we are
building an environment at abrdn where colleagues can thrive.
We are breaking down legacy cultural silos across the business and building a
client and results-focused, accountable and digitally enabled culture under
one brand. We demonstrated our cultural and operational resilience throughout
the COVID pandemic and have now moved to a hybrid working model based around
redesigned offices with creative collaboration spaces. Without doubt during
the pandemic abrdn colleagues missed real-time connections and are embracing
the flexible return to the office. Within the same context we have been able
to reduce our estate footprint, reduce costs, improve office space and in
London we have announced our planned move to modern new offices in the City.
abrdn must fully reflect the vibrant societies in which we operate across the
world. We are a recognised leader in diversity and inclusion. This is also
reflected in how colleagues feel about our inclusive culture as well as in our
actions to achieve increasingly diverse representation and in our investment
approach.
We are now a focused team, united under a powerful brand - abrdn. Great brands
start a conversation, abrdn is doing exactly that.
Capital strength and strategic optionality
Our strong capital position provides both resilience in uncertain times and
enables selective investment to accelerate the growth of the group. As at 31
December 2021, our surplus regulatory capital was £1.8bn on an IFPR basis. We
will 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.
The acquisition of a 60% interest in Tritax gives the Investments vector
exposure to the rapidly growing warehouse distribution sector. Tritax is the
specialist logistics real estate fund manager that manages two of Europe's
leading industrial logistics funds.
Data and digitalisation are driving rapid change in our sector. Towards the
end of 2021 we announced our acquisition of the insights platform, Finimize.
Our ambition here is to build the number one information platform for
investors and to utilise this content and digital community-building
capability for our clients.
Information and informed opinion is at the heart of client decision-making and
our intent here is clear; we are part of the data revolution that is driving
industry change and enabling clients to be better investors.
We announced our agreement to purchase interactive investor, the UK's leading
subscription-based investment platform, at the end of 2021. This is fully
aligned with our purpose and client-led diversification strategy and an
important step for abrdn. The acquisition of interactive investor will
significantly increase our growth and revenue opportunities for our Personal
vector and extend our digital capabilities. This is a growth-driven
acquisition. Interactive investor will remain under Richard Wilson's
leadership and the certainty of abrdn's ownership and further investment will
provide stability and underpin growth ambitions. This acquisition goes to
shareholder vote in March 2022 and remains subject to regulatory approval.
Given our focus on digital capability and opportunities through acquisition,
we have streamlined and strategically stepped back from our piloted in-house
open banking application, Choices. Our team is now focused on harnessing the
capabilities our new acquisitions bring to grow our Personal Wealth offering.
We have the right strategy and leadership in place to address the challenges
head on and continue to make the decisions that provide clients with trust,
confidence and compelling value at various stages of their financial journeys.
There is no Planet B
Climate change is the biggest challenge confronting us all. There is no Planet
B. At abrdn we view this in two ways: firstly by demonstrating leadership in
our operations; and secondly by reducing the carbon intensity in our own
portfolios through active ESG stewardship.
In our own operations we are targeting net zero by 2040, with an interim
target of reducing carbon emissions by 50% by 2025 against a 2018 baseline. We
have adopted app-based technology to enable our colleagues to keep track of
their own carbon footprint which is more important than ever in the context of
home working. We are also driving efficiency measures in our estate, focusing
on reducing emissions from our sites with the highest natural gas usage.
The biggest positive climate impact that we can have is, of course, through
the portfolios that we manage on behalf of our clients. We expect that our AUM
supporting client goals in ESG will double in 2022, based on our net zero
commitment, funds conversions and expected new flows from existing clients and
product launches, and in line with the climate commitments we shared in 2021
we anticipate that this will increase further. In 2021 we also launched the
abrdn Sustainability Institute out of Singapore to further our leadership
position in emerging markets. At abrdn we want to be measured by our actions
and not just our words. You can read more about our activities in this
important area on pages 30 to 37.
Our new brand is based around optimism for the future and the power of
investment to unlock a better world for us all including the communities in
which we operate. This ethos is driving our refreshed approach to our
community partnerships. It was incredibly exciting to announce our £1m
partnership with Hello World that will bring digital connectivity to remote
communities.
Focusing on the future
Over the course of 2021 we have spent considerable time with investors, media
and policy makers as we seek to communicate the changes underway at abrdn and
our ambitions for the future. Sentiment is starting to shift in a positive
direction and we are all committed to taking our stakeholders with us on this
exciting journey.
As Douglas has highlighted, the unfolding conflict in Europe is extremely
concerning and our thoughts are with those directly affected. Given the
heightened levels of market uncertainty that now seem likely to exist during
2022, our team is taking the appropriate steps to ensure we remain on track to
deliver our plan.
While events continue to move at speed, our procedures ensure that the
interests of our clients are protected. We will continue to follow
developments very closely and take any necessary steps in the interests of our
clients, shareholders and other stakeholders in the business.
2021 has been a year of great change at abrdn. We have outlined our new
strategy and we are delivering on it. While the economic and political
environment outlooks remain uncertain we are both resiliently positioned and
primed for further growth.
Stephen Bird
Chief Executive Officer
Our strategic priorities
Global opportunities
Enabling our clients to be better investors drives everything we do. By
focusing our resources on our strategic priorities, we are building a
long-term, sustainable global investments business. The clarity of focus
within our three vectors enables us to identify and move forward on
significant opportunities for growth within key markets globally.
Growth in Asia
The economic centre of gravity continues to move towards Asia and, building on
our long and successful experience in the region, we are reinvigorating our
Asia business for faster growth. With our deep knowledge of the Asia Pacific
markets and with sustainable investing long-embedded in our investment
practices, abrdn is well positioned to drive growth across the region. We aim
to be a leading provider of sustainable investment solutions in a region which
is facing both challenges from the impact of climate change but also
significant opportunities for wealth creation through financing the transition
to more sustainable economic infrastructure.
Progress in 2021
- Appointment of René Buehlmann as CEO Asia Pacific in March 2021.
- Launched abrdn Sustainability Institute in Singapore.
- Strengthened the leadership team focused on wholesale markets.
- Wealth Tech Hub launched to export our award winning UK digital
platform technology to the region.
- 14% increase in client domiciled AUM to £19bn.
UK adviser and consumer markets
The world population is ageing. Providing for longer retirements is essential
as people are living longer, healthier lives. The pandemic has also reinforced
the importance of personal financial resilience to provide a buffer against
unexpected events. Individuals need to save more and start earlier whenever
possible. We want to be the easiest firm to do business with across our
Adviser and Personal vectors, helping individuals to invest their savings to
deliver the future they desire in both financial and lifestyle terms.
Progress in 2021
- Appointment of Caroline Connellan as CEO Personal Wealth in October
2021.
- Maintained no.1 position for AUA and gross flows in UK adviser market.
- Achieved record level of discretionary investment management AUM at
£8.9bn.
- Proposed acquisition of interactive investor, the leading UK
subscription-based investing platform, announced in December 2021.
Technology
We have completed the integration of our investment platforms which will
deliver the operational and cost benefits of a simplified technology
infrastructure. We are committed to continuous improvement as agile technology
development, advanced data analytics, machine learning and cloud computing
provide essential capabilities for a modern, cost-efficient, client-driven
investment and wealth company.
Progress in 2021
- Completed migration of over £460bn of AUM onto single global investment
trading platform.
- Launched Adviser Experience Programme, a series of technology-based
improvements to client experience and engagement.
- Extended our strategic partnership with FNZ to provide platform custody
and administration services.
Solutions
We understand that clients increasingly have needs that go beyond just
financial returns. From pension funds needing to match income streams to
liabilities, to insurance companies navigating regulatory capital constraints,
to wealth managers wanting to digitise their client offerings, many
organisations seek our expertise to deliver robust and multi-faceted outcomes.
The abrdn Solutions group seeks to deliver tailored outcomes by drawing on the
full range of capabilities across our business.
Progress in 2021
- New Head of Solutions group appointed.
- Developed a pipeline of Wealth Tech opportunities in APAC centred on
the provision of model portfolios, engaging digital journeys and the
underlying technology.
- Won over £1bn in assets across 13 pensions and insurance mandates.
Ecosystems
Our technology ecosystem consists of strong, trusted partners, operates as a
seamless extension of our own capabilities and is a key source of competitive
advantage and customer trust. In today's well-designed ecosystems, it is no
longer necessary to own all parts of the value chain and our strong
partnerships provide increased capabilities and controls cost effectively.
Building connections within our ecosystems allows us to access new and growing
client segments efficiently.
Progress in 2021
- Acquisition of Finimize, bringing innovation, digital and content
skills.
- Partnered with Citibank to provide funds on their Citi Plus digital
wealth platform in Hong Kong.
- Launched abrdn connect, enabling shorter client response times and
more targeted information.
- Built on relationships with technology providers TCS and Cognizant to
leverage global expertise.
Investing responsibly
In a rapidly changing world on a path to net zero, we believe that the
consideration of ESG factors is essential to more constructive engagement and
better informed investment decisions which help our clients to achieve their
financial objectives. Thinking about the future desired by our customers is a
priority and we are relentlessly curious, seeking to identify those
technologies, companies and sectors that will thrive in the economy,
environment and society of tomorrow. Our investment decision-making
incorporates ESG factors to improve client outcomes and drive positive change.
Our products and solutions integrate sustainability factors to improve
long-term returns and through clear communication of our processes we empower
our clients to make better informed investment decisions to help them navigate
this era of rapid change.
Progress in 2021
- Climate change fund range launched.
- Converted 23 SICAV funds to Article 8 & 9.
- New Head of Sustainability position created, with the appointment
announced in January 2022.
Private markets
Opportunities in private markets are playing an increasingly important part in
making our clients better investors as access to public markets is no longer
required in many important sectors. We focus on the growth themes, such as
real assets, logistics and infrastructure, which are better accessed by our
clients via private market investments and we are strengthening and leveraging
our business in this strategically important area.
Progress in 2021
- Acquisition of majority interest in leading European logistics real
estate investor, Tritax.
- Divestment of non-core assets Hark and Bonaccord generated funds for
reinvestment.
Our business model
How we run our business to deliver value for our stakeholders
Our business model is designed to support the successful delivery of
our growth strategy harnessing the combination of strengths in our business.
We structure our business model to deliver growth in our vectors, efficient
operations, control in our processes, and a positive environment for talent.
Our areas of strength
Global investment capabilities with expertise in a broad range of asset
classes
No.1 adviser platform in the UK powered by leading technology
A broad ecosystem of capabilities in the UK wealth market
Sustainable investment considerations integral to our investment process
Enduring client relationships built on trust and experience
Strong capital resources to invest in growth opportunities to drive
shareholder value
How we operate
Growth vectors
We focus on our three vectors of growth to deliver our strategic ambitions
profitably, simply and efficiently. We earn revenue primarily from fees
charged based on AUMA.
Efficient operations
We are building our operating model for agility, speed and efficiency enabled
by technology which aims to deliver the best possible experience.
Controlled processes
Our control environment helps us manage risk effectively, ensure business
security and maintain operational resilience.
Talent
Our talent model constantly strives for excellence, with diversity and
inclusion at its core. We aim to attract and develop the best people for
leadership roles, and to offer clear pathways for career advancement.
The value we deliver for our stakeholders
Read more
Our strategic priorities and what we have achieved in 2021 are explained on
pages 16 to 17.
Our Investments, Adviser and Personal growth vectors are explained on pages 20
to 28. Information on our listed investments are included on page 29.
How we have engaged with our stakeholders in 2021 is explained on pages 42 to
43.
For clients
- Broad range of solutions designed to meet clients' current and future
needs
- Long-term investment performance
- Sustainable investment considerations integral to our investment
processes
Three-year investment performance 67%
For our people
- Performance-driven culture where we listen to, and act on, our
people's views
- Technology to develop talent and improve collaboration
- A framework to guide our diversity and inclusion priorities
Overall employee engagement score 51%
For society
- Fair and inclusive employment, removing barriers to realising
potential
- A response to the interlinked crises of climate change and
biodiversity loss
- Sustainability/ESG focus running through our operations and our
investments
DJSI World index top 3% for our sector
For shareholders
- Sustainable long-term shareholder value
- Financial resilience in uncertain and challenging market conditions
- Continued investment in our business to further diversify our sources
of revenue
Full year dividend of 14.6p
Our growth vectors
Collaborating across multiple capabilities creates forward-
thinking investment solutions to meet our clients' needs and deliver the
outcomes they expect.
Our investment solutions are generated from wide-ranging research, worldwide
investment expertise and local market knowledge. We offer expertise across
products, regions and markets so that our clients can
capture the investment opportunities that suit their needs.
Our clients include:
- Pension funds
- Governments
- Banks
- Insurers
- Companies
- Charities
- IFAs/DFMs
Institutional
c2,000 clients, with average tenure of 10 years
Wholesale
Broad offering of mutual/pooled funds sold through direct sales and
distribution partnerships
Insurance
Providing insurance clients, largely our strategic partner Phoenix, with
solutions to meet their complex needs
52
Strategies positively rated by consultants
131
Morningstar 4/5 star rated wholesale funds
£176bn
AUM of largest insurance client
1 year performance impacted by headwinds for quality/income funds
(2020: 71%)
1 year
57%
Key 3 year investment performance metric broadly stable
(2020: 66%)
3 years
67%
Broadly stable 5 year performance
(2020: 68%)
5 years
67%
Read more about investment performance on page 52
"2021 was about defining the five core investment strengths of our business.
With a new management structure, we are delivering a more focused organisation
around these core strengths. While the Americas and EMEA delivered encouraging
performances in 2021, we have more work to do in our largest region, the UK,
where we have strong existing franchises. We will drive our client-led growth
by investing in what we do well, extending our offering, and continuing to
rationalise the business by exiting non-core activities."
Chris Demetriou - CEO, UK, EMEA and Americas
"In 2021 we have reset our APAC strategy, building on our already strong
expertise and heritage in the region. We have strengthened our local teams to
ensure we deliver sustainable client outcomes in some of the fastest growing
markets globally. We are uniquely positioned to guide both global and local
investors to navigate these markets."
René Buehlmann - CEO, Asia Pacific
How we enable our clients to be better investors
Institutional
Our institutional clients are typically professional investors who are
responsible for large pools of assets. Many have long-term financial promises
to keep, such as paying pensioners in retirement. They invest their assets in
a way that allows them to keep those future promises and are often advised by
actuaries and investment consultants. We can manage a specific part of their
investment portfolio or provide them with a solution that matches all their
investments against their liabilities.
Wholesale
Our wholesale clients use our investment funds to help their end retail
investors. They can be small advisers helping individuals meet their financial
goals directly, or parts of larger banks or wealth managers who may be
creating their own solutions for their customers. It is critical that we offer
products that are attractive to end retail investors and that our wholesale
clients are confident to use. Our strategic relationships help us to bring our
products closer to wholesale clients across the world.
Insurance
Our insurance clients have unique investment needs. They have to generate
sufficient returns to meet future liabilities while meeting regulatory
requirements to stay financially strong. We help our insurance clients by
providing solutions and a range of strategies and asset classes that help meet
these commitments.
Delivering forward-thinking investment outcomes for institutional and wealth
clients
Under the new vector leadership team appointed at the start of 2021, we have
sharpened our focus on our core areas of strength where we have established
strong credentials and which are closely aligned with the major market trends.
These are:
- Asia and emerging markets.
- Real assets.
- Sustainable investing.
- Solutions and customised outcomes.
- UK wealth.
Accelerating growth in Asia
With René Buehlmann's arrival, our Asia strategy is focused on three broad
themes:
- Accelerating distribution in the region with a strong wholesale focus.
- Strengthening our leading Asian investment expertise, in particular
around sustainability.
- Focusing on improving distribution of global products to regional
clients.
We have a strong global reputation for our Asian asset management capabilities
with £44bn under management in long-standing strategies such as China A
shares and Asia Pacific Equity.
Our focus on developing wholesale activity is yielding results. We have taken
a big step forward through a new partnership with Citibank where our products
are now available on Citibank's digital banking and investment platform in
Hong Kong and will shortly become available in Singapore and the US.
We are one of the first asset managers in Asia Pacific to fully integrate ESG
considerations into investments across all asset classes. In July, we launched
our Sustainability Institute in the region which brings together expertise and
insight from ESG experts across our business in Asia Pacific, including in
regulation, product development, distribution and corporate sustainability.
Market trends
1 Democratising financial services through technology
The transfer of financial responsibility toward the individual, changing which
products are needed and how they are sold, increasingly through the deployment
of technology.
2 Shifting economic power towards Asia and emerging markets
The higher rate of economic growth will continue to attract investment from
the rest of the world. Likewise, the region will experience increasing demand
for global investment capabilities as local investors and institutions expand
their investment horizons.
3 Sustainable investing
Clients increasingly look to align their investments with the social and
environmental issues that matter to them, and to protect their investments
from the risks associated with these issues.
4 Urbanisation and infrastructure development
'Build Back Better' economic recovery and renewable energy policies will drive
investment into sustainable real asset and infrastructure projects globally.
Real assets
Following a strategic review of our capabilities in private markets and
alternatives, we modernised our focus in this high-growth asset class.
We have brought together our real estate and infrastructure capabilities under
a real assets franchise, with £48bn of assets under management. 2021 has seen
the highest level of capital deployment since the merger with £3.2bn of
direct real estate investments completed or confirmed. The acquisition of a
majority interest in Tritax supports our ambitions in the fast-growing
logistics and e-commerce real estate market. Its AUM has grown strongly by 12%
since acquisition to £6.5bn. In a landmark deal announced in January 2022,
Tritax and abrdn are partnering on the £1.7bn Britishvolt project to build
the UK's first Gigaplant for the manufacture of electric vehicle batteries
using sustainable processes.
Within alternatives, our US commodities ETF franchise continues to see strong
growth, with AUM reaching c$7bn in 2021. We are expanding our suite of
products in the US and recently launched a new industrial metals fund aligned
to the global 'electrification' theme.
Sustainable investing
Our primary goal is to generate better long-term outcomes for our clients and
we have a long heritage of managing sustainable funds. We continue to develop
new funds to support clients' ESG goals, including four climate funds across
credit, equities and multi-asset. Following our compliance with level one of
the EU's Sustainable Finance Disclosures Regulation (SFDR), we have been
converting our range of SICAV funds to comply with SFDR Article 8 & 9 as
this meets our clients' demands for ESG investing. In 2021 we converted 23 of
our funds to Article 8 & 9 and plan to convert a further 27 funds in 2022.
We are a member of the Net Zero Asset Managers initiative group supporting the
goal of net zero greenhouse gas emissions by 2050 or sooner, and we have
ambitious targets to reduce the carbon intensity of the assets we invest in.
In support we have developed a climate change strategy focused on Net Zero
Directed Investing to achieve this. We are also working with our largest
client Phoenix on transitioning their investments to net zero by 2050.
Solutions to clients' complex needs
Our solutions business combines investment, technological, operational and
client expertise to deliver bespoke solutions for clients in pensions,
insurance and wealth. We are committed to building a deep understanding of
client-specific regulatory, industry and sustainability challenges. We partner
with clients to deliver tailored solutions, providing the responsive,
proactive partnership needed to ensure their evolving needs are met. Across
pensions and insurance solutions, in 2021 we won over £1bn in assets across
13 mandate wins with end clients ranging from UK defined pension schemes to
mid-sized life insurers.
UK wealth
We are a leading UK domestic asset manager with Institutional and Wholesale
AUM of £120bn and a broad offering of mutual/pooled funds.
We have good insight into the retail market through our connectivity to our
Adviser and Personal vectors and partnerships with Skipton and Virgin Money.
Our MyFolio solutions, with AUM of £17.7bn, offer advisers and clients
packaged, cost-effective, risk-targeted solutions to help meet long-term
investment needs.
Through the wholesale channel, we have over 100 highly rated funds across five
themes:
- Asia, Emerging Markets and China.
- Small & Mid cap.
- Sustainability.
- Europe & UK.
- Outcome oriented.
Driving efficiency by optimising our investment platform
The integration of our global investment platform is now complete, with the
successful migration of over 1,300 portfolios representing over £460bn of AUM
onto a single global investment platform. The integration included migrating
middle office, performance and client reporting services to a single supplier
and consolidating our business applications. These actions will bring
substantial benefits for our investment teams and their clients, as well as
optimising our cost base.
Our strategic focus for 2022
By investing in our core strengths, and building on what we do well, as well
as streamlining our client offering and cost base, we will be able to sharpen
our focus on driving growth.
Our business depends on market levels and we have plans in place to be able to
address counter-cyclical trends and efficiencies if market levels reduce
significantly.
In 2022 we will:
- Continue to deliver our growth strategy for Asia.
- Further strengthen our real asset franchise by broadening, building
out and evolving our capabilities.
- Build on our strong global sustainable investment capabilities by
expanding our fund offering and innovating in the thematics space.
- Build on our established expertise in providing innovative solutions
to clients' complex needs, including pensions and insurance, in particular
supporting Phoenix to enhance its open book proposition.
- Reposition our product offering and capability mix to better align
with the wholesale market demands.
- Seek to invest in areas of the market with attractive growth
characteristics and modern asset classes.
- Continue to simplify the business through product rationalisation and
exiting non-core activities.
Broad and growing range of investment capabilities
We offer investment expertise across all key asset classes, regions and
markets so that our clients can capture investment potential wherever it
arises.
Assets under management by asset class
Liquidity: £45bn
Quantitative: £56bn
Alternatives: £21bn
Real assets: £48bn
Private equity: £14bn
Equities: £122bn
Fixed income: £113bn
Multi-asset: £45bn
Our broad global reach and expertise
With 800 investment professionals in over 30 locations worldwide, we provide
clients with local expertise combined with the power of a global perspective.
Americas AUM
£51bn
Revenue growth
12%
UK AUM
£331bn
Revenue growth
3%
EMEA AUM
£63bn
Revenue reduction
(4%)
APAC AUM
£19bn
Revenue growth
13%
AUM in the diagram above is based on client domicile and revenue is allocated
based on where the revenue is earned. Revenue for our overseas businesses were
impacted by adverse foreign exchange movements. See Note 2(c) of the Group
financial statements for a breakdown of revenue by geographical location.
Diagram removed for the purposes of this announcement. However it can be
viewed in full in the pdf document.
Introducing Finimize
In October 2021, we announced our acquisition of investing insights platform
Finimize. Finimize empowers retail investors by equipping them with
information to make their own informed investment decisions. The acquisition
of Finimize is aligned with abrdn's strategy to invest in technology to
accelerate the pace and focus on innovation to meet changing investor needs.
Finimize has over 1 million subscribers to its daily newsletter and the
business has built a global community of modern investors, passionate about
making investing accessible. In 2021 more than 70,000 people signed up for
Finimize's member-organised events. By the end of the year over 45,000 were
paying for the premium subscription. The Finimize app was listed as a top 10
finance app by the Apple App Store.
Finimize now benefits from access to abrdn's global network of partners, our
established research team and our operational infrastructure. The team at
Finimize will collaborate with abrdn's Research Institute and investment teams
to provide an enhanced experience for Finimize users and new editorial content
for abrdn clients. Finimize will bring new talent into the business, as abrdn
is able to utilise Finimize's unique content delivery technology, editorial
and content skills. Insights into its highly engaged retail investor community
will support abrdn's product and service development. In this way, Finimize
represents both enhanced capabilities for abrdn, as well as a potential high
growth business in its own right.
Finimize continues to operate as an independent brand and Finimize CEO, Max
Rofagha, sits on abrdn's leadership team. Finimize offers:
- A free daily newsletter.
- A more in-depth subscription service, at a flat fee.
- The opportunity to connect and interact with fellow investors through
online chat forums and in-person events.
"There is a huge demand for accessible high-quality investing information for
retail investors. To meet this need, we need to be bite-size, mobile and
social to fit modern investors' busy lives. We envisage Finimize will become
the most convenient way for people to discover, research and discuss investing
and we're excited to be doing this with the backing of a major financial
institution that shares our vision."
Max Rofagha
CEO of Finimize
Adviser
Through a relentless focus on the quality of our content and experience, we
aim to be the easiest business for advisers to partner with, for every firm
and for every type of client. We are the leading platform for advisers in the
UK, continuously improving solutions to create an effortless experience that
empowers them to work efficiently and at scale.
Our clients
- Regional and national financial advisers
- Discretionary fund managers
A primary partner for advisers
3 percentage-point increase in the number of adviser firms using us as their
primary partner
Adviser Experience Programme
Brings a series of new features, advice solutions and technology developments
No. 1
for AUA and gross flows
50%
of UK advice businesses use our platforms
96%
client retention for our primary partners
426,000
customers served by IFA firms who are on our platforms
(2020: 419,000)
"Advisers build their business on the goals of their clients. Our business is
built on their ambition. Our vision for the partnerships we develop with
advisers is about helping them to become the business they want to be and to
deliver more to the clients they want to serve. This vision is based on three
things: doing business their way, making things easy and putting our strength
to work for them."
Noel Butwell
CEO Adviser
How we enable our clients to be better investors
We provide support, expertise and technology for UK wealth managers and
financial advisers to create value for their businesses and their clients. We
offer a combination of tools and features personalised to their needs,
including access to the full range of investment solutions that abrdn offers.
We partner with over 2,600 UK adviser firms and 11,000 individual advisers
with 426,000 customers in total. We deliver the outcomes their clients need
by:
Doing business their way
By building technology and investment solutions around advisers' and their
clients' needs, we deliver a personalised service to suit every type of
business and client.
Making things easy
We offer fast, self-serve solutions, along with live support that enables
advisers to simplify the way they operate, giving them more time to focus on
their clients.
Putting our strength to work for advisers
We enable advisers to look after their clients' data securely, while providing
insight to make better decisions in areas ranging from regulation to taxation.
Progress in 2021
In March 2021 we launched our Adviser Experience Programme, a series of
improved technology solutions for advisers to offer an increasingly
personalised and efficient service to clients. We have already implemented a
number of developments in the first phase of the programme, including
enhancing our capabilities to become a true engagement hub for clients,
combining service excellence with world-class technology:
- Through our new client service technology platforms, Amazon Connect and
Salesforce Service Cloud, advisers connect to our experts faster and our team
delivers an even more responsive service.
- We are one of the only UK platform businesses to have a fully integrated
online e-signature solution. Advisers capture their clients' signatures
electronically on documents, quickly and securely, which are then sent to the
client document library on the platform automatically.
- With COVID-19 restrictions forcing people to become more digital,
cybercriminals are increasingly targeting vulnerabilities in email
communication. We reacted quickly by implementing Unipass Mailock encryption
technology, enabling advisers to communicate sensitive information securely
and efficiently.
We have simplified our relationship with Phoenix, announcing in early 2021
that we will acquire the Wrap SIPP and Onshore Bond tax wrappers. Alongside
further technical separation activity in 2021, this simplification has driven
substantial benefits to profit in the year.
We also announced further extensions to our strategic partnership with FNZ. In
addition to our new long-term arrangement for platform custody services,
around 300 of our back office administration colleagues will transfer to FNZ.
Around 100 colleagues transferred in 2021. As we strengthen our investment
knowledge and insight, we are backed up by access to the broader scale,
capabilities and technology expertise that FNZ offers.
Industry measurement can make an important difference when advisers choose who
to partner with. We are 'platinum' rated by AdviserAsset, 'gold' rated by
Defaqto and the only platform business 'A' rated by AKG for financial
strength, which is one of the top reasons for advisers selecting their primary
platform.
When advisers use our solutions as their primary platform we see substantial
increases in new business. Our research tells us that more than 70% of all new
business from a firm goes on the primary platform, as our processes and
capabilities become more embedded in their business. As a result, client
retention also improves.
Market trends
1 Advice business consolidation
Over the next 5-10 years the number of advice firms could reduce by up to 50%.
2 Democratisation of wealth
Around 70% of people choose to change their financial adviser when they
inherit money.
3 Advisers and platforms remain key
84% of individual assets expected to be advised by 2023.
Complexity of needs drives demand for advice.
4 Platform M&A activity is forecast to continue
20+ adviser platforms in the UK, with the top 10 accounting for c75% of the
inflows received by all of these platforms.
Our strategic focus for 2022
- We will deliver the next phase of our Adviser Experience Programme, with
a range of enhancements to make our operating system more flexible and faster
to use, including improved client reporting and better design.
- We will develop enhanced and more efficient digital journeys for income
drawdown, as well as new tax wrappers for our Junior ISA and Junior SIPP
products.
- We will transfer the Wrap SIPP product from Phoenix into abrdn.
Personal
Connecting capabilities from across abrdn, we aim to deliver a seamless
experience to provide trust, confidence and compelling value for our clients.
Through our existing financial planning and discretionary offerings, we help
clients with larger, more complex financial needs. With the proposed
acquisition of interactive investor, this broadens our range of services to
support clients at all stages of their financial journey.
Our clients
- Individual clients
- Charities and trustees
- Intermediaries
Building scale
The proposed acquisition of interactive investor builds scale, accelerates
growth and enables us to access new customer segments
Award-winning offering
Winner of the Sustainable Investment Solution category at the PAM Awards 2021,
the most prestigious awards in the UK wealth management sector
94%
of discretionary AUM outperformed benchmark over three years(1)
95%
client retention for our financial planning clients
£350m
of flows from our financial planning business to abrdn Wrap
28,000
clients(2)
(2020: 24,500)
1. Relates to AUM for discretionary investment management business aligned
to strategies which outperformed the benchmark over three years.
2. Client numbers may include some double count between discretionary
investment management and financial planning businesses.
"We have real strength in our higher-touch offerings, particularly our
financial planning and discretionary investment management businesses. We know
many clients are also seeking to invest directly and the proposed acquisition
of interactive investor offers our clients the flexibility to manage their own
investments. We want our clients to have the best possible experience, while
showing them the full value that abrdn can offer throughout their life."
Caroline Connellan
CEO Personal Wealth
How we enable our clients to be better investors
For individuals in the UK, we offer products and services that can be tailored
to match different needs, budgets and complexities, along with easily
digestible advice and support. Bringing our capabilities together seamlessly
under the abrdn brand we integrate the full range of services, from
high-quality financial planning and discretionary investment management
through to digitally-enabled direct investing.
Financial planning
Our financial planning offering ranges from retirement advice and support with
investing, to wealth management for private clients. Our experts provide
tailored financial plans to make the right savings and investment choices.
We offer tax, trust and estate planning to help clients protect and manage
their wealth. Through our specialist advice services, clients benefit from
ongoing support from a dedicated adviser.
Discretionary
To make investing as straightforward as possible for clients, we align
solutions to their time horizon and attitude to risk. Clients can choose from
model portfolio solutions, or work with a dedicated client portfolio manager.
Digital capabilities to enhance our offering
Our Stocks & Shares Individual Savings Account (ISA) provides a simple and
tax-efficient way to invest, with a range of investment options. It takes
minutes to set up and can be managed online at any time. Our hybrid retirement
advice solution helps customers manage their retirement income in a way that
works for them.
Through our easy range of MyFolio Index funds, our investment experts work to
achieve the best returns for the level of risk clients choose. For clients
more comfortable choosing their own investments, we offer an open-architecture
range covering different asset classes, regions and investment styles. By
connecting capabilities across our business, individuals also have access to
the technology solutions operated by our Adviser vector.
Progress in 2021
The proposed acquisition of interactive investor is another important step in
driving our strategy in the UK. Its high-tech approach sits alongside the
personalised financial advice we offer, bringing access to new customer
segments and capabilities in the high-growth direct investing market. It also
drives strong customer engagement through data analytics, customer
personalisation and easy-to-use technology, giving clients the flexibility to
manage their own investments.
Our combined offering will aim to provide trust, confidence and compelling
value for clients at all stages of their financial journeys. We will run
interactive investor as a discrete business, with its own management team and
operational platform, to ensure continued high-quality service for both
existing and future customers.
Market trends
1 Changing client behaviours and needs
Accumulation vs decumulation.
Confidence to make own decisions vs need for expert advice.
2 Democratisation of wealth
Increased personal responsibility for financial futures.
3 Digitalisation
Increased adoption of digital channels by retail investors.
Better technology and services improving accessibility.
Around half of all investments are managed by advisers, with digital acting as
a complementary service and an enabler for strong face-to-face relationships.
4 Value for money
Increased price sensitivity among retail investors.
Newer pricing models gaining share in direct investing.
5 Wealth transfers
Shifts of capital from DB to DC retirement schemes.
Intergenerational wealth transfers.
Our strategic focus for 2022
We are targeting growth in the UK wealth market, seeking to help individuals
create financially secure futures in a way that works for them:
- Leveraging our strengths including our heritage, unified brand and
investment expertise
- Building momentum in financial planning and discretionary offerings,
and growing the reach of digital solutions such as our hybrid retirement
advice solution
- Developing cohesive client journeys and experiences, embracing digital
as an enabler for this.
We expect to complete our acquisition of interactive investor in the second
quarter of 2022 (subject to regulatory approvals), bringing the opportunity to
enable clients to self-select their preferred journey and then engage with us
on more complex financial decisions.
Corporate investments
Valuable financial investments
We also have significant and valuable financial investments in leading
companies in the UK, India and China. As well as representing substantial
potential capital to support future growth and giving insight into important
markets, these investments are a source of dividends and further strengthen
our balance sheet.
Phoenix
Holding(1)
10.4%
Listing value of holding(1)
£0.6bn
- We are asset manager of choice for Phoenix with a 10 year contract from
2021 (£176bn of AUM as at 31 Dec 2021).
- Potential for new asset management mandates from Phoenix growth profile.
- Sold 4% for net proceeds of £0.3bn in January 2022.
HDFC Asset Management
Holding(1)
16.2%
Listing value of holding(1)
£0.7bn
- A leading asset manager in India, one of the world's fastest growing
markets.
- Sold 5% for net proceeds of £0.3bn in 2021.
- Intention to monetise holding over time.
HDFC Life
Holding(1)
3.7%
Listing value of holding(1)
£0.4bn
- Consistently ranked in top two private life insurers in India.
- Sold 4.99% for net proceeds of £0.7bn in 2021.
- Intention to monetise holding over time.
HASL
Holding(1)
50%
Unlisted
- Long-term strategic opportunity through exposure to the pensions market
in China which is expected to grow significantly.
- Potential collaboration opportunity to use our investment expertise
with HASL.
1. As at 25 February 2022.
Realising the value of our listed investments
Over the last three years we have generated total cash proceeds of £3.5bn
through disposals of non-core listed investments which we have used to invest
in our business to support future growth and to deliver returns to
shareholders.
Sustainability overview - our approach
Creating sustainable impact across our operations and investments
We want to create impact, building a future that is more sustainable, just,
inclusive, and diverse.
In 2021 we continued to focus our resource and activity on the ESG areas where
we add the most value and make positive change. These are:
- Tackling the interlinked climate and biodiversity crises.
- Championing a fair and inclusive society.
- Integrity and transparency in how we, and our investee companies,
operate.
The biggest impact we have is through our investments. Working with our
clients, we expect that our AUM which supports client goals in ESG will double
in 2022 (based on net zero commitment, funds conversions and expected new
flows from existing clients and product launches). In line with the climate
commitments we shared in 2021, we anticipate that this will increase further
as we enable our clients to achieve their objectives in this space.
Our people are passionate about driving ESG activity and engaged in developing
the tools and driving the activity needed to achieve our ambitions. We also
recognise that we need collective solutions and work with peers, clients,
policymakers and charities to develop approaches and call for a drive towards
more consistent global reporting.
Environment
Tackling the interlinked climate and biodiversity crises
Our focus
- Reducing the carbon intensity of our portfolios.
- Improving biodiversity in our local greenspaces and investment real
estate.
Our targets
- Reduction of the carbon intensity of the assets we invest in by 50% by
2030 from the 2019 baseline.
- Net zero in our operations by 2040, with an interim target to reduce our
emissions by 50% by 2025 from the 2018 baseline.
- We are working with our top 50% of suppliers by spend, requesting they
put net zero targets in place by 2025.
Our progress
- Reduced our operational emissions by 62% since 2018. This includes
material reductions, influenced by the pandemic, to business travel and energy
use in our offices, which helped us to exceed our 50% reduction target by
2025. We expect emission from these sources to increase again in 2022 as
travel restrictions ease.
Definitions of key climate related terms including net zero and carbon
intensity are included in the Glossary.
Our TCFD summary report is on pages 32 to 37 and our full TCFD report is
available at www.abrdn.com/annualreport
Key milestones
2018
Operational emissions baseline
2019
Investment assets emissions baseline
2025
Operational emissions reduced by 50%
Top 50% of suppliers have set net zero targets
40% men, 40% women and 20% any gender in Board and senior leadership
One additional Board member who identifies as ethnic minority
2030
Carbon intensity of the assets we invest in reduced by 50%(1)
2040
Net zero in our operations
1. Compared to 2019 baseline
Social
Championing a fair and inclusive society
Our focus
- Championing, supporting and driving inclusion.
- Commitment to, and raising awareness of, a fair wage and stable
working hours.
Our targets
- Board and senior leadership targets of 40% women, 40% men and 20% any
gender by 2025.
- One additional board member who identifies as ethnic minority by 2025.
Our progress
- Board comprised of 45% women, 55% men at 31 December 2021.
- Senior leadership comprised of 36% women, 64% men.
- Top 75 UK Social Mobility Employer 2021.
- Winner of the European Thought Leadership of the Year Award - A Woman's
Place: equality in the 21st Century.
- Diversity and inclusion is a standing governance agenda item and we use
our clients' votes (as an escalation measure) to push for greater diversity by
taking action on resolutions, aligned to our established regional
expectations.
- New charity partnerships established with Hello World and the
Sarabande Foundation.
You can find out more about our people strategy, including more detail on our
targets, on pages 38 to 39.
You can find out more about our society and community impact, on pages 40 to
41.
Governance
Building trust and enhanced transparency
Our focus
- Integrity and transparency in how we, and our investee companies,
operate
Our progress
- Top 3% in our sector for DJSI World and Europe.
- AA score from MSCI.
- 'Low risk' rating by Sustainalytics.
- A+ for strategy and governance by PRI.
- We voted on resolutions relevant to our clients' shares at 7,304
shareholder meetings, and voted on 75,398 resolutions.
- £447m total tax contribution.
- 98% of colleagues completed global code of conduct.
Read about our stakeholder engagement and Section 172 statement on pages 42 to
43.
Our non-financial information statement is presented on page 44.
Sustainability - Environment
TCFD report overview
We are committed to tackling climate change in two ways, firstly by
demonstrating leadership in our operations and secondly by reducing the carbon
intensity in our own portfolios with a focus on real world decarbonisation
towards net zero.
In our own operations we have set a target to be net zero by 2040 with an
interim target of reducing carbon emissions by 50% by 2025. We have adopted
app-based technology to enable our colleagues to keep track of their own
carbon footprint, which is more important than ever in the context of home
working.
The biggest positive climate impact that we can have is through the portfolios
that we manage on behalf of our clients. As members of the Net Zero Asset
Managers (NZAM) initiative, we are committed to partnering with clients to
help them achieve their climate goals and, together, play our part in tackling
climate change.
In 2021, we set an ambitious target to reduce the carbon intensity of the
assets we invest in by 50% by 2030. We will achieve our target through three
pillars of action - asset decarbonisation, providing net zero investment
solutions, and active ownership.
Our climate strategy is focused on Net Zero Directed Investing (NZDI). This
means moving towards the goal of net zero in the real world - not just in
portfolios. We are active investors and believe that sustainable change will
be driven by transition leaders and innovative climate solutions, alongside
bolder collective action by government and effective incentives in the form of
appropriate carbon pricing.
Aligning our operations and investments to a net zero future, and being
transparent on our progress, is essential for long-term performance. We are
fully supportive of the recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD) - both as an investor and as a discloser - and
welcome the updated 2021 recommendations particularly the increased focus on
transition plans. We have made disclosures we believe are consistent with the
TCFD Recommended Disclosures and these are summarised within the following
section. We have set out our full disclosure in our separate TCFD report and
have adopted this approach to ensure we publish a sufficient level of detail
for investors. We will continue to evolve and enhance our TCFD reporting, in
line with data and industry developments. For example, in our next report we
aim to incorporate further information on portfolio alignment and follow the
PCAF guidelines on calculating financed emissions. Our full 2021 TCFD report
is available at www.abrdn.com/annualreport (http://www.abrdn.com/annualreport)
See the Glossary for definitions of key climate related terms.
We are committed to being a positive catalyst for net zero and enabling our
clients to achieve their climate goals with a focus on real world impacts.
Stephen Bird
Chief Executive Officer
Some of our 2021 highlights
70% of our Equity funds have a carbon intensity below their benchmarks
We joined the Net Zero Asset Managers initiative
We committed to reduce the carbon intensity of the assets we invest in by 50%
by 2030 vs a 2019 baseline
We targeted net zero in our operations by 2040, with an interim target to
reduce our emissions by 50% by 2025 vs a 2018 baseline
We are currently engaging with our highest financed emitters across equity and
credit holdings to seek transparency on their decarbonisation plans and track
progress assessed against relevant standards such as the Climate Action 100+
(CA100+) net zero benchmark. The change we need will come from backing
credible transition firms on their path from high to low carbon intensity.
However, if company progress against milestones is insufficient despite active
engagement then we will look to divest.
Governance
We have an established governance and risk framework enabling us to identify
and review climate related risks and opportunities, with clear
accountabilities. Our governance structure and diagrams showing how
accountability is delegated to various individuals and groups is outlined in
our full TCFD report.
The Board's role in oversight
The Board and Board committees oversee a number of climate related issues and
reports to provide challenge and ensure we are ambitious in our plans. Our
Chief Executive Officer has overall responsibility of how we ensure that
climate related issues are integrated into our strategy.
During 2021 Board agenda items on climate included setting and approving our
operational net zero targets, and our strategy and targets to reduce the
carbon intensity of our investments.
Management's role in assessment
Our two Climate Change Working Groups - covering our operations and
investments consist of senior management members across asset classes and
business teams. They are key to escalating to the Board material risks and
opportunities and ensuring that the implications of these are considered
within abrdn's strategy and risk management policies and that the budgets and
business plans are in place to achieve this. These groups feed into our
executive leadership team and from there to our Board. Our Head of Climate
Change Strategy also updates the Board directly on climate related matters.
Strategy
Climate related risks and opportunities
We identify and manage our most material transition and physical risks and
opportunities through our climate risk assessment. One of the most material
transition risks for abrdn relates to the enhanced reporting regulations and
the cost of analysing and gathering climate related data across all our asset
classes which is complex and resource intensive. Climate related market
impacts on asset values is another important risk which we carefully analyse
through our climate scenario analysis. Thirdly, there is a risk related to
changes in client preferences and demand for climate related products and
reduced revenue if we are not prepared for this shift - this also provides the
greatest opportunity for us and is a key driver for the development of our net
zero directed solutions. Our material risks and opportunities are linked to
our growth strategy, such as the opportunity for increased revenue through
increased demand for lower emissions products and services.
You can see our key climate risks and opportunities and mitigation strategies
in our full TCFD report.
Impact of climate related risks and opportunities
We assess the likelihood of climate risks and opportunities as well as their
financial impacts on a scale of 1 to 4. All material risks have a 61-100%
chance of occurrence in next 12 months (i.e. are a 1 in 1 year event). Then we
consider the impact on our business after any mitigating actions to manage
climate risks are taken. We also quantify the impact of different climate
scenarios and related risks and opportunities on the assets we invest in. The
financial impact of the energy transition is most material for certain sectors
and dispersion of impacts on assets within sectors can be considerable. This
is critical insight for identifying risks and opportunities.
Resilience of our strategy against climate scenarios
We conducted our unique, industry leading climate related scenario analysis
exercise in 2020 and updated this in 2021 to assess the financial impact of
climate change on asset values. This deepened our understanding of the
potential implications of climate related transition and physical risks and
opportunities for investments and the resilience of our portfolios and
investment strategies.
We use scenario analysis to understand how resilient our portfolios are to
different, uncertain future pathways and how this compares to the benchmark.
Around three quarters of our Equity funds outcompete the benchmark in our mean
scenario, but the outcome differs by fund. Our Multi-Asset Climate Solutions
fund, for example, comprises of companies that derive over 40% of their
revenues from climate solutions. For this fund we saw that for most scenarios
and in our scenario mean, the valuation implication was strongly positive.
Our approach in our investments - Net Zero Directed Investing
We are members of the Net Zero Asset Managers initiative and we have developed
a climate change strategy focused on NZDI. That means moving towards the goal
of net zero in the real world. We seek to achieve this goal through a holistic
set of actions, including rigorous research into net zero trajectories,
developing NZDI solutions and active ownership to influence corporates and
policy makers.
Net Zero Directed Investing - Our six areas of focus
1 Investment integration
We develop tools and processes to integrate climate change into every
investment decision.
2 Research and data
We undertake rigorous, forward-looking research related to climate change
impacts, including net zero 2050.
3 Investment solutions
We develop climate solutions across all asset classes to enable our clients to
achieve their goals, including net zero 2050.
4 Transparency
We are committed to providing transparency via regular TCFD reporting and
enhanced ESG client reports.
5 Active ownership
We actively engage with corporates on their climate goals and actions and
reflect our views in voting decisions.
6 Collaboration and advocacy
We collaborate with industry initiatives to drive best practice related to net
zero and advocate for ambitious climate policy.
Climate Scenario Analysis - taking a forward looking view
The transition and physical risks of climate change are wide reaching and
impact every country, sector and company. Through climate scenario analysis,
we have developed a robust, forward-looking, quantitative assessment of the
possible implications of these risks and opportunities on our investments. We
have developed a bespoke approach to climate scenario analysis, that
integrates and quantifies the macro and micro drivers of climate impacts on
asset prices within a probabilistic framework.
Our latest analysis includes 17 scenarios in total with projected 2100
temperature rises ranging from 1.4 to 3.1˚C. Our approach brings together
eight industry standard off-the-shelf scenarios built by the Network for the
Greening of the Financial System (NGFS) alongside seven more nuanced and
plausible bespoke scenarios. We also include two probability-weighted
scenarios, one of which captures the mean across the full range and another
that captures the mean across only the Paris-aligned scenarios.
Our mean scenario now sees greater emissions reductions than in our 2020
exercise. And though we do not yet think that the outlook for global climate
policies and technology pathways is consistent with the objectives of the
Paris Agreement, we have increased the probability attached to stronger action
and Paris-aligned scenarios.
Our 2021 exercise affirms one of our key findings from 2020 that climate risk
and opportunity is mostly a micro, or security-level phenomenon. That is
because there is much greater dispersion across securities within a sector or
region, than there is across the sectors or aggregate regional indices
themselves. Many companies have seen increased impacts in our Year 2 analysis
with securities in the energy, utilities and auto sectors showing the greatest
changes.
Read more about our climate scenario analysis in the full TCFD report at
www.abrdn.com/annualreport (http://www.abrdn.com/annualreport) .
Climate change is impacting how investors allocate capital
We are developing frameworks and solution for clients with net zero ambitions.
For example, Phoenix Group, our largest client, has set a net zero 2050 goal
and we are developing solutions across different asset classes to help them
achieve these goals, including an Equities Active Climate Transition (ACT)
fund. In 2021, we launched four climate focused funds across Equities, Credit
and Multi-asset to enable our clients to achieve their climate goals and are
committed to supporting client goals in this space To support the transition
to net zero and climate resilience, we invest in assets across the following
pillars:
Journey to net zero
Driving the carbon transition Building climate resilience Accelerating change
Focusing on 'Leaders' 'Adapting' to physical effects Identifying 'solution' opportunities
Investing in companies that are either driving operational change or those Helping society to adapt to the physical effects of climate change by Investing capital in companies that are innovating to accelerate change and
transitioning and can demonstrate ambitious and credible plans investing in climate resilience projects adopting green solutions
Investing in nature-based solutions
On behalf of one of our abrdn strategies, our Natural Capital team has
acquired a substantial nature-based project situated in the Cairngorms
National Park. The land acquired extends to an area of over 1,400 ha and
represents one of the largest reforestation and peatland restoration projects
in the UK.
- The aim is to restore over 900 ha of woodland, planting over 1.5 million
trees and to restore over 150 ha of degraded peatland.
- It is estimated the project will deliver up to 195,000 tonnes of
claimable carbon to 2060 at a cost of £22 per tonne on a discounted cash flow
basis. The fund will have valuable flexibility to hold the asset beyond 2060,
with further carbon offsetting benefit if required.
- Biodiversity net gain will be monitored and independently reported to
investors over time. This will be done using a leading science-based approach,
carried out by a team of ecologists.
- Focusing on native broadleaf and Scots pine, the woodland creation
element of the project will improve amenity, enhance biodiversity, mitigate
flooding and improve air quality, while restoring the drained peatlands. This
wider environmental net gain will also be measured.
- Local contractors and forestry consultants will be employed to deliver
the project. Benefits for the local community will be promoted where possible,
such as bird-watching huts and the restoration of bothies for hillwalkers.
- On areas of open land and unplanted land, nature will be left where
possible to recover in a natural way with minimal intervention management
practices to promote further biodiversity net gain benefit.
Far Ralia Estate represents one of the largest native woodland and peatland
restoration projects in the UK. We are committed to providing innovative
solutions on the pathway to net zero and helping to address biodiversity
decline. It is crucial to note that investing in nature-based solutions plays
an important role in achieving net zero but this has to be alongside emission
reduction targets.
Our approach in our operations
In 2021 we set an ambitious interim target to achieve a 50% reduction in
operational emissions by 2025, against our 2018 baseline and to be net zero by
2040. We have outlined a strategy to reduce our Scope 1 emissions by 50% by
2025. We will achieve this by efficiency measures in our estate (focusing on
sites with the highest natural gas use), changes to our fleet, and
improvements in refrigerant gas usage. Our strategy to reduce our Scope 2
emissions by 60% by 2025 is through efficiency measures in our estate
(focusing on sites with the highest use of energy).
For Scope 3 emissions reductions we are focused on reducing our business
travel by 72% by 2025 and influencing a reduction in emissions associated with
colleagues working from home. We first reduce as much as we can and then we
offset 110% of our residual emissions with accredited projects. This includes
our working from home emissions. We are further looking at our supply chain
and will expect our top tier suppliers to have net zero targets in place
for 2025.
Risk management
Process for identifying, managing and integrating climate risks and opportunities
For over ten years we have identified operational climate- related risks
through our climate risk and opportunity radar. In the last three years we
have added investment risks to this as well. In 2018 we aligned our radar to
the TCFD recommendations. The radar is based on our risk and control
self-assessment process which assesses the inherent risk (that is the risk
before the consideration of controls) against:
- Likelihood - the % chance of an occurrence in the next 12 months.
- Impacts - financial, customer, regulatory, reputational and process.
The inherent risk is then scored after the consideration of the effectiveness
of controls (both in terms of design and performance) currently in place. We
have a climate risk oversight group that evaluates material climate risks
within our radar of climate related risks and opportunities. Where we identify
material risks to the business within the radar we escalate this through our
governance structure. The management process determines whether we mitigate,
transfer, accept or control risks.
Our approach in our investments
Climate change risks and opportunities are managed by incorporating them into
our investment process via tools and corporate engagements.
Research is the foundation of our approach to understanding climate change
impacts. Our climate related research and scenario analysis provides insights
on regulatory and industry trends across regions. It also helps us understand
the physical and transition risks and opportunities, enabling us to take
informed decisions about how and where to invest. Climate related research is
carried out by our Research Institute and ESG Investment Team as well as
investment desks across all asset classes. The ESG Research Forum meets
monthly to discuss research priorities and review content.
We have developed a range of tools to help integrate climate change into our
decision-making including carbon footprinting, transition assessment and an
ESG House Score. These tools enable teams right across the business to access
and analyse the climate change-related data at asset, sector, region and
portfolio level.
Active ownership
We engage with companies about aligning their strategies with the Paris
Agreement and setting appropriate greenhouse gas (GHG) emissions targets. Our
net zero engagement strategy is focused on the largest financed emitters and
their commitment to decarbonisation towards net zero with credible actions
supporting this. We use the Climate Action 100+ net zero benchmark as a useful
guide for measuring progress as well as our own climate scenario analysis
results. We do this independently and collaborate with other investors as an
active member of Climate Action 100+ (CA100+), Microfiber pollution and Farm
Animal Investment Risk and Return (FAIRR). Independently we carried out
engagement across the auto sector engaging with different companies across
geographies to discuss preparedness for the low carbon transition.
We believe that voting at company meetings is an important part of our role as
active owners when investing on behalf of our clients. We have a strong record
of using our proxy voting to influence investee companies towards the
transition to a low-carbon world. In 2021, we voted on a total of 99 climate
resolutions (2020: 60) and in favour of the majority of resolutions related to
climate change (55%). We also implemented a policy to vote against the annual
reports of transition laggards with a Transition Pathway Initiative (TPI)
Management Quality Score of 0 or 1.
Collaboration and influence
We work with industry associations, regulators and policymakers globally to
drive change, including through improving standards, driving best practice,
influencing regulation and developing capital allocation strategies. We share
our time, expertise and research to do this. For example, we actively
participated in the Institutional Investors Group on Climate Change (IIGCC)
working groups and the PRA Climate Financial Risk Forum. We also signed the
2021 Global Investor Statement to Governments on the climate crisis to
highlight the need for more stringent climate policies.
Metrics and targets
In our operations
In our operations we use a number of metrics to assess our strategy. We report
Scope 1, Scope 2, and Scope 3 GHG emissions, where possible. We obtain
third-party verification for our Scope 1 and 2 emissions, as well as for some
Scope 3 categories - business travel, transmission and distribution, and
working from home (we detail our methodology in our KPI document at
www.abrdn.com/annualreport).
We have reduced our total greenhouse gas emissions by 62% compared to our 2018
baseline. Our emissions per full-time equivalent (FTE) employee have fallen by
55% from 1.57 to 0.70 tonnes of CO2e per FTE (Scopes 1 and 2). We have also
reduced our energy use globally by 58% from 35,109 MWh to 14,910 MWh, and in
the UK by 53%, from 26,658 MWh to 12,410 MWh.
Our emissions reductions are primarily due to a pandemic related reduction in
business travel as well as a reduction in electricity and gas emissions due to
our office consolidation process and focus on efficiency.
We have targeted net zero in our operations by 2040, with an interim target to
achieve a 50% reduction in our operational emissions by 2025.
Our targets directly relate to our identified climate-risks and opportunities
as we aim to exceed stakeholder expectations on reporting, transparency, and
action. We are also targeting opportunities, such as reduced operational
costs, through increased energy efficiency measures and long-term travel
reduction strategies, which represent the most material aspects of our global
operational footprint.
In our investments
We provide a carbon footprint for our portfolios across different asset
classes including equities, fixed income, quantitative investments, real
estate and sovereign bonds. We use the Weighted Average Carbon Intensity
(WACI) as a core metric to show a portfolio's exposure to carbon-intensive
companies.
To complement the backward looking carbon emission analysis, it is important
to take a forward looking view when constructing our portfolios and assess
where we believe company or asset carbon emissions will be in the future- and
whether this matches the desired decarbonisation trajectory.
We consider a range of climate change metrics in our investment processes
including greenhouse gas emissions and forward looking emission trajectories.
In 2021, we set a target to reduce the carbon intensity of the assets we
invest in by 50% by 2030 vs a 2019 baseline to support our net zero ambitions.
We set out what this means and how we will achieve it in our full TCFD report.
Sustainability - Social
Our people
We create opportunities for our people to thrive, giving them the environment,
tools and support to feed their curiosity, achieve their ambitions and take
ownership of their ideas.
New ways of working
Like many other businesses in 2021, we embraced 'blended working' as the
default way in which our colleagues will now work globally. This combines the
benefits of face-to-face collaboration, coaching and connecting in our offices
with the flexibility of working from home. This improves productivity,
innovation and engagement among our colleagues.
We have listened to feedback from colleagues and developed a programme of
improvements. We have stronger wi-fi and other technologies that make it
easier to work in the office. We continue to adapt our buildings, with a
larger proportion of our space dedicated to teamworking and collaboration.
Through our networks, we have developed ways to help our colleagues, managers
and leaders understand how to work effectively in a blended way. This includes
learning solutions, team workshops, and guidance on how to watch for
unintended bias.
Colleagues have also highlighted the challenges that combining home working
and busy workloads can create. We have supported colleagues and leaders with
guidance on managing outcomes, how teams can successfully work in a blended
way and how to thrive in a high-performance environment.
Helping colleagues to grow and develop
Developing our leadership
Effective leadership is critical to unlock the full potential of our talent.
Our People Leadership Academy is our online learning framework, available for
people leaders at all levels, to develop and enhance the behaviours and skills
we expect.
Our Future Leaders programme is our individualised development resource, to
support colleagues to identify and achieve their future leadership potential.
We encourage as many colleagues as possible to consider future leadership
roles and we help bridge gaps in their knowledge and expertise. Following a
successful pilot last summer, we expanded the programme in the fourth quarter
of 2021 to mid-career colleagues across the business. By the end of 2021, 900
had completed the diagnostic questionnaire, receiving access to their
individual results and personalised development resources.
Tools for self-development
We provide our colleagues with the tools and resources they need to take
control of their development and to make the right contribution to our
strategy. In 2021, we expanded our digital learning resources with the launch
of our Data Academy and Digital Academy. These are designed to help colleagues
develop the skills and mind-set to harness data to make better decisions,
helping ensure that we are equipped to support our clients in a digital world.
We presented live learning sessions to over 3,000 people in abrdn in 2021. As
a result, over 4,000 colleagues have engaged in some form of personal or
professional development, either through our virtual classrooms, digital
content or external learning opportunities.
900
colleagues using our Future Leaders programme
19%
more colleagues engaging in personal or professional development compared to
2020
Mentoring
Our global mentoring programme offers all colleagues an opportunity to find a
mentor inside the business, or to share their skills and experience as a
mentor themselves. We use algorithms based on development interests and
preferences to match mentees with appropriate mentors. At the end of 2021 we
had established over 300 internal mentoring relationships, which represents a
96% increase since 2020.
Identifying, attracting and retaining talent
A diverse and inclusive workplace
We are focused on creating inclusive environments in which all types of
diversity can thrive. Our leaders, our Global Inclusion Committee, our
colleague-led networks and regional groups work collaboratively to turn
discussion into action, and to influence others to do the same.
To bring diverse perspectives to selection and minimise potential bias, we
have increased our pool of interviewers for our roles. Nearly 80 colleagues
are being trained as interviewers, representing all of our regions and
business areas. All of our executive search partners also have a contractual
obligation to provide gender-diverse shortlists.
Read more in our diversity and inclusion report available at
www.abrdn.com/annualreport (http://www.abrdn.com/annualreport)
Young talent
Our traineeship programme has gone from strength to strength in recent years.
In 2021 we welcomed 36 new university graduates into our global graduate
programmes and 22 new trainees. We were also rated the number one
Apprenticeship employer in Scotland by Rate My Placement and top 15 in the UK,
based solely on reviews by young people.
We now work with more early careers partners to increase the diversity of our
participants. In 2021 we welcomed a colleague from the Kickstart scheme, which
aims to create new jobs for young people aged 16-24 on Universal Credit who
are at risk of long-term unemployment.
Our targets
We refreshed our corporate diversity targets in 2020, after reaching earlier
targets for women in roles at Board and senior leadership ahead of schedule.
These took effect from 1 January 2021.
Our approach aligns with best practice as an active member of 40:40 Vision, an
investor-led initiative to achieve gender balance in executive leadership. In
2019, we met the recommendation from the Sir John Parker Review for FTSE 100
companies to have at least one Board member who identifies as ethnic minority,
and we set our target to have an additional qualifying Board member by 2025.
This reflects our ongoing commitment to improving ethnic diversity and we are
building our data to enable us to increase our progress.
Targets are reviewed regularly by our Board and executive leadership team and
are included in the Executive Director scorecard. All colleagues have
diversity and inclusion as part of their performance management goals.
Our pay philosophy
Following colleague feedback, we have created a clear approach to pay that
supports and rewards performance at a company, team and individual level.
Individual performance is assessed against agreed goals and behaviours.
Our global pay philosophy will reflect our performance compared to peers with
the following core principles:
- Our aim is to pay fair and competitive base salary and benefits.
- The individual base salary range will vary based on skills and
experience.
- Company profitability will determine the affordability of the bonus
compensation pool.
Improving and sustaining financial performance will drive our ability to pay
both market level salary and bonus, and reward will reflect the success
created for our clients.
Current position at 31 December 2021 Target by 31 December 2025
Gender diversity1
Women at plc Board 45% (5 of 11) 40% women; 40% men; 20% any gender
Women in senior leadership2 36% (62 of 171) 40% women; 40% men; 20% any gender
Women in subsidiary director roles3 35% (7 of 20) N/A
Women in global workforce 46% (2,297 of 5,033) 50% (+/- 3% tolerance)
Ethnic diversity4
Ethnic minority representation at plc Board 9% (1 of 11) 18% (or +1 director)
1. Relates to percentage of women in roles within the different groups.
2. Relates to leaders one and two levels below CEO, minus administration
roles.
3. Relates to Directors of the Company's direct subsidiaries as listed in
Note 47 (a) of the Group financial statements and not classified above as
Board Directors or senior leadership.
4. Relates to percentage of Board members who identify as ethnic minority.
Data measuring progress against gender targets for 31 December 2021 has been
independently assured by Bureau Veritas. Bureau Veritas assurance can be found
at www.abrdn.com/annualreport
Society and communities
We can make a positive impact through how we operate, making a difference for
our clients, society and the wider world.
Building connection to support inclusion
An important focus of our social impact strategy is helping people around the
world to feel more connected to society. We aim to help them overcome social
barriers so they can realise their potential and build a better future for
themselves and their families. We build partnerships with projects and
organisations that are intent on creating more for communities, with a focus
on financial or digital education and inclusion.
When we became abrdn in July 2021, we announced a new partnership with Hello
World, whose mission is to bridge the digital divide and improve connectivity
and inclusion among disconnected communities. The partnership is aligned to
the attributes of our brand and is a tangible example of how investing in a
charity like Hello World, also means investing in people.
Over the course of our two-year partnership, we are funding the build of 64
new 'Hello Hubs' across Uganda, which will provide access to internet and
education for up to 80,000 children and adults. Hello Hubs are solar-powered
internet kiosks, fitted with eight screens loaded with leading educational
software so that people can learn, access digital educational resources and
improve their future by connecting globally.
In November we announced a one-year partnership with the Sarabande Foundation.
Sarabande was established to support people with great talent and artistic
ability, through scholarships for those in financial need and subsidised
studio space. Our support will extend Sarabande's ability to make education
accessible for the arts industry globally. abrdn will be Sarabande's financial
advice partner for its programme of educational talks, helping creative talent
to prepare and build financial security.
Building connection through volunteering
All of our colleagues have the opportunity to take three paid volunteering
days annually. During the pandemic, the nature of the volunteering that our
colleagues provided to charities and beneficiaries shifted. For example,
mentoring programmes were run online. Now we are creating more opportunities
for our people to engage with their local greenspaces and give back to the
areas that have supported everyone during lockdown.
We support projects to enable people to engage with and protect nature, as
well as projects that support habitat and wildlife restoration. This supports
wellbeing, builds community cohesion, and helps biodiversity and ecosystems to
thrive for generations to come.
The community greenspaces project is an example. Following a pilot programme
delivered in partnership with the City of Edinburgh Council, we are now
providing further funding to support greenspaces outside of Edinburgh. This
has contributed to a wide range of improvements, from restoring outdoor play
structures, orchards, ponds and wild flower meadows, to creating habitats for
bees, bats and birds.
Fair work
We have a responsibility to drive action on fair work issues across society.
We have been a UK Living Wage employer since 2014 and we are one of the first
employers accredited as a Living Hours employer. We commit to fair notice
periods for hours worked, as well as the right to a guaranteed minimum number
of hours each week. This commitment covers our employees, interns and
suppliers on our premises.
We are also a member of the Living Wage Scotland and Living Hours leadership
groups, through which we offer expert advice and help shape a wider landscape
of fair pay across the UK. As a member of the Living Wage Places Edinburgh
group, we collaborate to achieve and maintain accreditation for Edinburgh as a
Living Wage City.
As active investors that fully integrate sustainability into our investment
process, employment and labour practices form part of our assessment of any
company we invest in. We draw on political and social research to understand
the environment in a given country or region, and how that affects our
investments. Different companies also face different human rights issues,
depending on their activities. For instance, land rights and community consent
are more relevant for a mining firm, while the right to privacy would be more
relevant for a technology software company.
We engage with businesses we invest in to encourage them to be proactive in
disclosing information on areas such as pay transparency, pay parity, and
whether collective bargaining agreements have been put in place. In 2021 we
engaged with supermarket businesses to understand more about their latest
sustainability strategies, including how they look after their employees. This
followed the ruling of the Supreme Court in March 2021 that the jobs worked by
the shop-floor workforce at Asda, who are mostly women, are comparable to
those done by higher-paid warehouse workers, most of whom are men. The ruling
could leave other companies in the sector liable to pay back hundreds of
millions of pounds if work is determined to be of equal value, as well as
potential financial impacts for wider stakeholders. We will continue to engage
with labour-intensive businesses on proactively disclosing workforce issues as
this area of focus develops.
Through our support for ShareAction's Workforce Disclosure Initiative, we aim
to help improve corporate transparency and accountability on workforce issues,
and help increase the provision of good jobs worldwide. The initiative
generates new data on workforce practices to integrate into investment
analysis. We responded for the first time in 2021 and will continue to engage
with the initiative over the years ahead.
Promoting social mobility
We believe that different social issues are often interlinked. We focus on
creating positive outcomes within abrdn, our industry and our communities, for
people whose career progress has been limited by their gender, ethnicity or
social background.
Top 75
employer in the Social Mobility Employer Index
We are a signatory to the Social Mobility Pledge, and in 2021 we were
recognised as a Top 75 company for social mobility in the Social Mobility
Employer Index. This reflects the actions of colleagues across abrdn which are
underpinned by our social inclusion action plan. The action plan outlines our
priorities for helping groups and individuals who face barriers within
society. The actions are shaped by input from our colleague-led networks and
best practice recommendations from the Social Mobility Employer Index and the
Social Mobility Commission.
Our research series 'A Woman's Place; equality in the 21st Century' explored
factors that affect women's opportunities to progress in the world of work.
The series provides recommendations for businesses, policymakers and society
to help address barriers to progress and economic participation, as well as
highlighting why companies' equality policies are important considerations for
investors. In 2021 this research series won the award for European Thought
Leadership at the Funds Europe Awards.
Read the research series at www.abrdn.com/annualreport
(http://www.abrdn.com/annualreport)
We are a supporter of collaborative initiatives that enable further progress.
We have joined the Social Mobility Taskforce - commissioned by HM Treasury and
BEIS, and led by the City of London Corporation - to improve socio-economic
diversity at senior levels in UK financial and professional services. The
group's mission is to challenge the lack of career progression for those
coming from non-professional backgrounds and to explore the intersections with
other protected characteristics, including gender and race. Noel Butwell, CEO
of our Adviser business, is a member of the Taskforce.
In 2021 we donated around £800,000 to charitable programmes that drive social
mobility globally, benefiting young people, veterans, refugees and
ex-offenders. A number of collaborations with external initiatives also help
us to measure the impact we are having on social inclusion in the communities
in which we operate, helping people develop skills and opportunities for
employment. We have partnered with external organisations who help us access
diverse talent and who share our view of gender, race and social inclusion
being interconnected, including Girls are INvestors (GAIN), Diversity Project,
upReach and Investment 20/20.
Sustainability - Governance
Stakeholder engagement
We want to help build a better future for our clients and our people, the
communities around us and the environment we live in. Our responsibility to
engage with all of our stakeholders plays a crucial role in the long-term
decisions we make.
Clients
Our strategy is rooted in understanding how we can deliver the outcomes that
clients expect, driven by their needs, wants and aspirations. We organise our
business to reflect the diverse needs of our clients in different markets and
the different ways in which our clients interact with us. The launch of our
single global brand also helps to remove confusion from previously having five
client-facing brands.
How we engage
In our Investments business, local investment teams, aided by global ESG
expertise, help clients anticipate, and plan and invest for future scenarios.
In our Adviser business, we provide support, expertise and technology for UK
wealth managers and financial advisers to create value for their businesses
and their clients. In our Personal business, we integrate financial planning
and discretionary investment management with digitally-enabled direct
investing to enhance our offering.
We collaborate across our Investments, Adviser and Personal businesses to
connect our clients with wide-ranging expertise and diverse perspectives.
As individuals take greater responsibility for their own savings needs,
interactive investor and Finimize will help us respond to this trend. These
acquisitions will generate additional insights to help us better understand
customers' diverse requirements.
In 2021 we launched abrdn's first advertising campaign in the UK across TV,
radio, press and digital channels. It is part of our programme to build up
awareness of our single brand, as well as highlight the positive impact that
investment can have on society.
Our people
To deliver on our strategy, we need to nurture talent, giving our colleagues
every opportunity to grow, be heard and perform. We need to enable
collaboration, encourage innovation, and help our people feel engaged and
empowered to be at their best.
How we engage
Our Board has a designated non-executive director to support workforce
engagement, responsible for leading the Board Employee Engagement plan
designed to access views from all colleagues across the business. Hannah Grove
succeeded Melanie Gee in this role during 2021. See page 73 for more details.
Since our 2020 employee engagement survey, we have continued to run mood
surveys among our colleagues to track how they have been dealing with the
demands of the pandemic.
Employee engagement was at 72% in 2020 as we worked through the challenges of
the pandemic and supported our people. Through the first year of our new
strategy we reset performance management and restructured the business. A
snapshot of employee engagement, taken in May 2021 showed this figure had
declined to 43%. Our full employee engagement survey, completed in January
2022 shows an increase of 8% to 51% which is a marked improvement, and gives
us clear areas of focus.
75% of colleagues took the time to share their feedback which has enabled us
to identify clear themes. Our executive leadership team has explored these
collectively to better understand and address a number of areas. These will be
shared with colleagues and tracked throughout the year to demonstrate both
action and progress.
Society and communities
We all have a responsibility to work to make a positive impact on society, so
that we can pass something worthwhile to the next generation. We do this by
combining the power of responsible investment with the positive impact we have
through our operations. We believe that engagement across the assets we manage
is critical to lasting positive change.
How we engage
We partner with organisations that aim to create more opportunities for
communities around the world, through which we also offer volunteering
opportunities for our colleagues.
We constructively use our influence as an investor to engage with companies
and use our voting rights. We work to ensure that they have credible
strategies to deal with material ESG issues and retain the standards of
corporate behaviour we expect.
In 2021 we discussed ESG at 2,593 meetings, which included 298 engagements
with shareholders focused specifically on ESG. We voted on resolutions
relevant to our clients' shares at 7,304 shareholder meetings, and voted on
75,398 resolutions.
In 2021 we also took part in a programme of events during COP26. Our aim was
to highlight actions investors can take to help achieve real-world
decarbonisation and to underline the urgent need for stronger climate
policies.
Shareholders
The support of our shareholders is crucial to growing our business, and we
engage with shareholders to ensure that we have the support to pursue our
strategic objectives. As we deliver on our growth strategy, we also know that
generating value for our shareholders remains hugely important.
How we engage
Our annual general meetings give shareholders the opportunity to share their
views and to hear directly from our Chairman and Board. Through regular
mailings we keep shareholders informed about dividend payments, financial
results and shareholder meetings. We also have a regular programme of meetings
with institutional investors and analysts.
We held our AGM in 2021 by way of an enhanced webcast, enabling shareholders
to join online and submit their questions during the event or beforehand.
Through our mailings we updated shareholders on the change to our company name
and our change of share registrar.
Section 172 statement
The Board recognises that the long-term success of our business is dependent
on the way it works with a large number of important stakeholders.
Our Board has responsibility to consider matters that include the:
- likely consequences of any decisions in the long term.
- interests of the company's employees.
- need to foster the company's business relationships with suppliers,
customers and others.
- impact of the company's operations on the community and environment.
- desirability of the company maintaining a reputation for high standards
of business conduct.
- need to act fairly as between members of the company.
The Board has discussed these obligations throughout the year, including how
stakeholder engagement is incorporated into our long-term decision-making. You
can read further details on pages 74 to 75.
The Board's decision-making considers both risk and reward as our business
aims to deliver long-term value for all of our stakeholders, and protect their
interests. Awareness and understanding of current and the potential risks,
including both financial and non-financial risks, are fundamental to how we
manage the business.
Further information on how risks are appropriately assessed, monitored,
controlled and governed is provided in the Risk management section.
During 2021, some of the Board's stakeholder engagement plans had to be
altered to comply with COVID-19 restrictions. The Board Employee Engagement
programme, for example, continued to engage with employees through online
channels - both directly and as part of regular meetings with employee
representative groups.
You can read more about how the Board engages with and considers the interests
of stakeholders on pages 74 to 75.
Non-financial information
Our vision for a better future starts with asking more of ourselves, and we
set high standards to hold ourselves to.
Our global code of conduct describes the standards of behaviour we expect in
our business. We review it annually, and all our colleagues are expected to
read, agree and adhere to its principles. The code focuses on doing the right
thing and putting our clients at the heart of our business. This includes what
colleagues should do if they have concerns about issues such as bribery and
corruption, environmental or human rights.
The code details a number of our policies that we expect them to read and
adhere to, including our modern slavery statement and our human rights policy.
We also have a legal and regulatory duty to prevent, detect and deter
financial crime, including bribery and corruption, to protect our business and
our clients' information and assets.
We strive to build effective and supportive relationships with our third
parties, and we expect them to follow the same standards and principles that
our teams and colleagues do. Our global third party code of conduct sets out
these expectations, and we expect them to demand the same from their own
supply chains. It also details the whistleblowing procedures that we make
available to them as well as to our colleagues. On a regular and
risk-proportionate basis, we carry out due diligence of our third parties,
covering key social issues.
Measuring our progress
Global code of conduct
As at the end of January this year, 98% of colleagues had completed the 2021
online training module to confirm they had understood and would comply with
our global code of conduct. This module also included training on modern
slavery issues. Where employees fail to complete mandatory training, we have
taken steps to ensure that managers and HR are made aware.
Modern slavery
Our modern slavery statement sets out our approach to tackling all forms of
modern slavery. This ranges from human trafficking and forced labour, to
bonded labour and child slavery. We found no instances of modern slavery in
our supply chain during 2021 and we have robust processes which would allow
any future issues to be escalated and remedied.
Human rights policy
Our policy summarises our approach to identifying and upholding the human
rights of our people, clients, communities and everyone impacted by our
suppliers, partners and the companies we invest in. As an investor, we use our
internally developed Human Rights Index to help identify high-risk
geographies, and we have published position statements on integrating human
rights into our investment approach. We also publish the outcomes of our ESG
engagements with investee companies, including engagements on human rights
matters, in a quarterly summary available on our website.
Financial crime prevention
We have an effective approach to managing financial crime risks, both within
our business and among suppliers and partners. Following an independent
assessment of our anti-money laundering framework, we launched a
transformation programme in 2021 focused on continuing to improve the
framework, and carried out extensive work to define and implement consistent
anti-money laundering standards across the company.
Non-financial information statement
We aim to comply with the Non-Financial Reporting requirements contained in
sections 414CA and 414CB of the Companies Act 2006. This information is
intended to help stakeholders better understand how we address key
non-financial matters. Details of our principal risks and how we manage those
risks are included in the Risk management section.
Reporting requirement Relevant policies and publications Where to find more information
Environment Our sustainability overview and TCFD report overview Sustainability overview (pages 30 to 31)
Sustainability - Environment (pages 32 to 37)
Employees Global code of conduct1 Sustainability - Governance (page 44)
Employee policies Sustainability - Social (pages 38 to 39)
Human rights policy1 Sustainability - Governance (page 44)
Human rights Modern slavery statement1 Sustainability - Governance (page 44)
Social policies Sustainability - Social (pages 40 to 41)
Social matters Global third party code of conduct1 Sustainability - Governance (page 44)
Anti-bribery and corruption Sustainability - Governance (page 44)
Other matters Business model Our business model (pages 18 to 19)
Non-financial KPIs Our key performance indicators (page 47)
Sustainability - Environment (pages 32 to 37)
1. Group policy published on our website at www.abrdn.com/annualreport
(http://www.abrdn.com/annualreport)
Sustainability Accounting Standards Board (SASB) - disclosure topics and accounting metrics
To enhance our sustainability reporting, we choose to provide information that
aligns to the Sustainability Accounting Standards Board (SASB) framework. SASB
sets out standards for companies to report on their material ESG risks and
encourages better transparency in company reporting.
Topic Accounting metric Disclosure against the framework
Transparent Information & Fair Advice for Customers (1) Number and (2) percentage of covered employees with a record of abrdn is aware of no employees subject to the proceedings described.
investment-related investigations, consumer-initiated complaints, private
civil litigations, or other regulatory proceedings1.
Total amount of monetary losses as a result of legal proceedings associated abrdn sustained no monetary losses of this nature in the reporting period
with marketing and communication of financial product related information to (based on the population of covered employees, as defined by SASB, on 31
new and returning customers2. December 2021).
Description of approach to informing customers about products and services. For all products we provide comprehensive product literature including the
fund offering documents (Prospectus and Key Investor Information Document) as
well as marketing materials such as fund factsheets.
Employee Diversity & Inclusion Percentage of gender and racial/ethnic group representation for (1) executive The percentage of gender/ethnic representation at Board and Executive level is
management, disclosed on page 39. We publish diversity data in our Diversity &
(2) non-executive management, (3) professionals, and (4) all other employees3. Inclusion, and Sustainability reports, which also detail what we do to ensure
diverse perspectives are represented among all employees.
Incorporation of Environmental, Social, and Governance Factors in Investment Amount of assets under management, by asset class, that employ (1) integration
Management & Advisory of ESG issues,
(2) sustainability themed investing, and (3) screening.
Description of approach to incorporation of We integrate ESG factors across all asset classes (apart from our Quantitative
ESG factors in investment and/or wealth funds that track a market index).
management processes and strategies.
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Description of proxy voting and investee engagement policies and procedures. A detailed description of these policies and procedures, and definition of our
approach to materiality is in our Stewardship report available at
www.abrdn.com/annualreport
Business Ethics Total amount of monetary losses as a result of legal proceedings associated abrdn sustained no monetary losses in the reporting period as a result of
with fraud, insider trading, anti-trust, anti-competitive behaviour, market legal proceedings associated with financial industry laws or regulations.
manipulation, malpractice, or other related financial industry laws or
regulations.(5)
Description of whistleblower policies and procedures. We offer colleagues an independently managed reporting process, including our
Speak Up hotline, if they want to raise any concerns anonymously. Our
suppliers can also use the service.
Description of proxy voting and investee engagement policies and procedures.
A detailed description of these policies and procedures, and definition of our
approach to materiality is in our Stewardship report available at
www.abrdn.com/annualreport
Business Ethics
Total amount of monetary losses as a result of legal proceedings associated
with fraud, insider trading, anti-trust, anti-competitive behaviour, market
manipulation, malpractice, or other related financial industry laws or
regulations.(5)
abrdn sustained no monetary losses in the reporting period as a result of
legal proceedings associated with financial industry laws or regulations.
Description of whistleblower policies and procedures.
We offer colleagues an independently managed reporting process, including our
Speak Up hotline, if they want to raise any concerns anonymously. Our
suppliers can also use the service.
1. Note to FN-AC-270a.1- The entity shall describe how it ensures that
covered employees file and update FINRA and SEC forms in a timely manner.
2. Note to FN-AC-270a.2- The entity shall briefly describe the nature,
context, and any corrective actions taken as a result of the monetary losses.
3. Note to FN-AC-330a.1- The entity shall describe its policies and
programmes for fostering equitable employee representation across its global
operations.
4. 2020 figures restated due to a revised methodology primarily related to
SFDR classification of funds.
5. Note to FN-AC-510a.1- The entity shall briefly describe the nature,
context, and any corrective actions taken as a result of the monetary losses.
Key performance indicators
Our key performance indicators
Fee based revenue (KPI) (APM) Cost/income ratio (KPI) (APM)
£1,515m 79%
We generate revenue mainly from asset management, platform and advice fees. This ratio measures our efficiency and we are focused on improving our
cost/income ratio by increasing revenue and continued cost discipline.
Adjusted operating profit (KPI) (APM) Adjusted diluted earnings per share (KPI) (APM)
£323m 13.7p
Adjusted operating profit has replaced adjusted profit before tax as our key This measure highlights on a per share basis our profitability and capital
alternative performance measure and is how our results are measured and efficiency, calculated using adjusted profit after tax.
reported internally.
IFRS profit before tax (KPI) Full year dividend per share (KPI)
£1,115m 14.6p
IFRS profit before tax is the measure of profitability set out in our The total annual dividend (interim and final) is an important part of the
financial statements. As well as adjusted profit, it includes items such as returns that we deliver to shareholders.
restructuring costs, profit on disposal of interests in associates and
goodwill impairment.
Adjusted capital generation (KPI) (APM)
£366m
This measure aims to show how adjusted profit contributes to regulatory
capital. Our dividend policy is set with reference to adjusted capital
generation.
Investment performance (KPI) Employee engagement survey (KPI)
(Percentage of AUM above benchmark over three years)
67% 51%
This measures our performance in generating investment return against This measure is important in gauging the company-wide satisfaction and
benchmark. Calculations for investment performance are made gross of fees motivation of our people in their roles.
except where the stated comparator is net of fees
Other indicators
AUMA Gross inflows
£542bn £72.3bn
Net flows - Total Net flows - Excl liquidity and LBG tranche withdrawals
(£6.2bn) (£3.2bn)
IFRS diluted earnings per share (APM) Alternative performance measures
We assess our performance using a variety of performance measures including
46.0p APMs such as fee based revenue, cost/income ratio, adjusted operating profit,
adjusted profit before tax and adjusted capital generation. APMs should be
read together with the Group's IFRS financial statements. Further details of
all our APMs are included in Supplementary information.
Chief Financial Officer's overview
Financial progress and capital discipline
Stephanie Bruce, Chief Financial Officer
Financial strength underpins delivery of our strategy
Our financial strength, strategic focus and operational resilience have
enabled us to successfully navigate the impacts and uncertainties caused by
the global pandemic. I am pleased to report the strong progress towards our
financial aims, while recognising that we have more to do.
By arresting the decline in revenue, and improving our operating leverage and
cost/income ratio, adjusted operating profit increased by 47% to £323m (2020:
£219m) and adjusted capital generation by 40% to £366m (2020: £262m). As a
result dividend cover, on an adjusted capital generation basis, improved to
1.18 times (2020: 0.84 times) and adjusted diluted earnings per share
increased by 56% to 13.7p (2020: 8.8p).
Our IFRS profit before tax was £1,115m (2020: £838m) benefiting primarily
from the gain on sale of part of our investment in HDFC Asset Management and
the recognition of the full market value of our residual stake following its
reclassification as an investment during the second half of the year.
Our disciplined approach to capital management generated £1.6bn of capital
during the year and we deployed £0.8bn, including returning £0.3bn to
shareholders through dividends and investing £0.3bn in market opportunities
that will help build long term sustainable growth.
Arresting the decline in revenue
With stronger markets than those experienced in 2020 persisting for the
majority of 2021, fee based revenue was 6% higher. Encouragingly, strong
growth in fee based revenue was delivered in all vectors - Investments (+5%),
Adviser (+30%) and Personal (+15%). Revenue from acquisitions, primarily
through Tritax was broadly offset by revenue foregone through disposals, of
which the largest were Parmenion and our Nordics real assets business. Asia
and the Americas grew strongly, despite adverse foreign exchange movements,
with revenue growth of over 10% following the restructuring of these
businesses. EMEA was impacted by the Nordics sale and the UK remained
constrained due to the decline in insurance revenue.
An important factor for our future revenue growth is the diminishing drag on
revenue arising from outflows in prior years. In addition, the revenue impact
of current year net outflows reduced to less than 0.5% (2020: c2%). Also
importantly, current year gross inflows are into higher margin assets, with
gross inflows into equities and real assets increasing by 7% and 43%,
respectively.
Continuing higher levels of revenue growth in the Adviser and Personal vectors
are delivering the diversification benefits we are seeking in our business;
together these vectors represent 18% of total revenue compared with 15% in
2020. In Adviser, growth benefited from restructuring of the Phoenix
arrangements and, albeit from a lower base during the pandemic, we delivered
strong growth of 12% (excluding the £25m Phoenix benefit). Within Personal,
our discretionary investment management business reported its best ever year.
Total fee revenue yield improved slightly to 27.3bps (2020: 26.9bps).
Improving momentum in flows
The positive trend of H1 2021 in net outflows (excluding liquidity flows which
are lower margin and volatile and LBG tranche withdrawals) continued in H2
2021
On a full year basis, net outflows (excluding LBG tranche withdrawals and
liquidity) of (£3.2bn) improved compared with (£12.3bn) in 2020. Adviser and
Personal vectors more than doubled net inflows. While the Investments vector
remained in net outflows, the improvement in 2021 has created a stronger
position entering 2022.
Reshaping the cost base to improve margins
Our cost/income ratio improved in 2021 but we have more work to do as we
progress to our 2023 exit target of around 70%. We achieved the £400m synergy
targets set in the context of the two historic transactions at a cost of
£550m. With our large integration migration programme complete in Investments
and the separation programme from Phoenix completing in 2022, the reshaping of
our cost base can move further and faster. In 2021, overall operating costs
reduced by 1%. Lower Phoenix outsourcing costs and a 14% reduction in overall
staff numbers generated the capacity to reward performance through variable
compensation for colleagues contributing most to our improved performance and
delivering on our strategic non-financial priorities.
All vectors became more efficient in 2021, notably Adviser with a cost/income
ratio of 58%. Personal succeeded in delivering its planned turnaround,
achieving an £8m profit versus a £5m loss in 2020, largely due to a strong
performance in our discretionary investment management business. Investments,
our largest vector, improved its cost/income ratio to 79%, not yet where it
needs to be, but showing progress in Asia, the Americas and EMEA.
The new vector leadership team in Investments are now in place, focused on
delivering revenue growth combined with rationalisation, simplification and
increased automation, where possible, to accelerate efficiency gains and
create the operational leverage needed to mitigate against the risk of lower
markets.
Restructuring and corporate transaction costs of £259m were lower than
planned for 2021 due to timing of severance and platform transformation costs.
We expect these severance, platform transformation, and specific costs to
effect savings in Investments, to be c£150m in 2022 (excluding corporate
transaction costs), before reducing considerably in 2023.
Deploying our capital to deliver shareholder value
We continued to strengthen our balance sheet in terms of capital and
liquidity, with surplus regulatory capital on an IFPR basis of £1.8bn and
cash and liquid resources of £3.1bn(1) at 31 December 2021.
We generated £0.9bn in proceeds from the sale of stakes in HDFC Life and HDFC
Asset Management and £0.1bn from disposals of non-core assets. We issued
Additional Tier 1 debt of £0.2bn, making us the first asset manager to offer
this capital efficient instrument. Capital was deployed to support key growth
priorities within private markets and digital content, through the
acquisitions of Tritax and Finimize. In December, we were delighted to
announce the proposed acquisition of interactive investor for £1.49bn in
cash, subject to certain adjustments, which we will fund from our existing
strong capital resources.
Supplementing our regulatory capital resources, we have significant further
capital resources through our stakes in our listed financial investments. In
January 2022, we successfully monetised a 4% holding in Phoenix, raising
£0.3bn and intend to return this capital to shareholders. We have no plans to
dispose of the remaining 10.4% holding in Phoenix, which remains our strategic
partner. Over time, we plan, subject to market conditions, to monetise our
Indian stakes which have a current value of approximately c£1.1bn(2). Our
capital allocation framework will continue to prioritise deployment of capital
generated into business areas offering the best long-term sustainable value,
with each opportunity being benchmarked against return of capital to
shareholders. This will include strengthening our wholesale offering, ESG
product suite and digital skills and capabilities. Over the period to 2023, we
plan, subject to regulatory changes, to maintain a surplus of at least £0.5bn
over our regulatory capital requirement.
Our dividend policy remains, as previously communicated, set at the level of
14.6p per annum until it is covered at least 1.5 times by adjusted capital
generation, with the objective of growing the dividend in line with our
assessment of the medium term growth in profitability.
Shaping the business for the future
Our strategic priorities, including expanding distribution in Asia and
building direct to consumer services, are designed to diversify our revenue
streams by geography and client segment and lower the impact of market
volatility on revenue.
Based on our economists' forecasts at the end of 2021 of positive market
improvements in a post COVID-19 environment over the next 24 months across all
key indices, combined with our targeted improvement in net flows, we maintain
our outlook for high single digit three year revenue CAGR 2020-2023 and
exiting 2023 at a cost/income ratio of around 70%. The cost base will be
further reshaped as a proportion of revenue by efficient use of outsourcing,
greater use of technology, lower staff numbers and incentivisation highly
geared to performance.
The proposed acquisition of interactive investor, if approved by shareholders
and regulators, will provide incremental support to our targets, immediately
improving the growth in revenue and adjusted operating profit. The acquisition
further diversifies our business from ad valorem revenue streams and
transforms the cost/income ratio of the Personal vector. We will report
interactive investor's results within our Personal vector and provide separate
disclosures to give transparency on the benefits of the acquisition and its
performance. We intend to provide an update on our forward looking targets at
the half year.
Analysis of profit 2021 2020
£m
£m
Fee based revenue 1,515 1,425
Adjusted operating expenses (1,192) (1,206)
Adjusted operating profit 323 219
Adjusted net financing costs and investment return(1) - 21
Adjusted profit before tax(2) 323 240
Adjusting items including results of associates and joint ventures(2) 792 598
IFRS profit before tax 1,115 838
Tax (expense)/credit (120) 15
IFRS profit for the year 995 853
Adjusted diluted earnings per share 13.7p 8.8p
Diluted earnings per share 46.0p 37.9p
1. Cash and liquid resources is an APM. See Supplementary information for
details.
2. As at 25 February 2022.
Our IFRS profit before tax increased by 33% to £1,115m. This improvement
included the benefit of 47% higher adjusted operating profit and the impact in
the prior year of impairments of goodwill and intangibles.
Adjusting items of £792m includes £1,236m profit on disposal of interests in
associates (2020: £1,858m), £298m loss from change in the fair value of
significant listed investments (2020: profit £65m) and restructuring and
corporate transaction expenses of £259m (2020: £316m). 2020 also included
impairments of goodwill and intangibles of £1,049m. See page 56 for more
information.
Improved operating leverage from revenue growth and management of costs
Fee based revenue
Fee based revenue increased by 6% reflecting:
- Positive impact from favourable markets.
- Performance fees 53% higher at £46m (2020: £30m).
- Diminishing impact from net outflows excluding LBG to 4% compared to
11% in 2020(3). The revenue impact of current year net outflows reduced to
less than 0.5% (2020: c2%).
Our continued focus on managing our costs is reflected in the £14m reduction
in adjusted operating expenses:
- Overall staff and other related costs are flat at £643m, reflecting
lower staff numbers, offset by increased accruals for variable compensation
and pay inflation.
- Reductions in non-staff costs of £14m to £549m includes benefit from
lower Phoenix outsourcing costs as we near completion of separation activity
and savings following the rationalisation of premises.
Adjusted operating expenses
2021 2020
£m
£m
Staff costs excluding variable compensation 517 531
Variable compensation 126 112
Staff and other related costs(4) 643 643
Non-staff costs 549 563
Adjusted operating expenses 1,192 1,206
Acquisitions/disposals had a net neutral impact in 2021 with higher costs
following the acquisitions of Tritax and Finimize broadly offset by reductions
following disposals including Parmenion and our Nordic real estate operation.
The cost/income ratio improved to 79% (2020: 85%).
Actions have now been taken which fully deliver against the commitment of
achieving £400m of annualised synergies by the end of 2021:
- Synergies benefited 2021 operating expenses by £320m (2020: £287m)
with further benefits expected in 2022. Additionally there are cost synergies
which avoid cost increases not included in the £320m above.
- In line with our commitment, total costs incurred to deliver these
annualised synergies were £550m, of which £35m were incurred in 2021 (2020:
£79m) and are included within restructuring expenses.
1. Capital management has been renamed Adjusted net financing costs and
investment return.
2. Adjusted profit before tax now excludes the share of profit from
associates and joint ventures. Comparatives have been restated. See
Supplementary information for more information.
3. Reflects the estimated impact on fee based revenue as a result of net
outflows in both the current and prior year, as a percentage of prior year
revenue.
4. See Supplementary information for a reconciliation to IFRS staff and
other employee related costs.
Adjusted operating Fee based revenue Fee revenue yield Net flows
profit
£1,231m 25.9bps (£10.6bn)
£253m
Total Institutional and Wholesale Insurance
2021 2020 2021 2020 2021 2020
Fee based revenue(1) £1,231m £1,176m
Adjusted operating expenses (£978m) (£990m)
Adjusted operating profit £253m £186m
Cost/income ratio 79% 84%
Fee revenue yield 25.9bps 25.8bps 38.8bps 38.8bps 10.0bps 10.9bps
AUM £464bn £457bn £253bn £252bn £211bn £205bn
Gross flows £63.4bn £67.4bn £41.9bn £49.8bn £21.5bn £17.6bn
Redemptions (£74.0bn) (£99.9bn) (£47.0bn) (£49.5bn) (£27.0bn) (£50.4bn)
Net flows (£10.6bn) (£32.5bn) (£5.1bn) £0.3bn (£5.5bn) (£32.8bn)
Net flows excluding liquidity(2) (£7.6bn) (£41.7bn) (£2.1bn) (£8.9bn) (£5.5bn) (£32.8bn)
Net flows excluding liquidity and LBG(2,3) (£7.6bn) (£15.8bn) (£2.1bn) (£8.9bn) (£5.5bn) (£6.9bn)
1. Includes performance fees of £46m (2020: £30m).
2. Institutional and Wholesale liquidity net flows excluded.
3. Flows excluding Lloyds Banking Group (LBG) do not include the tranche
withdrawals of £nil (2020: £25.9bn) relating to the settlement of
arbitration with LBG.
Investments highlights - Achieved our commitment to arrest revenue decline
with growth of 5%
Adjusted operating profit
- £67m (36%) higher than 2020, reflecting 5% higher revenue and 1%
lower costs.
Fee based revenue
- 5% higher than 2020 due to favourable market levels, a diminishing
impact on revenue from net outflows, and a £16m increase in performance fees.
The performance fees of £46m were primarily generated from key funds in Asia,
real assets and insurance.
Institutional and Wholesale highlights
Fee based revenue
- 8% higher (2021: £1,012m, 2020: £941m) reflecting growth in
Wholesale including the benefit from net inflows into higher margin funds, and
favourable market levels.
- Diminishing revenue impact from net outflows in 2021.
Revenue Yield
- Remained stable at 38.8bps, supported by favourable market movements
in equities.
Gross flows
- Increased by 2% excluding liquidity (2021: £35.3bn, 2020: £34.6bn)
due to higher equities and real assets gross flows.
- Liquidity reduced from £15.2bn to £6.6bn after the exceptional
inflows in 2020.
- Our pipeline of mandates awarded not yet funded is £3.7bn (2020:
£4.6bn).
Net flows
- Improved by £6.8bn to (£2.1bn) excluding liquidity. In particular
there was £3.7bn lower net outflows in equities, and £3.1bn (2020: £2.1bn)
of net inflows into private markets.
- The volatility in liquidity reflects Institutional clients using their
cash balances through the pandemic period.
Insurance
highlights
Fee based revenue
- 7% lower than prior year at £219m (2020: £235m), mainly reflecting
the impact of the LBG exits in 2020.
- Remaining withdrawals of c£34bn of LBG assets are expected to
complete in H1 2022. These assets contributed c£14m to revenue in 2021.
Revenue yield
- Reduced this year reflecting the LBG exits from fixed income and
multi-asset.
AUM
- The primary client, Phoenix, represents 83% (2021: £176bn, 2020:
£172bn) of the Insurance AUM.
Gross flows
- Higher than 2020 reflecting improved bulk purchase annuity inflows of
£5.2bn (2020: £2.0bn).
- Our pipeline of mandates awarded not yet funded is £7.6bn (2020:
£4.8bn).
Net flows
- Net outflows of £5.5bn mainly reflect redemptions from the closed
book of business which is in long term
run-off, including £1.9bn relating to LBG.
1 year 3 years 5 years
57% 67% 67%
(2020: 71%) (2020: 66%) (2020: 68%)
Investment performance over the key three-year time period is stable, with 67%
of AUM covered by this metric ahead of benchmark (2020: 66%). This reflects
ongoing strength in fixed income, alternatives, and liquidity. Benchmarks
differ by fund and are defined in the investment management agreement or
prospectus, as appropriate. These benchmarks are primarily based on indices or
peer groups.
Three-year performance
- Our key franchises in Asia and Emerging Markets continue to outperform
with overall equity performance broadly in line with 2020.
- Fixed income performance was in line with 2020 reflecting
outperformance in credit and government rates.
- Multi-asset performance has been disappointing and includes the impact
of restrictive traditional balanced mandates which, despite positive returns
from asset allocation, have underperformed peer group benchmarks. Unrestricted
funds have generally outperformed.
- Real assets performance has improved, with real estate in particular
demonstrating strong outcomes based on active fund positioning away from
retail and further into logistics and accommodation sectors.
One-year performance
- Performance weakened reflecting the headwinds for quality and income
orientated funds in equities, as well as the underperformance in multi-asset
mentioned above.
- 2021 was a volatile year for bond markets and this backdrop proved
challenging for the relative performance of our government rates funds,
resulting in overall fixed income results weakening.
% of AUM ahead of benchmark(1) 1 year 3 years 5 years
2021 2020 2021 2020 2021 2020
Equities 36 73 72 74 61 62
Fixed income 59 78 82 81 87 85
Multi-asset 41 61 39 33 44 36
Real assets 83 41 52 37 50 44
Alternatives 87 95 98 95 98 93
Quantitative 98 32 44 17 68 24
Liquidity 88 94 87 89 84 87
Total 57 71 67 66 67 68
1. Calculations for investment performance are made gross of fees except
where the stated comparator is net of fees. Further details about the
calculation of investment performance are included in the Supplementary
information section.
Adviser
Adjusted Fee based Fee revenue Net flows
operating profit
revenue
yield
£3.9bn
£74m £178m 24.9bps
2021 2020
Fee based revenue £178m £137m
Adjusted operating expenses (£104m) (£89m)
Adjusted operating profit £74m £48m
Cost/income ratio 58% 65%
Fee revenue yield 24.9bps 22.3bps
AUA £76bn £67bn
Gross flows £9.1bn £6.3bn
Redemptions (£5.2bn) (£4.4bn)
Net flows £3.9bn £1.9bn
Adviser highlights - Strong growth in earnings, AUA and net flows which
increased by 105%
Adjusted operating profit
- 54% increase driven by positive growth in revenue and management of
costs. The simplification of the arrangements with Phoenix with effect from 1
January 2021 resulted in a benefit to fee based revenue and adjusted operating
profit of £25m and £19m respectively.
- Cost/income ratio improved to 58% (7ppts).
Fee based revenue
- 30% increase on 2020 reflecting higher net flows and AUA, together
with the £25m Phoenix benefit.
Revenue yield
- 2.6bps increase reflects the Phoenix benefit, partly offset by
repricing in prior years.
- Average assets are £72bn, 16% higher than prior year.
AUA
- 14% increase in the year due to positive flows and higher markets,
benefiting both the Wrap and Elevate platforms.
- Our platforms are used by over 2,600 adviser firms (c1% higher than
2020), with a total of 426,000 customers (c2% higher than 2020).
Gross flows
- Retained our number one position on gross flows(1) as sales activity
increased by 44% on prior year.
Net flows
- Flows remain strong and 105% higher than 2020 at £3.9bn driven by an
increase in the number of primary positions held with advisers and our strong
client retention.
1. Source: Adviser platform gross flows, Fundscape Q3 2021.
Personal
Adjusted Fee based Fee revenue Net flows
operating profit
revenue
yield
£0.6bn
£8m £92m 61.0bps
2021 2020
Fee based revenue £92m £80m
Adjusted operating expenses (£84m) (£85m)
Adjusted operating profit/(loss) £8m (£5m)
Cost/income ratio 91% 106%
Fee revenue yield 61.0bps 58.5bps
AUMA £14bn £13bn
Gross flows £1.7bn £1.1bn
Redemptions (£1.1bn) (£1.1bn)
Net flows £0.6bn -
Personal highlights - Earnings contribution and record AUMA and net flows
Adjusted operating profit
- Improved from a £5m loss in 2020 to an £8m profit in 2021, which
includes a one-off benefit of c£3m reported in H1 2021.
- Cost/income ratio improved by 15ppts to 91%.
Fee based revenue
- 15% higher than 2020 including the benefit of increased customer
activity across the market.
- Strong performance in our discretionary investment management business
in 2021.
Revenue yield
- Increased to 61bps with average assets of £14bn, 11% higher than
2020.
AUMA
- 8% higher than prior year, reflecting the higher net flows into the
business and higher market values.
- Discretionary AUM reached a record level of £8.9bn (2020: £7.8bn).
- 10% increase in discretionary client numbers to c16,000 (2020:
c14,500).
Gross and net flows
- Gross flows 55% higher than 2020.
- Net flows at record levels.
Corporate/strategic
2021 2020
Fee based revenue £14m £32m
Adjusted operating expenses (£26m) (£42m)
Adjusted operating loss (£12m) (£10m)
This segment comprises certain corporate costs (c£12m in 2021) and the
Parmenion and SL Asia businesses which were held for sale. The sale of
Parmenion completed in June 2021 and the sale of SL Asia completed in June
2020.
Following the completion of the sale of Parmenion this segment comprised only
corporate costs in H2 2021.
Overall performance
Adjusted IFRS profit Adjusted
operating profit
before tax
capital generation
£323m £1,115m £366m
Adjusted operating profit(1) AUMA Net flows
Segmental summary 2021 2020 2021 2020 2021 2020
£m
£m
£bn
£bn
£bn
£bn
Investments 253 186 464 457 (10.6) (32.5)
Adviser 74 48 76 67 3.9 1.9
Personal 8 (5) 14 13 0.6 -
Corporate/strategic (12) (10) - 8 0.3 1.0
Eliminations - - (12) (10) (0.4) 0.6
Total 323 219 542 535 (6.2) (29.0)
Net flows excluding liquidity (3.2) (38.2)
Net flows excluding liquidity and LBG (3.2) (12.3)
1. Segmental performance in this report reflects revised segments and 2020
comparatives have been restated on this basis. See further details in Note 2
in the Group financial statements and in Supplementary information.
Analysis of profit 2021 2020
£m
£m
Fee based revenue 1,515 1,425
Adjusted operating expenses (1,192) (1,206)
Adjusted operating profit 323 219
Adjusted net financing costs and investment return - 21
Adjusted profit before tax 323 240
Adjusting items including results of associates and joint ventures 792 598
IFRS profit before tax 1,115 838
Tax (expense)/credit (120) 15
IFRS profit for the year 995 853
Adjusted net financing costs and investment return
Adjusted net financing costs and investment return generated £nil (2020:
£21m):
- Investment gains including from seed capital and co-investment fund
holdings were £4m (2020: £18m). 2020 benefited from significant market
related gains which were not repeated.
- Increased net finance costs of £21m (2020: £17m) reflecting a lower
rate of return on cash and liquid assets.
- Lower net interest credit relating to the staff pension schemes of
£17m (2020: £20m
Adjusting items including results of associates and joint ventures
2021 2020
£m
£m
Profit on disposal of interests in associates 1,236 1,858
Profit on disposal of subsidiaries and other operations 127 8
Restructuring and corporate transaction expenses (259) (316)
Amortisation and impairment of intangible assets acquired in business (99) (1,180)
combinations and through the purchase of customer contracts
Change in fair value of significant listed investments (298) 65
Dividends from significant listed investments 71 -
Share of profit or loss from associates and joint ventures (22) 194
Loss on impairment of interests in associates and joint ventures - (45)
Other 36 14
Total adjusting items including results of associates and joint ventures 792 598
Profit on disposal of interests in associates of £1,236m comprises one-off
accounting gains of £965m following the reclassification of our shareholdings
in HDFC Asset Management (£897m) and Phoenix (£68m) from associates to
investments measured at fair value during 2021, and a £271m gain from the
sale of a 5% stake in HDFC Asset Management in September 2021. The HDFC Asset
Management reclassification resulted from the reduction of our shareholding to
16% following the September sale, and the Phoenix reclassification reflected
changes to the commercial agreements announced in February 2021. The 2020
profit of £1,858m primarily related to a one-off accounting gain for HDFC
Life, and profits from the sale of shares in HDFC Life and HDFC Asset
Management during the year. See Note 15 in the Group financial statements for
further details.
Profit on disposal of subsidiaries and other operations of £127m primarily
relates to the sales of Parmenion (£73m) and Bonaccord (£39m) which
completed on 30 June 2021 and 30 September 2021 respectively. See Note 1 in
the Group financial statements.
Restructuring and corporate transaction expenses were £259m, primarily
reflecting ongoing transformation costs and include £27m relating to the
separation from Phoenix. The total Phoenix separation costs accounted for to
date amounted to £309m. We expect a small amount of separation costs to be
accounted for in 2022 and that the total cost will remain within our estimate
of c£310m.
Amortisation and impairment of intangible assets acquired in business
combinations and through the purchase of customer contracts reduced to £99m
as there were no impairments in 2021 compared to impairments of goodwill and
customer relationship intangibles of £1,049m in 2020.
Change in fair value of significant listed investments was (£298m) and
represents the impact of market movements on our holdings in HDFC Life (£52m
reduction in value including impact of stake sale in June 2021), in Phoenix
(£82m reduction) from February 2021 and in HDFC Asset Management (£164m
reduction) from September 2021.
Dividends from significant listed investments relates to our shareholdings in
HDFC Life, Phoenix and HDFC Asset Management that were previously associates
and were reclassified on 3 December 2020, 23 February 2021 and 29 September
2021, respectively. Following the reclassification, dividends received are now
recognised as income within our financial statements. The £71m in 2021
relates to dividends received from Phoenix (£69m) and HDFC Life (£2m).
Share of profit or loss from associates and joint ventures reduced to a loss
of £22m (2020: profit £194m). Following the reclassifications noted above,
only HASL and Virgin Money UTM are now classified as associates and joint
ventures.
2021 2020
£m
£m
HASL 19 23
Virgin Money UTM (6) (6)
Phoenix (56) 110
HDFC Life - 19
HDFC Asset Management 21 48
Share of profit or loss from associates and joint ventures (22) 194
The reduction in HASL was due mainly to lower profits on group business and
lower investment returns in 2021.
The Phoenix loss to 22 February 2021 resulted from investment return variances
from equity market and interest rate rises and is more than offset by the
£68m gain on reclassification discussed above.
The HDFC Asset Management profit to 29 September 2021 was lower mainly due to
2020 including a one-off tax benefit of £18m and a full 12 months profit.
Other adjusting items of £36m include a £25m net release of deferred income.
See Note 34 in the Group financial statements.
See pages 156 and 170 for further details on adjusted operating profit and
reconciliation of adjusted operating profit to IFRS profit. Further details on
adjusting items are included in the Supplementary information section.
Tax policy
We have important responsibilities in paying and collecting taxes in the
countries in which we operate. Our tax strategy is therefore guided by a
commitment to high ethical, legal and professional standards and being open
and transparent about what we are doing to meet those standards.
Tax expense
The total IFRS tax expense attributable to the profit for the year was £120m
(2020: credit £15m), including a tax expense attributable to adjusting items
of £94m (2020: credit £53m), resulting in an effective tax rate of 11% on
the total IFRS profit (2020: negative 2%). The difference to the UK
Corporation Tax rate of 19% is mainly driven by:
- Revaluation of elements of abrdn's deferred tax balances due to future
UK tax rises.
- Realised and unrealised gains in the shares in HDFC Asset Management
being charged to tax at the Indian long-term capital gains tax rate which is
lower than the UK Corporation Tax rate.
- Fair value movements relating to Phoenix and HDFC Life not being
subject to tax.
The tax expense attributable to adjusted profit is £26m (2020: £38m), an
effective tax rate of 8% (2020: 16%). This is lower than the 19% UK rate
primarily due to the future rise in UK Corporation Tax to 25%. This has a
beneficial effect in increasing the value of our deferred tax assets.
Total tax contribution
Total tax contribution is a measure of all the taxes abrdn pays to and
collects on behalf of governments in the territories in which we operate. Our
total tax contribution was £447m (2020: £484m). Of the total, £190m (2020:
£203m) was borne by abrdn whilst £257m (2020: £281m) represents tax
collected by us on behalf of the tax authorities. Taxes borne mainly consist
of corporation tax, employer's national insurance contributions and
irrecoverable VAT. The taxes collected figure is mainly comprised of
pay-as-you-earn deductions from employee payroll payments, employees' national
insurance contributions, VAT collected and income tax collected on behalf of
HMRC on platform pensions business.
You can read our tax report on our website www.abrdn.com/annualreport
Earnings per share
- Adjusted diluted earnings per share increased by 56% to 13.7p (2020:
8.8p) due to the 47% increase in adjusted profit after tax and the 9% benefit
from 2020 share buybacks.
- Diluted earnings per share increased to 46.0p (2020: 37.9p) reflecting
the factors above and the impact in the prior year of losses on impairments of
goodwill and intangibles.
Dividends
As disclosed in the Annual report and accounts in March 2021, it is the
Board's current intention to maintain the total annual dividend at 14.6p (with
the interim and final both at 7.3p per share), until it is covered at least
1.5 times by adjusted capital generation, at which point the Board will seek
to grow the dividend in line with its assessment of the underlying medium-term
growth in profitability.
The Board has accordingly recommended a final dividend for 2021 of 7.3p (2020:
7.3p) per share. This is subject to shareholder approval and will be paid on
24 May 2022 to shareholders on the register at close of business on 8 April
2022. The dividend payment is expected to be £155m.
External dividends are funded from the cumulative dividend income that abrdn
plc receives from its subsidiaries and associates (see below for details of
cash and distributable reserves). The need to hold appropriate regulatory
capital is the primary restriction on the Group's ability to pay dividends.
Further information on the principal risks and uncertainties that may affect
the business and therefore dividends is provided in the Risk management
section.
Adjusted capital generation in 2021 of £366m, 40% higher than 2020 and was
1.18 times the full year dividend.
The adjusted capital generation trend and related dividend coverage is shown
below:
Capital and liquidity
Adjusted capital generation
Adjusted capital generation of £366m increased by 40% and remains closely
aligned with adjusted profit after tax as shown below.
2021 2020
£m
£m
Adjusted profit after tax(1) 297 202
Less net interest credit relating to the staff pension schemes (17) (20)
Add dividends received from associates, joint ventures and significant listed 86 80
investments
Adjusted capital generation 366 262
1. Adjusted profit after tax now excludes the share of profit or loss from
associates and joint ventures. Comparatives have been restated. See
Supplementary information for more information.
Net movement in surplus regulatory capital
Indicative surplus regulatory capital, on an IFPR basis, increased by £0.6bn
to £1.8bn at 31 December 2021 largely due to the sale of stakes in HDFC Life
and HDFC Asset Management.
Key movements in surplus regulatory capital in 2021 are shown in the table
below.
Analysis of movements in surplus regulatory capital (IFPR basis) 2021
£bn
Opening surplus regulatory capital (indicative)(2) 1.2
Sources of capital
Adjusted capital generation 0.4
HDFC Life and HDFC Asset Management sale proceeds 0.9
Parmenion and Bonaccord sale proceeds 0.1
Issuance of AT1 debt 0.2
Uses of capital
Restructuring and corporate transaction expenses (net of tax) (0.2)
Dividends (0.3)
Acquisitions of Tritax and Finimize (0.3)
Other (0.2)
Closing surplus regulatory capital 1.8
2. The Group reported capital under CRD IV until 31 December 2021. The
opening surplus regulatory capital on an IFPR basis is therefore indicative.
The full value of the Group's listed investments is excluded from the capital
position under IFPR.
Note 45 of the Group financial statements includes a reconciliation between
IFRS equity and surplus regulatory capital and also details of our capital
management policies.
Cash and liquid resources and distributable reserves
Cash and liquid resources remained robust at £3.1bn at 31 December 2021
(2020: £2.5bn). These resources are high quality and mainly invested in cash,
money market instruments and short-term debt securities. Further information
on cash and liquid resources, and a reconciliation to IFRS cash and cash
equivalents, is provided in Supplementary information.
At 31 December 2021 abrdn plc had £2.8bn (2020: £2.1bn) of distributable
reserves.
IFRS net cash inflows
- Net cash inflows from operating activities were £14m (2020: £56m)
which includes outflows from restructuring costs, net of tax, of £190m (2020:
£232m). Inflows were lower in 2021 due to working capital movements.
- Net cash inflows from investing activities were £755m (2020:
£1,014m) and included £0.9bn (2020: £0.9bn) from HDFC Life and HDFC Asset
Management stake sales. Inflows were lower than 2020 due to cash being
invested in money market instruments, which are not classified as cash
equivalents and the net impact of 2021 acquisitions and disposals.
- Net cash outflows from financing activities were £243m (2020:
£1,064m) with the reduction mainly due to the £0.2bn proceeds from the
Additional Tier 1 debt issue in 2021 (2020: £0.1bn repayment of preference
shares), lower dividends paid in 2021 (£171m lower) and the 2020 share
buyback (share buyback outflow £320m lower).
The cash inflows and outflows described above resulted in closing cash and
cash equivalents of £1,875m as at 31 December 2021 (2020: £1,358m).
IFRS net assets
IFRS net assets attributable to equity holders increased to £7.6bn (2020:
£6.8bn) with profits offset by dividends paid in the year:
- Intangible assets increased to £0.7bn (2020: £0.5bn) as a result of
the Tritax and Finimize acquisitions. Further details are provided in Note 14.
- The principal defined benefit staff pension scheme, which is closed to
future accrual, continues to have a significant surplus of £1.6bn (2020:
£1.5bn). Further details are provided in Note 33.
- Financial investments increased to £4.3bn (2020: £3.1bn) primarily
due to the reclassification of HDFC Asset Management from an associate during
2021. At 31 December 2021 financial investments included £2.3bn (2020:
£1.2bn) in relation to significant listed investments (Phoenix £941m, HDFC
Asset Management £840m and HDFC Life £508m). Financial investments also
include corporate holdings in money market instruments and debt securities of
£1.1bn (2020: £1.0bn), holdings in newly established investment vehicles
which the Group has seeded of £0.3bn (2020: £0.3bn) and co-investments of
£0.1bn (2020: £0.1bn). Further details are provided in Note 37.
- To optimise our capital structure abrdn issued Additional Tier 1 debt
of £210m in December 2021 which is included in other equity.
Viability statement
Longer-term prospects
The Directors have determined that three years is an appropriate period over
which to assess the Group's prospects. In addition to aligning with our
business planning horizon, this reflects the timescale over which changes to
major regulations and the external landscape affecting our business typically
take place.
The Group's prospects are primarily assessed through the strategic and
business planning process which considers our business model and how this is
designed to deliver efficient, sustainable growth.
The assessment reflects the Group's focus on its strategic priorities as set
out on pages 16 to 17 and how this is expected to drive longer-term prospects
across abrdn's three vectors, including through responding to clients'
climate-related needs.
The Group's longer-term prospects were enhanced during the year as a result of
extending the strategic partnership with Phoenix to February 2031. The
proposed acquisition of interactive investor is expected to further enhance
these prospects.
In forming their assessment of the longer-term prospects of the Group, the
Directors have also taken into account:
- The Group's capital position as set out on page 58.
- The substantial holdings of Group cash and liquid resources as set out
on page 58 as well as holdings in listed equity investments as set out on page
29.
- The Group's principal and emerging risks as set out on pages 61 to 64.
Assessment of prospects
The Directors consider the Group's focus on its strategic priorities will
deliver growth while maintaining the Group's strong regulatory capital
position and the dividend policy described on page 57.
Viability
The Directors consider that three years is an appropriate period for assessing
viability as this is in line with the horizon used for our business planning
and stress testing and scenario analysis processes. In considering the
viability statement, the Board performed a robust assessment of the Group's
principal risks and took account of these processes, the results of reverse
stress testing and the ongoing impact of COVID-19 as set out below.
The business planning process includes the projection of profitability,
regulatory capital and liquidity over a three year period, based on a number
of assumptions. This includes assumptions regarding the economic outlook in
light of various factors including the COVID-19 pandemic.
The Group has no debt maturing over the next three years and, based on
business planning projections, there is no expectation that the Group will
need to draw down on its £400m revolving credit facility described on page
219.
The Group's stress testing and scenario analysis programme applies severe
stresses to the business plan to understand the Group's financial resilience.
This includes exploring the impacts of market-wide stresses, stresses that are
specific to abrdn, and stresses that combine both these elements. Whilst all
of the Group's principal risks could potentially impact on the Group's
financial resilience, our stress testing focused on those risks expected to
have the most significant impact.
- Financial risk was explored through applying a range of stresses to
market levels, flows, and margins. The scenarios that were explored included
equity markets falling around 30% from year end levels, net outflows over the
planning horizon reducing the year end AUMA by up to 15%, and the basis point
fees charged to clients being 10% lower than in the business plan.
- Operational risk was explored through considering the impact of the
Group incurring £100m of operational losses. This was considered to represent
the potential impact of severe losses that might arise from one or more of the
following principal risks crystallising: process execution and trade errors,
technology risk, security and resilience risk, or fraud and financial crime
risks.
The scenarios explored all resulted in the Group experiencing reduced
profitability and, in some cases, losses over the planning horizon.
Projections of capital and liquid resources fell as a result of these losses
with the largest falls occurring in the scenario where the flow and market
stress was accompanied by the basis point fees charged to clients being 10%
lower than in the business plan.
The Group had sufficient capital and liquid resources to withstand all of the
stresses and did not need to take any management actions other than those
assumed within the business plan. This reflects the strength and quality of
the Group's financial position.
In the event that the Group was to experience more severe stresses than those
explored under the Group's stress testing and scenario analysis programme, the
Group has a diverse range of management actions including a number of sizeable
management actions wholly within the Group's control.
During the year, additional stress testing and scenario analysis was performed
to support the decision to proceed with the proposed acquisition of
interactive investor. This was also taken into consideration in the Directors'
assessment of viability.
Reverse stress testing involves exploring the quantitative and/or qualitative
impacts of extreme scenarios which could threaten the viability of our
business model. In 2021 we explored a scenario in which abrdn was unable to
trade and service clients within its investments vector as a consequence of
the failure of our main third party provider of administration services that
support the Group's trading, middle-office and back-office functions.
The reverse stress testing exercise highlighted the existence of controls,
oversight arrangements, service level agreements, monitored triggers and
defined escalation processes that the Group has in place which would assist
the Group in taking effective and timely management actions where needed in
response to instances of failure within the third party provider. The exercise
also highlighted that, as a designated Global Systemically Important Bank, our
third party provider would be expected to be subject to additional regulatory
oversight in the event of any instances of significant failure.
Although the scenario explored represented a reverse stress test, the scenario
was considered to have a very low likelihood of occurrence. This, and the
Group's range of mitigants in place to respond to the scenario, supports the
assessment of viability and no qualification is considered necessary.
Impact of COVID-19
The Directors have explicitly considered the impact of COVID-19 on the Group's
viability recognising the further measures taken in 2021 in response to the
COVID-19 pandemic. The Group has not required government support as a result
of the pandemic and has demonstrated the ability to operate successfully
whether staff were mostly working from home or working on a blended basis
combining both home and office-working.
Operational resilience
Operational resilience reflects the ability of firms and the financial sector
as a whole to prevent, adapt, respond to, recover and learn from operational
disruptions. In addition to causing potential harm to customers and
threatening market integrity, such operational disruptions and the
unavailability of important business services have the potential to threaten
viability. The FCA is introducing new rules on operational resilience on 31
March 2022 and the Board noted the preliminary work performed in response to
these rules when forming their assessment of viability.
Assessment of viability
The Directors confirm that they have a reasonable expectation that abrdn plc
will be able to continue in operation and meet its liabilities as they fall
due over the next three years.
Risk management
Managing
risk for better outcomes
Our approach to risk management
A strong risk and compliance culture underpins excellent service to clients
and the effective management of our business. Our Board has ultimate
responsibility for risk management and oversees the effectiveness of our
Enterprise Risk Management (ERM) framework. Across all principal risk
categories - conduct risk, strategic risk, financial risk and regulatory and
operational risk - the impact on clients sits at the heart of our
decision-making.
Three lines of defence
We operate 'three lines of defence' in the management of risk with clearly
defined roles and responsibilities:
- First line: Day-to-day risk management, including identification and
mitigation of risks and maintaining appropriate controls.
- Second line: Oversight from our Risk and Compliance function, which
reports to the Chief Risk Officer.
- Third line: Our Internal Audit function, reporting to the Chief Internal
Auditor, independently verifies our systems of control.
ERM framework
This underpins risk management throughout our business. We continually evolve
our framework to meet the changing needs of the company and to make sure it
keeps pace with industry best practice and the risk profile of the business.
In 2021, improvements to the framework included:
- Strengthening our risk appetite framework by introducing new risk
tolerances to support governance and risk management.
- Extending and refining our risk taxonomy so we can describe risk more
accurately.
- Updating our process for formal risk acceptance, linked to our
group-wide risk management system.
- Reviewing our policy framework and policy register.
Business risk environment
The major impact of COVID-19 on our operating environment has continued during
2021. We have shown resilience in dealing with the effects of the pandemic and
we continue to manage its market, operational and financial impacts as we
deliver our business plan and continue to enhance our client focus.
The further lifting of restrictions in the UK meant that we could take the
next step towards 'blended working' as the default arrangement for our people,
with colleagues gradually returning to the office in greater numbers. Outside
the UK, we continue to follow government guidance across our global regions
regarding the return to office approach.
The commercial environment remained challenging during 2021, exacerbated by
the impact of the pandemic. However, after setting out our new strategy in
March, we made good progress towards achieving our objectives to arrest the
decline in revenue, then establish a pattern of revenue growth, improved
efficiency and improved returns. The roll-out of our new brand means we are
now better positioned to have impact at scale and as a global business.
The proposed acquisition of interactive investor will significantly enhance
our presence within a fast-growing and attractive market. Execution risks for
this acquisition will be limited by interactive investor continuing to operate
as a discrete business within our Personal vector.
In the near term, there is still operational stretch as work continues on the
transformation of the business. Phoenix separation activity is complex and has
to be managed and coordinated with other transformation work, so that the
impact on business as usual is managed.
We are actively working to retain talent within a dynamic and competitive
labour market and to promote colleague wellbeing and engagement, which you can
read more about on pages 38 to 39 of this report. There is clear executive
ownership and accountability for our talent and development programmes.
We maintain heightened vigilance over risks to our operations from financial
crime and cyber intrusion. Our dedicated, expert internal teams monitor and
manage these risks as they evolve, with the support of external specialists.
Our conduct risk framework is strengthened continuously and client interests
are at the heart of this work. In 2021, we improved our processes in relation
to vulnerable customers.
ESG risks
We have a responsibility to shareholders, clients and all stakeholders to
assess, report on, manage and mitigate our ESG risks. For 'Environment', risks
are primarily related to climate change and these are an important aspect of
integrating ESG considerations in our portfolio management activities. In
addition, we continue to review climate-related risks and manage our own
business impact on climate change(1), which you can read about on pages 32 to
37. For 'Social', our risks primarily relate to colleague engagement,
wellbeing, development and diversity and inclusion. For 'Governance', our
risks primarily relate to corporate governance, conduct, ethics and
cyber-crime. These ESG risks are discussed further under 'Principal risks and
uncertainties' and throughout this report.
We have a materiality review every two to three years to ensure we are
focusing on the right ESG risks and issues. Our most recent review is included
in our 2019 corporate sustainability report. We will carry out our next review
later in 2022.
We are following a three-year work plan on ESG and defining our longer-term
strategic ambition. During 2021 we continued to deliver against a number of
key milestones, including regulatory compliance on sustainable finance
disclosure, client reporting, creation of ESG analytical tools (carbon
footprinting and carbon scenario analysis) and decisions for an ESG data
platform and exclusion screening tool.
1. See Note 37 for disclosure relating to the
financial impact of climate related risk on the 2021 financial statements.
Emerging risks
We are vigilant to emerging risks that could impact our strategy and
operations, with a particular focus on our three vectors of growth. The nature
of these risks could be geopolitical, economic, societal, technological,
legal, regulatory or environmental. We distil internal and external research
to model how risks could emerge and potentially evolve and to inform how we
address them through our ERM framework and our principal risk framework in
particular.
The current conflict between Russia and Ukraine is already impacting markets
and operations and is likely to have substantial economic consequences. Other
notable emerging risks to our business include the availability of talent in
our future workplace, new cyber threats, disruptive technologies,
unprecedented market shifts, climate change, emerging variants of COVID-19 and
indirect impacts resulting from the pandemic.
Principal risks and uncertainties
The risks we face as a business have as much to do with our actions and
approaches internally, as they do with the external environment. These risks
fall into 12 areas that form the basis of our ERM framework. This framework
gives us the structure to assess, monitor, control and govern the risks in our
business. Principal and emerging risks are subject to active oversight and
robust assessment by the Board, and the principal risks are described in the
following table.
Risk to our business and how this evolved in 2021 How we manage this risk
1 Strategic risk
- These are risks that could prevent us from achieving our strategic aims The launch of our single global brand was an important step to clear up
and successfully delivering our business plans. confusion that existed across our multiple brands previously. Our brand
strategy review has been thorough and we developed stakeholder engagement
- These could include failing to meet client expectations, poor strategic plans to guide the transition to the new brand. Market and competitor
decision-making, poor implementation or failure to adapt. intelligence has aided decision-making.
Each of our vectors has a clear organic growth strategy. Any inorganic growth,
such as through acquisitions, is rigorously assessed for its contribution to
our core strategy and the opportunities it presents to help us better
understand different client needs.
2 Financial risk
- This is the risk of having insufficient financial resources, suffering Business planning and stress testing is used to project our financial
losses from adverse markets or the failure or default of counterparties. It is resources under a range of scenarios. This allows us to identify possible
impacted by our flows experience, global market conditions and the fees we issues and take action to manage our financial position. This is supported by
charge on investment mandates, platforms and wealth management services. the risk limits on capital and liquidity monitored under our risk appetite
framework.
- Our strong capital and liquidity position has made possible the proposed
acquisition of interactive investor. Our Treasury Policy includes minimum standards for managing liquidity, market
and counterparty risks, including the credit quality of our counterparties.
- The impact of COVID-19 and securing transformation milestones have
enabled us to lower non-staff costs. During 2021 we undertook detailed preparations for the introduction of the
UK's new Investment Firms Prudential Regime which determines our regulatory
capital and liquidity requirements.
3 Conduct risk
- Our business relies on our ability to deliver fair client outcomes, and Our ERM framework supports the management of conduct risk with clear
there is a risk that we fail to achieve this in our strategies, decisions and expectations around conduct goals and responsibilities. In 2021 we refreshed
actions. our Global Code of Conduct for all employees.
- This could lead to customer and client harm, reputational damage and In response to COVID-19 we prioritised running our business with minimal
loss of income. client impact while maintaining an effective control environment for remote
working.
Drawing on the UK Senior Managers and Certification Regime, we train our teams
to understand how to apply our conduct rules in their roles.
4 Regulatory and legal risk
- High volumes of regulatory change can create risk by presenting We monitor the regulatory landscape globally so that we can engage in
implementation and interpretation challenges. potential areas of change early. We also invest in compliance and monitoring
activity across the business. Our relationships with key regulators are based
- Failing to comply with, or meet changes in, legislation, contractual on trust and transparency while our Legal team supports senior managers across
requirements or regulations, can lead to sanctions, reputation damage and our business.
income loss.
- During 2021 the company managed a heavy programme of regulatory
implementation, including in relation to ESG investment, operational
resilience, LIBOR reform and the new UK and EU prudential frameworks.
Operational risks (5-12)
5 Process execution and trade errors
- This is the risk that processes, systems or external events could We monitor underlying causes of error to identify areas for action, promoting
produce operational errors. a culture of accountability and continuously improving how we address issues.
We also continue to enhance the ERM framework. In addition, we have set up a
- During 2021 there was close management focus on this, and a reduction in taskforce to fast track issues that have the potential to impact clients.
events requiring investigation and remedy.
We dealt with potentially important systems outages using established incident
management processes, and senior risk committees have been reviewing the
impact of COVID-19 on these processes.
6 People
- In line with the wider economy, employee turnover has increased in all Since the onset of the pandemic we have successfully adapted, providing online
regions as a consequence of disruption arising from the pandemic. tools to support collaboration and moving our learning and development
offering online. We have responded to increased competition for talent using
- Engaging with our people, and supporting their wellbeing, is critical to targeted approaches to support retention and recruitment for our key business
our strategy and the success of our business. functions.
- However, there is a risk of resources and employment practices failing We monitored and took steps to mitigate new risks that have continued to
to align with strategic objectives. emerge over the course of pandemic, which have included impacts on people's
physical and emotional wellbeing and impacts on the operation of teams. We
have offered counselling, and asked colleagues to use their full leave
allocation.
7 Technology
- There is a risk that our technology may fail to adapt to business needs, We have an ongoing programme to invest in, and enhance, our IT infrastructure
as well as of unauthorised users accessing our systems and carrying out cyber controls. We benchmark our IT systems environment to identify areas for
attacks. improvement. IT resilience is monitored at senior executive committees. 2021
saw only minor disruptions to service and improvement plans are in place.
- This risk is relevant to a wide range of potential threats to the
business including weather events, internal failure, external intrusion and We maintain heightened vigilance for cyber intrusion, with dedicated teams
supplier failure. monitoring and managing cyber security risks. We carry out regular testing on
penetration and crisis management.
- Our current IT estate is complex, and dependence on third party
suppliers needs to be managed in a dedicated way.
8 Business resilience and continuity
- Incidents that can impact business resilience and continuity include We continue to enhance our operational resilience framework and strengthen our
environmental issues, terrorism, economic instabilities, cyber attacks and response to disruption. Crisis management and contingency planning processes
operational incidents. are regularly reviewed and tested, enabling us to minimise disruption as the
balance between home and hybrid working has shifted over the year. We have
- The risk of disruption from inside the organisation is broadly stable. also done extensive work to meet the requirements of the FCA/PRA Operational
However, tools for exploiting IT vulnerabilities are becoming more widely Resilience regulations that come into force on 31 March 2022.
available globally and are frequently used by criminal groups to enable
ransomware attacks.
- As COVID-19 has continued to test business resilience, the business has
adapted effectively to blended working.
9 Fraud and financial crime
- As a business that handles clients' money, we are exposed to the risk of Sound processes are in place to identify client activity linked with financial
fraudulent and dishonest activity. crime, globally. These include controls for anti-money laundering (AML),
anti-bribery, fraud and other areas of financial crime. We have a company-wide
- As we engage with a wide number of external parties, we have to be programme to invest in controls and processes to improve our monitoring of
vigilant to the risk that these parties are connected with criminal behaviour, these risks.
or subject to sanctions by national or global authorities.
During 2021 we did extensive work to define and implement consistent AML
standards across the company globally and in each of our growth vectors.
We continue to work with the financial authorities and industry peers to
assist those targeted by scams.
10 Change management
- This is the risk of failing to manage strategic and operational change We manage major change projects centrally, with clear governance processes and
initiatives effectively. consolidation of our change workload. Second and third lines have clear roles
in overseeing progress and we deliver projects in ways that help us to protect
- We implemented major regulatory change during 2021 including embedding client outcomes.
ESG principles and the discontinuation of LIBOR.
- We delivered major milestones on the transformation of our investment
platform, while maintaining a focus on managing the impact of our
transformation activity and the associated costs.
11 Third party management
- We outsource activities to suppliers with specialist capabilities which Our aim is to maintain strong relationships with suppliers. During 2021 we
means we are exposed to the risk of third parties failing to deliver in line completed our programme to rationalise our supplier base and strengthen our
with contractual obligations. oversight of our suppliers. Our Third Party Code of Conduct requires third
parties to acknowledge their best practice responsibilities.
- It is our responsibility to make sure these firms deliver, so we
continue to streamline delivery and reduce complexity. In 2021 we undertook extensive preparations to adopt the European Banking
Authority's guidelines on outsourcing across our supplier base.
12 Financial management process
- Sound financial reporting influences abrdn's performance, planning and Our financial reporting activities align to external reporting standards and
disclosures to external stakeholders. industry best practice. Our Audit Committee reviews, and where necessary
challenges, our reporting. Our Chief Risk Officer also provides an independent
- Failures in these processes would expose our business and shareholders review of our business plan to support decision-making.
to the risk of making poorly informed decisions.
In 2021 we concluded our programme to transform our Finance operations, which
was delivered to plan while contending with disruption resulting from the
pandemic.
The cover to page 65 constitute the Strategic report which was approved by the
Board and signed on its
behalf by:
Stephen Bird
Chief Executive Officer
abrdn plc
(SC286832)
28 February 2022
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