REG - abrdn PLC - Final Results - Part 2 of 8
27/02/2024 07:00
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RNS Number : 5268E abrdn PLC 27 February 2024
abrdn plc
Full Year Results 2023
Part 2 of 8
Three years ago, we set out to fundamentally reshape our business.
Against a challenging backdrop, our strategy has formed a company that is
better positioned for growth, driven by the evolving needs of our clients and
customers.
Our reporting suite
This report forms part of our reporting suite.
Sustainability and TCFD report
The focus of this report is to extend our climate-related disclosure beyond
our Annual report and update on other material sustainability topics for
abrdn.
Stewardship report
Sets out our application of the 12 principles of the UK Stewardship Code, as
investors.
Modern slavery statement
Our disclosure in line with the UK Modern Slavery Act, detailing our work to
mitigate related risks.
This annual report and accounts 2023 for abrdn plc, and the strategic report
and financial highlights 2023 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 adjusted operating profit, adjusted profit
before tax, adjusted capital generation and cost/income ratio, are not defined
under International Financial Reporting Standards (IFRS) and are therefore
termed alternative performance measures (APMs).
APMs should be read together with the Group's consolidated income statement,
consolidated statement of financial position and consolidated statement of
cash flows, which are presented in the Group financial statements section of
this report. Further details on APMs are included in Supplementary
information.
See Supplementary information for details on assets under management and
administration (AUMA), net flows and the investment performance calculation.
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 in 2022 relating to the settlement of arbitration with LBG.
Contents
Strategic report
At a glance 2
Chairman's statement 6
Chief Executive Officer's review 9
Our business model and strategy 12
Performance overview 18
Our businesses 20
Sustainability 38
Key performance indicators 60
Chief Financial Officer's overview 62
Risk management 76
Governance
Board of Directors 82
Corporate governance statement 86
Audit Committee report 98
Risk and Capital Committee report 107
Nomination and Governance Committee report 111
Directors' remuneration report 115
Directors' report 135
Statement of Directors' responsibilities 141
Financial information
Independent auditor's report 144
Group financial statements 160
Company financial statements 271
Supplementary information 286
Other information
Glossary 300
Shareholder information 303
Forward-looking statements 304
Contact us IBC
Download this report from: www.abrdn.com/annualreport
Highlights
Adjusted operating profit (APM)
£249m
2022: £263m
IFRS loss before tax
(£6m)
2022: (£612m)(1)
Full year dividend per share
14.6p
2022: 14.6p
Investment performance
(% of AUM above benchmark over three years)
42%
2022: 65%
Net flows
(Excl. liquidity and LBG)
£13.9bn
outflow
2022: £10.3bn outflow
MSCI ESG rating
AA
2022: AAA
1. Comparatives have been restated for the HASL implementation of IFRS 17.
Refer Basis of preparation in the Group financial statements section.
abrdn is a modern investment company that helps clients and customers plan,
save and invest for the future
Specialist asset management UK savings and wealth platforms
Investments Adviser interactive investor (ii)(1)
Our capabilities in our Investments business are built on the strength of our Our Adviser business, the UK's second largest advised platform by AUA, Powered by the UK's second-largest direct-to-consumer investment platform, our
insight - generated from wide-ranging research, worldwide investment expertise provides financial planning solutions and technology for UK financial advisers interactive investor business enables individuals in the UK to plan, save and
and local market knowledge. which enables them to create value for their businesses and their clients. invest in the way that works for them.
Our clients: Our clients: Our clients:
- Insurance companies - Financial advisers Individuals
- Sovereign wealth funds Discretionary fund managers
- Independent wealth managers
- Pension funds
- Platforms
- Banks
Family offices
Adjusted operating profit Adjusted operating profit Adjusted operating profit
£50m £118m £114m
AUM AUMA AUMA
£366.7bn £73.5bn £66.0bn
Cost/income ratio Cost/income ratio Cost/income ratio
94% 47% 60%
Read more about our three businesses on pages 20 to 37. Overall performance
summary is included on page 70.
1. Personal has been renamed ii and includes Personal Wealth unless
otherwise stated.
Our purpose
To enable our clients to be better investors
What sets us apart
A diversified business supporting clients at all financial stages
Trusted brands with strong market positions Diversified, multi-client segment business model creating a resilient Positive and decisive action to strengthen the business model Embedding AI and technology in the business
organisation
Strong commitment to sustainability and climate action Industry- leading platforms enabling enhanced client service and value Operating in markets with structural growth characteristics Strong balance sheet and shareholder returns
Shaped by our cultural commitments
We put the client first We are empowered We are ambitious We are transparent
Read more about our culture on pages 48 and 49.
Our strategy in action
At the start of 2021, we set out our three-year strategy to build a
diversified business that could be successful through market-cycles. We have
refocused on areas of strength, selling non-core elements with lower growth
and profitability, and making strategic and bolt-on acquisitions to add high
value capabilities.
abrdn has fundamentally transformed. We now have a differentiated value
proposition, providing full lifecycle service through our investment content
and wealth platforms.
December 2020 Acquisition of majority interest in Tritax, bringing exposure and expertise in
the fast-growing logistics and e-commerce real estate market. Completed
April 2021.
February 2021 Reset our relationship with Phoenix Group with a simplified and extended
strategic partnership to manage their assets until at least 2031, and sold
them the Standard Life brand.
March 2021 Sale of Parmenion Capital Partners demonstrating our commitment to simplify
our operations and reconfigure our business for growth. Completed June 2021.
July 2021 Standard Life Aberdeen officially becomes abrdn plc, building on our heritage
with a highly differentiated brand creating unity across the business.
September 2021 Sale of Bonaccord Capital Partners and Hark Capital, simplifying our business
in the US.
October 2021 Acquisition of Finimize, with the intention to enable it to become the number
one information platform for modern investors.
December 2021 Acquisition of interactive investor, the UK's leading subscription based D2C
investment platform, significantly expanding our Personal business. Completed
May 2022.
January 2022 Monetised a 4% holding in Phoenix, raising £0.3bn with the intention to
return this capital to shareholders.
December 2022 Purchase of Macquarie Delaware Funds, adding significant scale to three of our
existing US closed-end funds.
Completed July 2023.
December 2022 Completed £300m share buyback. Commenced in July 2022.
February 2023 Sale of discretionary fund management business, concluding that another owner
would be better placed to invest to deliver scale in the business. Completed
September 2023.
February 2023 Delivery of Phase 2 of Adviser Experience Programme, one of the largest and
most complex changes since we launched the platform, making it faster and more
flexible. Further phases will complete in 2024 and 2025.
Managed Portfolio Service team moves to Adviser from Personal, unlocking
greater opportunity for growth.
May/June 2023 Sale of remaining shares in HDFC Life and HDFC Asset Management. Since
December 2020, total net proceeds of £2.1bn has been generated through these
stake sales.
June 2023 Acquisition of the healthcare fund management capabilities of Tekla, including
four NYSE listed healthcare and biotech thematic closed-end funds. Completed
October 2023.
July/October Sale of US private equity business followed by sale of European headquartered
2023 private equity business, underlining our commitment to exit non-core
businesses that no longer align to our overall product strategy. US sale
completed October 2023. European sale expected to complete in the first half
of 2024.
October 2023 Proposed acquisition of four closed-end funds from First Trust, cementing our
position as the third-largest manager of closed-end funds globally. Expected
to complete H1 2024.
December 2023 Completed £300m share buyback. Commenced £150m share buyback in June 2023,
and extended to £300m in August 2023.
Chairman's statement
Adapting to succeed in an evolving sector
Context is important when reviewing progress made during 2023.
Last year, many of the headwinds facing active asset managers grew stronger,
accelerating our drive to reshape abrdn to be more resilient within and across
economic cycles. Notably, the year saw continuation, right across the market,
of asset allocations trending away from investment in equities, from emerging
markets and from commercial real estate, all reflecting both changes in risk
appetite as well as the re-emergence of competing cash and liquidity products
with attractive yields, as interest rates rose markedly to combat stubbornly
high inflation.
This latter point was particularly relevant as, both in the UK and in the US,
investors could capture risk-free returns in excess of 5% for the first time
in 15 years at a time of heightened economic uncertainty. Continuing outflows
from UK equity funds marked 43 consecutive months of outflow, in part due to
the change in risk preference described above. Equally important was the
continuing run-off of closed defined benefit UK pension schemes' investment in
UK listed equities, as they completed their transition to liability driven
strategies or transferred their obligations to the insurance market.
Investment through defined contribution retirement schemes compensated only
partially, as contribution rates are significantly lower than those of defined
benefit pension schemes and equity allocations there are primarily to global
equity products in which UK listed companies are a very small component.
Recently released ONS figures illustrate the impact of these structural shifts
in asset allocation, evidencing that UK pension schemes and insurers combined
held only 4% of UK listed equities, declining from around half in the early
1990s.
This structural shift in the relative importance of the UK institutional
market underlines the significance of our recent diversification to get closer
to the end investor through investment in our Adviser and ii businesses. As
will be noted in our results for 2023, in a weak year for our Investments
business, in part due to continued restructuring, our two platform businesses
grew their contribution to adjusted operating profit to £232m, thereby
contributing 93% of the Group total.
Macroeconomic and geopolitical backdrop
Investment activity in 2023 also faced challenges from the macroeconomic and
geopolitical environments. The horrendous attack against Israel on October 7th
precipitated a powerful military response which is still ongoing, with fears
of a wider Middle East conflict impacting investor sentiment. This added to
concerns over the continuing war in Ukraine. Economically, cost of living
burdens in the UK from continuing inflation constrained the flow of funds into
retail savings products and indeed we saw some withdrawal from savings pots as
household budgets were stretched. With major elections in 2024, notably in the
US and the UK, but extending into some 50 countries, the resulting politically
charged policy narratives added to investment uncertainty. Helpfully, market
levels improved in the final quarter of 2023 as feared recessions seemed less
likely and inflationary threats were downgraded leading to markets discounting
earlier and larger interest rate reductions than previously expected.
UK Capital Market restructuring initiatives and demographic saving challenges
The decline in UK institutional participation in UK listed equity markets
referred to above, together with a decline in new listings in London and UK
listed company departures to other listing venues deemed more attractive,
precipitated considerable attention from within the financial industry, the
media and government. This led to a number of initiatives supported by
government, industry and the regulatory community to remove barriers deemed to
contribute to a lack of competitiveness, as well as introducing reforms
designed to modernise UK capital markets. Of particular note were the
so-called Edinburgh Reforms, the Mansion House Reforms as well as the work of
the Capital Markets Industry Taskforce and the FCA's proposed listing regime
reforms.
As a leading investment business in the UK, we supported these initiatives and
believe adoption of the measures contained within them are hugely important to
the delivery of a stronger UK economy and a more competitive financial sector
environment, through which UK listed businesses can attract both the funding
and talent to be more successful. In 2023 we co-sponsored a report by the
think-tank New Financial that provided an analysis of many of the key issues
underlying this agenda and we look forward to playing our part in supporting
adoption.
The Mansion House Reforms were also particularly important in highlighting the
relatively lower returns in pooled retirement savings in the UK in defined
contribution schemes, as a consequence of both the large number of small
schemes and a lower risk appetite within such schemes than seen in other
leading economies. The savings gap opening up from this low risk tolerance,
together with the lower mandatory contribution rates in the UK, risk
contributing to a demographic timebomb as current generations of scheme
participants are likely to reach retirement with inadequate funds to meet
their expectations of a comfortable retirement. Our industry along with our
regulators and policymakers need to work together to ensure people are
properly informed of the responsibility increasingly placed on the individual
to build adequate funds to support retirement. This is a theme where abrdn
plans to have a leading voice and we are positioning our Adviser and ii
businesses to play a prominent role; Stephen highlights the steps we are
taking in his review.
Progress on delivering on our strategic ambitions and performance in the year
With revenue growth in 2023 expected to be very challenging given the economic
and geopolitical backdrop described above, we set one of our priorities for
2023 to eliminate some £75m of costs, excluding that derived from business
disposals. In part, this was achieved through consolidating or closing
sub-scale funds and sharpening the focus of the investment strategies offered
to clients. All of this was achieved and is discussed more fully in the Chief
Executive Officer's review.
However, the scale of revenue reduction in 2023 as a consequence of market
levels, risk reduction by clients to less remunerated strategies and net
outflows in the Investments business far exceeded the cost savings achieved,
leading to the continuation of an unsatisfactory ratio of cost to revenues in
the Investments business. Performance in our other two businesses was good and
in line with our expectations but that good performance was overshadowed by
the unsatisfactory profitability within Investments. As a consequence, the
Board spent the majority of its meetings in 2023 analysing in detail the shape
of the Investments business against market trends and determining what actions
were necessary and within our control to rebuild the profitability of the
business on a sustainable basis.
This culminated in the announcement made on 24 January that a more significant
reorganisation and simplification of the business than previously contemplated
was needed to address the ongoing pressure on revenues from changing patterns
of asset allocation, in particular the greater institutional adoption of
passive and low cost thematic strategies. As announced, the actions planned
throughout 2024 and 2025 are designed to take at least £150m from the cost
base within the Investments business and from functional costs. Stephen
discusses the necessary actions in more detail in his review.
To build a sustainable business and to grow we need to invest at the same time
and this requires reallocation of capital resources within abrdn.
During 2023 we completed the disposal of our non-core stakes in HDFC Life and
HDFC Asset Management, which augmented our capital position by £576m. The
sale of abrdn Capital which was announced alongside our 2022 results completed
in September 2023 at the agreed price of £140m adding a further £124m to our
capital position. We also completed the sale of our US private equity and
venture capital business in October and in the same month announced the sale
of our European-headquartered private equity business to Nasdaq-listed Patria
Investments. This reshaping of our footprint and capabilities allowed us to
focus on business areas where we have better growth prospects and comparative
advantage and by reducing complexity, we are reducing costs.
As promised, we reinvested a portion of the capital released through the above
disposals to fill out gaps in our Investments business and add technology
capabilities and marketing resources in our Adviser and ii businesses. In
October, we completed the acquisition of the healthcare fund management
capabilities of Tekla Capital Management bringing into the Group $2.8bn of
funds under management and more importantly, adding a distinctive capability
in listed healthcare and biotech thematic closed-end funds. Together with
other recent closed-end fund acquisitions this positions abrdn as the third
largest manager of closed-end funds globally. Investment in our Adviser and ii
business during 2023 to build organic growth opportunities are covered in
Stephen's review.
When we reported our results for 2022 we indicated that our intention was to
make a similar return of capital in 2023 as had been delivered in 2022,
dependent on successful non-core stake realisation and retaining necessary
funds for investment; this we have delivered through a further buyback of
c£300m of shares and the maintenance of the interim dividend at 7.3p per
share. The Board is recommending to shareholders a final dividend of 7.3p per
share subject to their approval at the upcoming AGM to bring the total return
to shareholders in respect of 2023 to £567m (2022: £595m).
We are updating one of our key performance indicators moving forward, from
adjusted capital generation to net capital generation. This metric more
closely aligns with the dividend paying capability of the Company over the
long term.
Board
As previously announced, both Stephanie Bruce, our CFO and Brian McBride, a
non-executive director did not seek re-election at the 2023 Annual General
Meeting at which their significant contributions to the development of abrdn
were recognised. We wish them both well in the next stages of their careers.
In October last year, we welcomed Jason Windsor as our new CFO. Jason joined
from Persimmon plc having spent the vast majority of his career hitherto in
financial services. His financial industry experience and expertise were
gained notably through 12 years at Aviva, latterly as Group Chief Financial
Officer. Prior to that, he spent 15 years at Morgan Stanley in both London and
Singapore, rising to be a Managing Director within its Investment Banking
Division. Jason has made an excellent start at abrdn, and we all are looking
forward to working with him more closely in delivering our strategy.
Catherine Bradley has advised that she will not seek re-election at the
Company's Annual General Meeting on 24 April 2024 and will stand down from
that date as a Non-Executive Director and as Chair of the Audit Committee. On
behalf of the Board and all my colleagues, I would like to thank Catherine for
her significant contribution to abrdn and our Board and Committee discussions.
Earlier this year Catherine took on the chair of ii, our direct-to-consumer
investments business, and she has concluded she should dedicate her available
time commitment to this responsibility. I'm delighted she will remain
connected with abrdn through her ii appointment where we will continue to
benefit from her breadth of consumer, financial and regulatory experience as
we continue to grow ii and the critical role it plays within the Group.
Outlook
Given all current uncertainties, it is hard to form a clear outlook for 2024
and beyond. Our base case assumes no major escalation in global inflationary
pressures across the major global economies or an escalation of geopolitical
tensions and assumes policy interest rates in the US and the UK have peaked.
We assume that, notwithstanding some harsh rhetoric inevitable in an election
year, the US-China mutually beneficial trade relationship will remain intact.
With the US appearing to be successful in engineering a soft landing after an
aggressive succession of interest rate hikes, upside to the global economy
rests upon the US maintaining its solid growth trajectory and China resuming
its contribution as a key driver of global growth and as a major part of the
supply chain in the transition to a lower carbon future. Given other
geopolitical tensions, the US-China relationship remains a top issue in the
investment world. Their shared global economic leadership has led to an
understanding of mutual dependency and notwithstanding tension over high-end
semiconductors and critical minerals, the resumption of trade dialogues and
senior visits are encouraging for the global economy. Outlook for the UK and
the rest of Europe is more muted, with it recently being confirmed that the UK
had entered a modest recession; the investment picture is likely to remain
cautious given electoral uncertainty and the lagging impact of wage increases
and tax changes on consumer confidence.
We enter 2024 with a clear plan of what we need to do to build a sustainable
business with good growth prospects and an efficient cost structure; our
industry is evolving rapidly as technology enables the offer of ever more
sophisticated tailored investment themes and solutions at low cost. Proximity
to the end consumer and an understanding of their investment preferences and
the route through which they choose to invest will be critical. abrdn is well
positioned for this evolution in terms of the mix of our businesses and the
talent and financial resources needed to succeed.
Sir Douglas Flint
Chair
Chief Executive Officer's review
Building a modern investment company
We have continued with our determination to build a modern investment company
that is capable of thriving in a changing marketplace. In January of 2024, we
took the next step in that process, announcing a £150m cost transformation
programme to accelerate the delivery of a more sustainable cost base that can
support appropriate long-term profitability. The need to continue applying
downward pressure on costs was underlined by another challenging year.
Throughout 2023, the 'higher for longer' rate environment across developed
economies put sustained pressure on most asset classes, and while the market
now expects a reversal over 2024, there is no doubt that we have felt the
effects in our Investments business. The upside is the impact higher rates
have had on income in Adviser and ii, underscoring the benefits of our
diversified business model, which delivers through the economic cycle.
When we embarked on our transformation journey back in 2021, not many would
have foreseen the level of global economic and geopolitical turmoil we have
since experienced. That has inevitably hindered our progress, and directly
impacted performance. Nonetheless, as pages 4 and 5 demonstrate, we have moved
at pace to evolve the business and create a model that is better suited to the
modern investment landscape, better aligned to the products and services
clients will want in the coming years and better positioned for future growth.
A platform for growth
As we look ahead, we now have a platform to build on, connecting our
investment content capabilities on the one hand, with our market leading
wealth platforms on the other. We are able to identify where demand is going
and react more quickly than ever, using data sharing between businesses to
design better products and creating tailor-made solutions in Investments that
meet the needs of clients and customers in Adviser, ii, and the wider market.
Sensitivity to rates and markets has been mitigated by our more diverse
business model. We are also well positioned to take advantage across the group
when rates do start to come down, with a move to risk-on giving oxygen to
Investments, an easing of the cost-of-living pressures that have impacted
Adviser, and a return of investor confidence supporting an increase in
subscriptions and trading volumes for ii.
Our new transformation programme will deliver an annualised cost reduction of
at least £150m by the end of 2025. Approximately 80% of the cost reduction
benefits will be in our core Investments business. The programme is targeting
the removal of management layers, increasing spans of control, and reducing
overheads. We will implement this programme with minimal impact to client
service and at all times focusing on investment performance.
2023 performance
At £249m (2022: £263m), adjusted operating profit is down 5% on the previous
year. While Adviser and ii both increased profitability, this was more than
offset by falling revenue in Investments where market conditions had a
substantial impact, as seen across the sector. Overall, we are reporting an
IFRS profit for the year of £12m (2022 restated: loss £546m), this
improvement reflects a reduction in impairment of intangible assets and
restructuring costs.
Our determination to manage our cost base is evident in a 4% reduction in
adjusted operating expenses, even including a full 12 months of ii (compared
to 7 months in 2022). We exceeded our target to remove £75m in cost from the
Investments business, delivering savings of £102m in the year, and we have
since set out plans for a new transformation programme that will deliver a
material improvement to our cost/income ratio.
As detailed below, we have maintained our disciplined approach to capital
allocation in 2023. Jason outlines our performance in detail in the Chief
Financial Officer's overview.
A leaner and more relevant Investments business
After another year of substantial change, we finished 2023 with a leaner, more
relevant Investments business. With the sale of our US Private Equity
franchise and agreement to sell our European Private Equity franchise, and
having continued to deliver on our fund rationalisation programme with the
closure of a further c60 funds in 2023, our more focused offering is based
upon areas of real strength and scale across public markets and alternatives.
This simplification enabled us to go beyond our £75m cost reduction target.
Investment performance over the three and five-year time periods has weakened,
with 42% (2022: 65%) and 52% (2022: 58%) of AUM covered by this metric ahead
of benchmark respectively. The drop in the three-year performance reflects a
challenging period for active managers, particularly those with a quality
equity investment style with a bias towards Asia and Emerging Markets. Our new
Chief Investment Officer, Peter Branner, who joined us in 2023, is leading a
wide-ranging programme of work to review and strengthen our investment
processes. You can read more about this work in the Investments section on
page 22.
The creation of a more focused Investments business has been accompanied
through the careful deployment of capital in select areas where we see good
growth opportunities. Our acquisition of the fund management capabilities of
Boston-based Tekla Capital Management has added specialist knowledge in the
healthcare and biotech sector, an area we have identified as one of a small
number of megatrends that are expected to offer exciting investing
opportunities in the future. Alongside Tekla, the acquisition of other
closed-end funds from Macquarie and the proposed acquisition of funds from
First Trust, would collectively add £3.6bn in AUM and strengthen abrdn's
position as one of the world's leading players in closed-end funds.
Leading positions in the structurally attractive UK savings and wealth market
With an ageing population and the ongoing shift toward individuals having to
take a greater amount of responsibility for their own financial futures, the
long-term structural growth factors underpinning the UK savings and wealth
market are well known. In that context, owning two of the leading platform
businesses in the sector puts abrdn in a strong position, and the work we have
done this year to strengthen those businesses for the future only adds to that
potential.
While the continuation of difficult market conditions through 2023 undoubtedly
had some impact across both our Adviser and ii businesses, this was mitigated
by increased treasury income that supported improved adjusted operating profit
in both Adviser and ii. We note that the FCA has been considering the
retention of interest earned on cash balances and we have been working with
them to ensure they understand our approach. We are confident that both
Adviser and ii offer clients and customers fair and transparent fee
structures.
In Adviser, 2023 saw the largest and most advanced platform technology upgrade
that we have undertaken. As expected, this caused some disruption to service,
but by year-end service levels were returning to normal, and we can now offer,
and build upon, a far superior user experience for our clients. As announced
back in May 2023, this will also see us roll out adviserOS this year - a new
way of delivering platform services to clients that will enhance our
proposition, extend client capacity, and differentiate abrdn from the wider
market.
The year saw our Managed Portfolio Services (MPS) team shift to Adviser from
our ii business. We anticipate strong demand from advisers and believe there
is a significant opportunity for further growth here. The same applies to the
launch of our own on-platform SIPP and Junior SIPP in 2024.
ii also benefited from a significant technology update in 2023 that allowed
the platform to remain ahead in what is a rapidly developing sector. While
market conditions dampened customer acquisition and trading activity, we
enjoyed the comparative resilience afforded by our subscription model and
proved our strength by increasing our share of market trades over the year. ii
also delivered the highest net AUA inflows across UK D2C platforms in 2023,
according to Direct Matters.
Important work to optimise the business model within ii was also delivered.
The sale of our discretionary fund management business to LGT in September
underlined our disciplined approach to capital allocation. The simplification
and integration of our Financial Planning and ii teams showed that we can cut
cost while creating a model we can better leverage for our customers.
Another customer-led development was the launch of our Investor Essentials and
Pension Essentials products, offering lower prices to customers with smaller
investment pots and widening out the breadth of the market for whom ii becomes
the best choice on price. We expect these innovations, and investment in our
brand, will support higher customer acquisition over time, especially as
conditions begin to support improved investor confidence.
Disciplined capital management
The indicative CET1 resources at 31 December 2023 were £1.5bn (2022: £1.3bn)
with a coverage of 139% (2022: 123%). This was facilitated by another year of
disciplined capital management, during which we carefully balanced non-core
divestments with a combination of targeted investment in the business and
continued returns to shareholders.
Organic cash generation and efficient stake sales generated £875m. Consistent
with the previous year, we returned c£600m to shareholders in the form of
dividends and share buybacks, and reinvested £152m largely to continue
growing our closed-end fund business.
We plan to deploy surplus capital to fund the delivery of the £150m cost
savings we have outlined and may use the proceeds from divestments to support
bolt-on acquisitions within key thematic markets. The Board's current
intention is to pay a total annual dividend of 14.6p 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.
Playing our part in creating a more sustainable world
The unfortunate sequence of global crises we have experienced in recent years
may have drawn some attention away from the challenges we face on climate
change but the urgency around the need to respond is only intensifying. Our
Sustainable Investing team were present for the COP28 meeting in the UAE in
November where we were encouraged by agreement for the first time on a
transition away from fossil fuels, which we believe can be a catalyst for
meaningful action. We continue to contribute from two angles; careful
management of our own operations to limit our climate impact, where we are
exceeding our objective of a 50% reduction in reported operational emissions
by 2025 with currently a 69% reduction versus our 2018 base year; and a deeply
embedded approach to sustainable investing that we have cultivated over many
years with an ongoing reduction being reported for 2023 in the carbon
intensity of in-scope public market and real estate assets, meaning we are
also on track to meet our targets in this area (see page 45 for more detail).
Another key aspect of our sustainability agenda is our commitment to offering
an inclusive and supportive working environment.
We have specific approaches in place to address gender, ethnicity and social
mobility imbalances and recorded another successive year of reducing our
gender pay gap. You can read about our efforts in more detail on page 53.
At a headline level, we saw overall employee engagement remain at similar
levels to last year, despite a backdrop of challenging market conditions and
ongoing change within the business. The external environment, coupled with the
scale of change as we transform our business, have undoubtedly been
challenging for our colleagues. Across the company they have shown deep
commitment to our clients and a huge will to rebuild the firm's success. On
behalf of the Board and the management team, I'd like to thank everyone across
the business for their hard work, skill and determination.
The next phase of our progress
Over the last three years we have moved at pace to reshape the company and
create a business model that is fit for the future. We now have more ways to
win, particularly through our enhanced exposure to the highly attractive UK
savings and wealth market, but also with a more focused and more efficient
Investments business. This means we are already far better equipped to address
the well-known challenges facing active asset management. However, we have
also recognised the need to go further still in transforming our Investments
business. The transformation programme set out in January will deliver a
leaner, more profitable Investments business to go alongside our two leading
platform businesses. We are clear that there is more work to do but we are
confident in the trajectory that we have created and the progress that we are
making. Our goal is for all three businesses to make their appropriate
contribution to Group earnings and in doing so, create a sustainably
profitable abrdn.
Stephen Bird
Chief Executive Officer
Our business model
Building a modern investment company
Positioned for success through the economic cycle
Driven by our purpose to enable our clients to be better investors, we have
strengthened our business model through effective capital management and
investment to create strong foundations for growth.
Our strengths and resources
Specialist asset manager providing investment solutions to meet complex needs.
Sustainable investment considerations integral to our investment process.
Strong UK adviser platform offering, powered by leading technology.
UK's second largest direct-to-consumer investment platform.
Strong balance sheet to drive shareholder value.
Positioned to benefit from key investment market opportunities
1
Continued growth opportunities in Asia and emerging markets, driven by:
- Demographics
- Urbanisation
- Economic opportunity
- Wealth effect
2
Energy transition seen across every industry including:
- Homes
- Transportation
- Construction
3
Democratisation of technology and investment
People empowered to shape their own investment decisions
An efficient, diversified model
Strengthened, simplified business
- Strategic focus
- Robust governance
- Effective capital management
Driving investment in long-term growth
- People
- Product
- Technology
Structured around three complementary businesses
- Investments
- Adviser
- ii
Delivered through strong operational processes
Controlled processes
Our control environment helps us manage risk effectively, provide business
security and maintain operational resilience.
Efficient operations
We are building our operating model for agility, speed and efficiency,
supported by technology which aims to deliver the best possible experience.
Long-term value created
Diversified business and a strong balance sheet support long-term value
creation
Investment in long-term growth
Payment of dividends and the return of excess cash to shareholders
How we make money
We earn money mainly from asset management and platform fees based on AUMA. We
also earn revenue from subscription and trading fees, and earn an interest
margin on cash balances.
Read more in the Chief Financial Officer's overview on pages 62 to 75
Value shared with stakeholders
Clients
We focus on delivering outcomes that truly matter to our clients. We draw on
our expertise and insight with the aim of delivering long-term investment
performance.
42%
Three-year investment performance
People
We aim to attract and develop the best people for leadership roles, and to
offer clear pathways for career advancement.
54%
Employee engagement score
Society
We have important responsibilities to society and the environment. We combine
the power of responsible investment with the positive impact we can have
through our operations.
No.1
Ranked asset manager by World Benchmarking Alliance
Shareholders
We aim to create sustainable shareholder value over the long term. We have a
strong track record of returning value to shareholders.
14.6p
Full year dividend
Read more on Stakeholder engagement on pages 54 to 56
Our strategy
A strategy for client-led growth
A strong sustainable business means focusing on the areas where we have the
scale and expertise to win. We have four clear strategic priorities where
existing and emerging market opportunities, and the evolving needs of our
clients, align to our areas of strength.
Asia
Asia is an economic powerhouse - and there's more to come. Long-term economic
growth requires three things: an increasingly skilled workforce, investment in
infrastructure, equipment and technology, and improving productivity. Asia's
emerging markets demonstrate all three of these essential building blocks.
We remain deeply committed to growing our business in Asia. Our track record
in specialist equities, means we are well placed to serve both clients in and
outside of Asia looking to invest in the region.
Progress
- In 2021, we launched the abrdn Sustainability Institute in Singapore and
hired René Buehlmann as CEO Asia Pacific, and then CEO of the Investments
business in May 2023.
- In 2022, we celebrated 30 years of investing in Asia.
- We refocused our model in Asia Pacific exiting Taiwan and Australia and
introducing distribution partnership models.
- In 2023, we launched Strength in Asia, a major brand campaign in markets
across APAC and Europe.
- We led the region on driving Sustainable investing through the
facilitation of Asia Sustainability Week.
Sustainable investing
While scrutiny of Environment, Social and Governance (ESG) approaches has
intensified, clients still want to invest in a way that has the potential to
make a difference as well as providing a financial return - whether that be
through powering the energy transition, protecting biodiversity or driving
positive social change.
We have created a suite of sustainability-focused solutions to meet client
needs. We firmly believe that active engaged investment management is integral
to providing the capital for positive change.
Progress
- In 2021, we launched our climate change fund range. We also created a
new Chief Sustainability Officer position to ensure responsibility for this
integral theme was represented at the most senior levels.
- In 2022, we launched our MyFolio Sustainable Index range in support of
clients' ESG goals and our Emerging Markets Sustainable Development Corporate
Bond passed through the $100m mark in its first year.
- Over the course of the last two years, we have been running an
engagement programme with the highest-financed emitters in our equity
holdings, identifying clear milestones on the path to decarbonisation.
Alternatives
We believe we are in the foothills of the next tech super-cycle which will see
revolutions in biotech and healthcare, clean tech, and digital assets. The
best way to access investment in these areas will be Alternatives.
Our Alternatives business includes our capabilities in real assets, which
comprises extensive global real estate expertise, infrastructure and
commodities. It also offers clients access to major areas of European Private
Credit, as well as compelling and innovative opportunities in the Hedge Fund
sector.
Progress
- We have built out our Alternatives franchise to significant scale with
£76bn of assets, particularly in real estate and logistics. Tritax, which we
acquired in 2021 remains a leading player with two of the biggest listed
logistics funds in the market.
- In 2023, we were appointed by Border to Coast Pensions Partnership, one
of the UK's largest asset owner pools, to support the launch and management of
its UK Real Estate proposition.
- We have enhanced our talent and structure, appointing new Heads of
Private Credit and Real Estate.
- We refocused the business through announcing the sale of non-core US and
European Private Equity businesses.
UK savings and wealth
The decline of defined benefit pensions, the significant advice gap and an
ageing society mean it is more important than ever that UK investors have the
tools and appropriate guidance or advice.
With ii offering market-leading direct investing and our platform providing a
best-in-class proposition to the adviser market, we have successfully
repositioned our business towards an increasingly attractive and growing UK
savings and wealth market.
Progress
- Acquisition of interactive investor brought 400,000 new customers to the
abrdn group.
- Since the acquisition, ii has launched new products and price points,
including Investor Essentials and Pensions Essentials, subscriptions at a
lower price point designed to appeal to investors with less to invest. This
makes ii the cheapest on the market for anyone with £15,000 or more to
invest.
- In 2023, we migrated 5,800 customers from Investments to ii to better
service their needs.
- In Adviser we have retained our 'A' rating for financial strength from
leading independent consultancy firm AKG - with financial strength a key
consideration for advisers when selecting their primary platform.
- In 2023, we delivered a major technology upgrade to the platform to
better service our adviser clients.
Our investments in action
As a specialist global investor with over £360bn of AUM, we help capital meet
opportunity to support the world's ever-changing needs. Informing our approach
are a number of megatrends that are set to influence the shaping of the global
economy, including decarbonisation, urbanisation and infrastructure
development and a shift in economic power to the East.
London based private biopharmaceutical company Quell Therapeutics are working
to deliver transformational and valued therapies addressing a range of
autoimmune and inflammatory diseases, as well as preventing rejection in organ
transplantation. We are invested through two of the four closed-end funds
acquired from Boston based Tekla in 2023 to build out our capabilities in the
biotech and healthcare sphere where technology advances and demographic
changes are set to drive growing opportunities in the future.
Ten Boomgaard in Bruges is the first investment in Belgium on behalf of
investors in the abrdn Pan-European Residential Property Fund (APER) which now
has assets in 30 cities across 10 countries. As demand continues to rise for
good quality housing in key European cities, the fund successfully raised over
€100m in the last quarter of 2023.
The Mirasierra Gallery in Madrid has been recognised as the Best Retail Park
in Spain by leading industry body Asociación Española de Centros y Parques
Comerciales (AECC). Purchased for an institutional mandate, the Gallery brings
together both retail and healthcare centres and was constructed with a core
commitment to sustainable building management.
Power Grid Corporation of India is the country's largest electric power
transmission utility, transmitting about 50% of the electricity used
domestically. Invested in the company through abrdn's Asia Income fund, we see
an opportunity to benefit from infrastructure spending and the massive push
towards renewables and associated infrastructure in India.
Wessex Internet Limited and its majority shareholder, abrdn's third
Infrastructure Fund, ASCI III, announced successfully securing an additional
£35m funding in 2023 for the business's long term growth plans, bolstering
the firm's mission to provide high-speed fibre to the home, and improved
connectivity in rural areas of South-West England.
Performance overview
Results impacted by continued challenging market conditions
Market conditions remain challenging and this is reflected in our 2023
results.
We are taking actions to restore our core Investments business to a more
acceptable level of profitability.
Financial performance summary
£1,398m
Net operating revenue
reduced by 4% to £1,398m (2022: £1,456m) with lower revenue in Investments
mainly reflecting the impact of net outflows and adverse market conditions.
This was partly offset by growth in Adviser and ii.
£249m
Adjusted operating profit
reduced by 5% to £249m (2022: £263m) reflecting the lower profitability in
the Investments business, partly offset by the benefit of the full 12 months
contribution from ii(1) of £127m. Excluding ii(1), adjusted operating profit
was 38% lower than 2022 at £122m (2022: £196m).
82%
Cost/income ratio
was stable at 82% (2022: 82%) reflecting the benefit from the efficient
Adviser and ii cost models, offset by lower revenue in Investments.
(£6m)
IFRS loss before tax
of £6m (2022: loss £612m(2)) was impacted by losses of £178m from the
change in fair value of significant listed investments, restructuring and
corporate transaction expenses of £152m and goodwill impairments of £62m.
(£13.9bn)
Net outflows (excl. liquidity and LBG tranche withdrawals)
of £13.9bn (2022: £10.3bn), representing (3%) of opening AUMA, largely
reflected by lower gross inflows which included the impact of the uncertain
market environment.
1. Relates to ii (excluding Personal Wealth).
2. Comparatives have been restated for the HASL implementation of IFRS 17.
Refer to Basis of preparation in the Group financial statements section.
Capital performance summary
£1,466m
CET1 capital resources
increased to £1,466m (2022: £1,301m), benefiting by £576m from the
remaining HDFC stake sales, partly offset by the impact of the £300m share
buyback in 2023.
£1.8bn
Cash and liquid resources
remained robust at £1.8bn (2022: £1.7bn). These resources are high quality
and mainly invested in cash, money market instruments and short-term debt
securities.
£557m
Value of listed stakes
of £0.6bn (2022: £1.3bn) excluded from the CET1 capital position. Reduction
includes impact of final HDFC stake sales which generated net proceeds of
£0.5bn.
14.6p
Full year dividend per share
was maintained at 14.6p (2022: 14.6p). It remains the Board's current
intention to pay a total annual dividend of 14.6p until it is covered at least
1.5 times by adjusted capital generation.
Our capital resources provide strength to allow investment to grow the
business and be more efficient.
Read more about our financial and capital performance in the Chief Financial
Officer's overview section of this report.
Our businesses - Investments
A refocused Investments business ready to capitalise on areas of strength
The capabilities in our Investments business are built on the strength of our Highlights
insights, which are generated from wide-ranging research, worldwide investment
expertise and local market knowledge. While continuing to offer a £122.4bn
comprehensive range of solutions in public markets and alternatives, we have
simplified our Investments business and refocused our capabilities on areas AUM from our fixed income capabilities
where we have the scale and specialism to capitalise on the key themes shaping
markets. £23.7bn
AUM in our closed-end funds
£102m
Cost reduction in the Investments business, exceeding the £75m target set for
2023
Investment performance(1)
1 year
44%
(2022: 41%)
3 years
42%
(2022: 65%)
5 years
52%
(2022: 58%)
"Faced with industry headwinds and a challenging risk-off environment for a
second year in a row, 2023 was a difficult year for the Investments business.
However, we are taking decisive action to stabilise flows, improve our
cost/income ratio and build the foundations for sustainable growth.
As a specialist asset manager, we continue to see compelling opportunities
across both public markets and alternatives, and I remain confident that we
can deliver value for our global client base, particularly as markets
normalise."
René Buehlmann
CEO, Investments
1. The investment performance calculation covers all funds that aim to
outperform a benchmark, with certain assets excluded where this measure of
performance is not appropriate or expected. Further details about the
calculation of investment performance are included in the Supplementary
information section.
We are a specialist asset manager with £366.7bn in AUM. We focus on areas
where we have both the strength and scale to capitalise on the key themes
shaping the market, through either public markets or alternative asset
classes.
Better outcomes for clients
Risk aware ESG embedded
Alternatives Public markets
Real estate Specialist equities
Private credit Fixed income
Infrastructure and logistics Multi-asset
Alternative investment solutions Quantitative
Positioning our business to capitalise on megatrends
Another challenging year for investors
We have continued to operate in a challenging, risk-off environment with
outflows seen across the market. The notable drop in market values across
emerging markets (EM), fixed income and real assets has presented a
significant revenue challenge. Geopolitical and credit risk persist, while
rising interest rates have continued to drive asset allocation into
lower-risk, lower-margin debt products and cash. With the growing adoption of
passive and index investing also disrupting traditional asset management
models, our business continues to take active steps to not only mitigate these
challenges but also to position itself for a pivot back to growth.
Investment performance over the three-year time period has weakened, with 42%
of AUM covered by this metric ahead of benchmark (2022: 65%). The drop in the
three-year performance reflects a challenging period for active managers
particularly those with a quality equity investment style with a bias towards
Asia and Emerging Markets. To address these challenges, we are committed to
refining our processes by:
- Expanding our thematic equity offering and research capabilities.
- Implementing asset class-specific process enhancements, including
refinement to valuation approaches, portfolio construction techniques, and
risk analytics.
- Evolving our CIO governance structure and introducing 'Team Scans' at
asset class and desk levels to facilitate peer review and to drive continuous
improvements.
- Focusing on strategic technology and data initiatives to enhance analysis
and process efficiency.
Despite current headwinds, clear megatrends have developed that will dictate
market dynamics in years to come. In 2023, we continued to align ourselves to
these trends:
Urbanisation and infrastructure development: With rapid urbanisation, and
growing populations worldwide, the demand for homes and infrastructure
continues to grow, driving capital expenditure and economic activity. We have
significant scale in real assets with £42.8bn of AUM as at December 2023. In
the logistics space, abrdn-owned Tritax remains a leading player with two of
the largest listed logistics funds in the market. Throughout 2023, we
demonstrated momentum across infrastructure, living and logistics, notably
winning a significant mandate with Border to Coast in June to support the
launch and management of its UK real estate proposition.
Climate change and the energy transition: Global carbon emissions rose by
another 1.1% last year, which was the hottest year on record. However, the
global energy transition is well underway, supported by the COP28 agreement to
triple renewable capacity and double energy efficiency by 2030. We continue to
evolve our product range to capture climate commitments aiming to respond to
continued market interest in sustainable and climate investing. In June 2023,
our Climate Transition Bond Fund secured Environmental Finance's 'ESG Fixed
Income Fund of the Year' award, after being recognised for its particular
focus on climate adaptation.
Health and biotech: In October 2023, abrdn completed the acquisition of the
healthcare fund management capabilities of Tekla Capital Management, a
specialist healthcare investment adviser. With the global healthcare sector
grappling with an ageing population and increasing rates of chronic illnesses,
such as diabetes and cancer, the healthcare technology industry has grown
rapidly. In the United States alone, healthcare expenditure has grown at an
annual rate of 6% since the 1980s, as the US population has surpassed 330
million and the obesity epidemic has worsened.
Growth in Asia and emerging markets: Despite the significant headwinds over
the last two years we expect Asia and emerging markets to remain important
drivers of global growth. Our estimates suggest that by 2035, emerging markets
will drive c75% of global growth, with China and developing Asia alone
accounting for 60% of this. With a significant specialism in EM and Asia,
where we have operated for over 30 years, we are well positioned to benefit
from these structural growth opportunities. Despite signs of recovery in Q4,
Asia and EM performance was subdued in 2023. However, we expect both Asia and
EM to deliver improved performances this year and next with opportunities
emerging to further capitalise on our strong insurance heritage across the
regions.
Our progress in 2023
Strengthening our team
In May 2023, we announced changes to the management team of our Investments
business with René Buehlmann becoming sole CEO, Peter Branner joining as
Chief Investment Officer and Xavier Meyer being promoted to Head of UK and
EMEA and Chief Client Officer.
Strategic focus
In July and October we announced the sales of our US and European Private
Equity businesses, respectively with the US sale completing in October and the
European sale expected to complete in H1 2024. These disposals will raise over
£105m for the business and reflect our strategy to focus on areas of strength
and invest in sectors with attractive long-term dynamics.
Delivering significant cost savings
In 2022, we merged or closed c60 funds to simplify our offering and refocus on
scale. In 2023, we continued this process closing a further c60 funds deemed
to be sub-scale, inefficient or no longer aligned with our core strengths.
While closing funds is never a simple exercise, we have significantly
progressed our fund rationalisation programme, which was central in the cost
savings delivered across 2023. This process has also increased scale for our
existing funds, with 74% of our funds now with over £100m in AUM (61% in
2022) and 55% with over £200m in AUM (41% in 2022).
Our most significant headwinds this year have been in emerging markets, Asia
and Global Absolute Return Strategies (GARS) where we have continued to see
outflows. Our EM range is well positioned to pivot to growth once investor
appetite for risk returns, and our GEM Income fund continues its stellar track
record, in which it has performed in the top quartile of the market since
inception. We have taken action following a strategic review to merge or close
funds associated with our GARS range, which completed in December 2023.
In addition to our fund rationalisation strategy, we simplified our management
structure, restructured our Australian operations, and refocused our equities
and multi-asset franchises. These actions, taken in combination, resulted in
the Investments business comfortably exceeding its £75m cost saving target
with £102m in savings delivered in 2023.
c700 Funds at the end of 2023(1)
c580
1. A subset of the abrdn product range in-scope for rationalisation.
Focusing on areas of strength
Simplifying our product range, exiting undifferentiated or sub-scale areas,
and reducing costs has allowed us to intensify our focus on our areas of
expertise in higher-margin products and high-growth sectors with the highest
potential to deliver performance:
Fixed income: Our fixed income offering has considerable scale with over
£122bn AUM across credit, government bond and money market funds in developed
and emerging markets. Fixed income opportunities have been subdued in recent
years by the low-yield environment, but in 2023 we began to see this trend
reverse and our pipeline is now promising. This potential is underpinned by
performance with 81% of our fixed income capabilities outperforming over three
years, and in credit, where we have particular strength, 99% of our assets
outperforming over the same period.
Alternatives: Real estate, infrastructure and logistics all continue to show
attractive annual growth rates and compelling opportunities for scale players.
In 2023, we made a series of investments across European real estate and
infrastructure, with our third infrastructure fund, ASCI III, investing in
Spanish fibre networks, biomethane facilities in Italy and regional heating
and electricity in Finland. At the end of 2023, our Alternatives business had
£76.4bn in AUM including £42.8bn in real assets, £8.8bn in private credit
and £17.1bn in funds of hedge funds and commodity ETFs.
Closed-end funds: In 2023, we announced three significant acquisitions in the
closed-end fund (CEF) space, acquiring five CEFs from Macquarie Asset
Management, the four listed CEFs of Tekla Capital and entering into an
agreement to acquire four CEFs from First Trust, which we expect to complete
in Q1 this year. Assuming the completion of the First Trust funds, these
acquisitions, when taken in combination, would add £3.6bn in AUM,
strengthening our already robust CEF offering. We remain the third largest CEF
manager globally.
Significant insurance expertise: We have nearly 200 years of heritage in
pensions and insurance, and currently run £45bn in pensions AUM globally and
£179bn in insurance assets. This expertise was recognised in the 2023 Asia
Asset Management Awards where we won 'Best Insurance Manager'. In 2023, our
partnership with our largest client, Phoenix Group, delivered £6bn of gross
inflows (£5.2bn net of reinsurance arrangements) from their Bulk Purchase
Annuities business and £4bn of inflows from their Workplace Defined
Contributions business. Phoenix and abrdn continue to explore ways to mutually
benefit from and strengthen our partnership.
Our strategy in action in 2023
Focusing our investment capabilities on areas of specialism & scale to capitalise
on key themes shaping the market
Drive future investment performance Improve flows Deliver operating model efficiency
Refocused Investments into Public markets & Alternatives Archax tokenisation of money market fund Sale of US and European private equity businesses for over £105m
Restructured multi-asset solutions franchise including GARS 300+ proprietary, sponsored, and virtual events allowed engagement with c.80k Merged or closed c60 funds
clients and prospects
New CIO Investment Process organisation Acquisitions in thematic specialisms, including four Tekla Capital CEFs Exceeded the £75m cost savings target set for the Investments business
Throughout 2023 we took decisive action to simplify and refocus our
Investments business. By selectively disposing of non-core businesses, and
delivering significant cost savings, we have better positioned ourselves to
deliver growth as global market conditions normalise.
Jim O'Connor,
Head of the Americas
"CEF acquisitions follow our strategy of building scale, focusing on asset
classes where we have strength, and bringing AUM to the group in a perpetual
capital structure"
Spotlight on closed-end funds
In Q4 2023 we announced the proposed acquisition of four CEFs from First Trust
Advisors which, subject to approval by the funds' shareholders, represents
c£600m in additional AUM. The announcement of the deal followed shortly after
our acquisition of Tekla's four listed CEFs which, in combination with the
five CEFs acquired from Macquarie Asset Management earlier in the year, added
c£3bn in AUM. We spoke to Jim O'Connor, Head of the Americas, who oversaw the
Tekla deal about why abrdn remains acquisitive in the CEF space.
Q: What was the attraction of Tekla Capital?
"As a specialist manager, we seek to deliver value in the areas of the market
where there are inefficiencies and where active management can provide
superior risk adjusted returns.
This acquisition represents a strategic extension of our thematics
capabilities, enabling us to welcome a team of talented investment
professionals specialising in the healthcare sector. We believe this to be an
area of growth underpinned by megatrends in the investable universe with
demographics and technological innovations driving an ever-increasing demand
for life science services."
Q: In a year of fund rationalisation why has abrdn been acquiring closed-end funds?
"CEFs are an area of specialism and vehicles which support long-term
investment outcomes for retail and institutional investors that can't be
replicated by other investment vehicles.
While CEFs are often regarded as complex structures, we believe our experience
and knowledge sets us apart from our competitors. Our scaled operating model
enables us to look after existing CEF product ranges with the ability to grow
via the launch of new funds, secondary market issuances, and corporate mergers
and acquisitions of funds.
In December 2023, abrdn announced that we would invest an amount equal to up
to six months' worth of management fees in the shares of our UK listed CEFs.
The total amount invested as part of this initiative will exceed £30m. This
exercise aims to demonstrate our strong advocacy for the integrity of the CEF
business, and our desire to closely align ourselves with the shareholders of
the funds we manage."
Q: abrdn has executed more listed CEF acquisitions than any other investment manager in the last 15 years, will this trend continue?
"Market headwinds have created a challenging environment for CEFs, which have
been trading at their widest discount levels since the financial crisis. This
has contributed to an environment with opportunities to acquire funds at
attractive valuations. We continue to review the marketplace for opportunities
to drive additional scale and efficiency in our key capabilities or to add new
capabilities of strategic significance."
Our opportunities for growth
- UK pensions and global insurance: We will continue to leverage our strong
partnerships and heritage to drive growth in the pensions and insurance
markets. The UK is the fourth largest pension fund market globally with
£2.2tn in AUM.
- Fixed income: We have strong performance across our capabilities in this
c£20tn market, we will look to leverage this strength as market conditions
become more conducive to fixed income and multi-asset products.
- Alternatives: We will bring our core capabilities across real estate,
infrastructure and private credit to bear for clients this year and beyond
with our significant won not funded pipeline.
- Acquisitions: We will continue to scan the market for bolt-on acquisitions
within key thematic markets, such as biotech and healthcare.
- Group collaboration: interactive investor clients were provided early
access to the IPO of the Short Dated Enhanced Income Fund in July 2023.
Building on this success, we aim to launch a range of thematic ETFs on ii in
2024.
Our businesses - Adviser
Empowering advisers to deliver for their customers
Our Adviser business provides financial planning solutions and technology for 50%
UK financial advisers, enabling them to create value for their businesses and
their customers. We offer a combination of tools and services personalised to of UK advice businesses use our platforms
their needs, including access to the full suite of investment solutions that
abrdn offers as well as a wide range of open architecture investment options. 420,000
Customers
2,600
Adviser firms
£73.5bn
AUMA(1)
Platinum rated by AdviserAsset
12%
AUA market share
90%
Customer satisfaction score
1. Includes Platform AUA of £70.9bn. The MPS businesses moved from Personal
Wealth to Adviser in May 2023. Comparatives have not been restated.
"We remain committed to our strategic ambition - to be the easiest partner for
advisers do business with. We will achieve this by providing frictionless
technology and solutions that help advisers to do business their way.
Following the delivery of our largest ever technology upgrade, our service
experience is back on track and strong foundations have been laid for faster
upgrades and deeper integrations. We have made strong strides forward, but
we're never done. With adviserOS on the horizon we're just getting started."
Noel Butwell
CEO, Adviser
A growing and dynamic market
£4.6tn £590bn £74bn
UK Savings and Wealth Market(1) AdviserPlatforms(2) abrdn Adviser(3)
Performance overview
Despite challenging market conditions throughout the year, our Adviser
business delivered a robust performance, culminating in another year of
revenue and operating profit growth.
AUMA(4)
2021 2022 2023
£76.2bn £68.5bn £73.5bn
Adjusted operating profit(5)
2021 2022 2023
£74m £86m £118m
Market overview
The UK adviser market is expected to grow at an annual growth rate of 11% over
the next five years(2). With c£590bn of advised customer assets currently on
platforms, this suggests c£995bn of assets will be on adviser platforms in
2028. By leveraging our evolving product and technology stack, our Adviser
business is well positioned to maintain its place as a market leader.
1. The Investment Association, Investment Management in the UK 2022-2023.
Figures as at 31 December 2022 and inclusive of retail and institutional
markets.
2. Fundscape Q4 Press Release, February 2024, AUMA as at 31 December 2023.
3. abrdn Adviser AUMA as at 31 December 2023. Platform AUA is £70.9bn.
4. The MPS businesses moved from Personal Wealth to Adviser in May 2023.
Comparatives for 2021 and 2022 have not been restated.
5. The threesixty and MPS businesses moved from Personal Wealth to Adviser
from January 2023 and May 2023 respectively.
Comparatives for 2021 and 2022 have not been restated.
Creating capacity through technology
Robust market dynamics
The rapid transition from a low inflation, low interest rate environment to
one of sustained high rates and stubbornly high inflation has continued to
impact the UK savings and wealth market. A cost-of-living crisis has persisted
throughout the year, leading to many individuals reducing their saving
commitments, or drawing on their existing savings to mitigate higher living
costs, with off-platform cash solutions also increasing in attractiveness.
Against this challenging backdrop it is possible to underappreciate the
significant opportunity that continues to exist within the domestic savings
and wealth market. While savers' propensity and ability to save has been
temporarily dampened, in times of market volatility, high-quality advice from
experienced advisers is invaluable. Additionally, the core drivers of
medium-term flows into the market remain, including the need to invest to
counter the impact of inflation, a steady demand for retirement planning, and
the need to maximise tax allowances in a challenging landscape. We will
continue to champion the role of independent advisers in delivering advice and
support, allowing more individuals and families to plan, save and invest for
their futures.
The democratisation of finance
There has been a continued shift in responsibility onto the individual for
their own financial affairs. Providing advisers the flexibility to consolidate
and control portfolios and wrappers, and to access a suite of tools to manage
their customer's finances on one platform meets this demand. While savers now
have more access to various asset classes than ever, the complexity of their
needs and a lack of understanding of investment strategies underpins the
requirement for specialist advice.
The growing advice gap
In the UK savings and wealth market, demand for advice continues to
significantly outweigh supply, with this savings and advice gap already
running beyond 20 million people. While just over 28,000 qualified financial
advisers currently practice in the UK, an ageing and growing population means
these advisers have faced significant capacity constraints for many years. At
abrdn, we understand that the most efficient means of addressing this capacity
limitation is through strategic technology enhancements. We want to empower
our clients to grow their businesses in line with their ambition. By providing
an enhanced technology solution that allows advisers to onboard and regularly
serve more customers, we not only increase their personal capacity, but in
turn address the wider advice gap for their existing and potential customers.
Research from Investment Trends' 2023 Adviser Technology and Business Report
noted that the average UK adviser is currently targeting a c17% increase in
their client base; our solutions are designed to help facilitate this.
The evolution of platforms
Fragmented, archaic, and limited integration with the advice process have made
the lives of both customers and advisers difficult. Our market-leading
platform is designed to remove technological pain-points and allow advisers to
not only onboard more customers, but also provide them with more flexible,
efficient, and personalised services. We have built future-fit technology,
delivering a number of enhancements focused on areas of the platform where
we've had adviser feedback. In May, we announced adviserOS, which we plan to
launch to market this year. adviserOS represents an extension of services
beyond platform functionality, offering additional services to improve
integration and reduce friction in the advice process.
A vote of confidence from primary partners
We have built our significant market position by sourcing, developing, and
maintaining long-lasting relationships with financial advice businesses of all
sizes. Core to our growth strategy is becoming the primary partner for an
increasing number of our existing and new clients. In 2023, 46% of our AUMA
was held by primary partnership firms, which highlights the confidence of our
clients to place their money with us for the long term and the benefit of the
technology updates the business has made across the year.
Our progress in 2023
A year of transformation
This year, our Adviser business delivered the largest and most advanced
technology release we've ever completed on the Wrap platform. This provided
advisers with a range of upgrades in technology, including improved customer
reporting with 30 customisable features, a flexi-ISA product, and an improved
user interface. As with all technology upgrades of this scale, we experienced
a period of disruption as clients learned to use the new platform. The
platform is now operating as expected, allowing advisers to fully benefit from
the improved functionality delivered.
Integration of MPS
Our Managed Portfolio Service (MPS) was previously part of abrdn's
discretionary fund management business, which was sold in September 2023. Our
MPS range leverages the global investment research capabilities and expertise
from the wider abrdn business, ensuring the optimal asset allocation with
componentry from the whole market. There are three investment styles applied
across four portfolio ranges, with five risk assessed models in each range,
providing advisers with a range of solutions to meet customer's different
investment preferences and attitude to risk.
Over the course of the year, the MPS has now been fully integrated into the
Adviser business and with strong demand from clients, we expect our solutions
to provide a significant growth opportunity starting this year. In December
2023, we re-priced our abrdn MPS and Sustainable MPS to drive this growth as
we looked to leverage our existing relationships with half of UK advice
businesses.
Preparing to launch adviserOS
In May 2023, we announced our strategic intentions for Wrap and Elevate,
upgrading our solutions to become adviserOS. adviserOS is a new approach to
platforms that will enable advisers to achieve more for their customers. It
amplifies our position as the leader in terms of content and experience,
acting as our key differentiator in the market. It is not a rebrand of Wrap or
Elevate, but rather a new technology-enabled solution sitting above a single
platform technology that will provide advisory firms with access to a range of
different services.
adviserOS will enable advisers to meet the challenges they face by creating
efficiency in the advice process through better integration and workflow with
the tools they already use throughout their business. It will support adviser
businesses with tailored support and data-driven insights, reduced keying of
data and unlocking time in front of their customers.
We have developed a prototype and are actively testing and iterating the
launch features of adviserOS with a sample of client firms. The aim of this
approach is to ensure we've done enough research to genuinely understand what
works best and what matters most to our clients before launching this year.
Delivering the abrdn SIPP
In line with adviser feedback, our next phase of platform upgrades is to
launch our new abrdn SIPP and Junior SIPP this year. The launch of these
products forms a core element of our strategy to increase the number of
wrappers per customer amongst our existing base and attract new clients and
customers to our platform.
The new abrdn SIPP will build on the foundations laid in the delivery of our
technology upgrade and will bring the same experience and efficiency
enhancements, whilst also enabling the bulk transfer of the existing Wrap SIPP
from Phoenix. Our SIPP will provide a significant improvement in technology
through digitisation of key processes and straight through processing,
removing inefficiencies in client and customer journeys and the need for paper
forms.
The abrdn SIPP launch will strengthen our product offering with a Junior SIPP,
delivering an additional way for our customers to help save for their children
and grandchildrens' futures, whilst also laying the foundations for
relationships with the advised customers of tomorrow. As with our Junior ISA,
our Junior SIPP will be offered at nil charge to encourage positive savings
habits across generations.
Consumer duty
As a business, we completed a thorough value for money assessment on both
abrdn Wrap and Elevate. The assessment, which can be found on our website,
confirms that both platforms provide fair value to customers.
Financial performance
Difficult market conditions seen in 2022 persisted throughout 2023 and, as
such, flows have been impacted market wide as inflation remained stubbornly
high and as interest rates steadily rose until August. Against these
conditions, our Adviser business saw outflows of £2.1bn (2022: £1.6bn
inflows). However, the business delivered another year of revenue and
operating profit growth, supported by the impact of the increasing base rate
environment on cash margin throughout 2023.
Industry recognition
Our business continues to receive recognition from across the industry. In
2023, we retained an 'A' rating for financial strength from AKG, as well as a
'Platinum' rating from AdviserAsset, and a '5 star' rating from Defaqto for
both the Wrap and Elevate platform propositions. These continued awards are
not only a testament to the quality of our team and solutions, but also form
an important reference point for the advisers who choose to partner with us.
Our strategy in action in 2023
Leveraging technology to create value for clients and grow our market-leading position
Technology and platform upgrades MPS integration Strategy set to grow AUMA through three pillars
adviserOS and abrdn SIPP announced with launches planned in 2024 Re-priced MPS and Sustainable MPS in December 2023 to drive growth Delivering for existing customers by increasing wrappers per customer
Largest ever technology upgrade forWrap completed in 2023 c.25% year-on-year increase in gross inflows from third party IFAs Growth in new clients building on our relationships with over 50% of UK IFAs
Becoming the primary partner for an increasing number of new and existing
clients
After delivering comprehensive technology upgrades in 2023, we have readied
the Adviser business to capitalise on our position as a market leader and to
launch innovative products, including our SIPP, which will support future
growth.
Ashley Brooks,
Managing Director of DB Wood
"abrdn have a great balance of flexible products, a well-priced distribution
platform and market leading reporting functionality"
Why abrdn? We spoke to Ashley Brooks, the Managing Director of DB Wood on what sets us apart from our peers. A 44-year-old business located in Nottinghamshire, DB Wood manages c£1bn on the behalf of around 1,500 households with over 65% of their AUA entrusted to abrdn.
Q: What are the critical factors in being a successful financial adviser?
"Providing financial advice is essentially a people business. In order to succeed you need to deliver high-quality, proactive advice, set clear rules of engagement, and maintain a commitment to doing the right thing for your clients. Ultimately, you need to develop trust while providing a highly personable service."
Q: Why did you first choose abrdn to support your business?
"We've been working with abrdn since 2006. We first began working with abrdn
due to your great balance of flexible products, the well-priced distribution
platform, and your market leading reporting functionality, which allows us to
deliver on our client promises."
Q: Why is abrdn now your primary platform provider?
"abrdn understands our requirements and the challenges that IFAs face in the
UK. Because of this understanding, we are able to work with you strategically
to grow our business and, more importantly, deliver the benefits of scale that
we can pass through to our client base via reduced costs."
Q: Is technology now the key growth driver within the UK financial adviser market?
"Technology is an important component in delivering an effective client
service proposition. As ever, the most important driver of growth in the
market is the relationship between client and adviser. Technology upgrades can
improve these relationships and also create capacity to build new
relationships."
Q: How do you expect adviserOS will improve client experience?
"We expect the adviserOS upgrade to assist our business with its enhanced
integration, personalisation, administration efficiencies and enhanced client
proposition."
Our opportunities for growth
- Launch of adviserOS: adviserOS will introduce a new approach to platforms,
providing clients with a broader
set of tools and capabilities, in addition to the core platform technology, to
drive efficiency in the advice process.
- Launch of our SIPP: Our SIPP launch is central to our strategy of
increasing our wrappers per customer, with our junior SIPP delivering an
additional way for customers to help save for the futures of their families.
- Bulk transfer strategy: We will transfer existing Wrap SIPP customers from
Phoenix to the abrdn platform pension, enabling customers to benefit from the
enhancements delivered.
- Grow our Managed Portfolio Service: We will leverage our reach in the UK
Independent financial adviser market, in which we hold a relationship with 50%
of IFA firms in the UK, to drive growth in our MPS business.
- Group collaboration: We will leverage Finimize capability and content for
our adviser partners as part of the adviserOS upgrade.
Our businesses - ii
The UK's leading subscription-based D2C investment platform
The UK's second largest direct-to-consumer investment platform and number one 407,000
flat fee provider, interactive investor (ii), enables individuals in the UK to
plan, save and invest in the way that works for them. The acquisition of ii Total customers(1)
transformed abrdn, positioning us for growth as one of the UK's leading
personal wealth businesses with positive long-term structural dynamics. £152,000
AUA per customer(1)
£61.7bn
AUMA(1)
19.3%
AUA market share(2)
1. Relates to ii (excluding Personal Wealth).
2. Compeer Benchmarking Report Q3 2023.
"We are pleased with how ii has progressed this year and how we've positioned
ourselves to deliver better outcomes for our growing customer base. Despite
challenging conditions in the UK savings and wealth market, through technology
and product upgrades, we have further empowered retail investors to save for
their futures."
Richard Wilson
CEO, interactive investor
Building a leading position in the UK savings and wealth market
ii is set to benefit from structural drivers in the UK retail investor market.
£4.6tn £326bn £62bn
UK Savings and Wealth Market(1) D2C Platforms(2) Interactive Investor(3)
Performance overview
In its first full year as part of abrdn, ii continued to exceed our initial
expectations and displayed significant potential for market capture and growth
in 2024 and beyond.
AUMA
2022 2023
Personal Wealth £13.1bn £4.3bn
ii (excluding Personal Wealth) £54.0bn £61.7bn
Total £67.1bn £66.0bn
Adjusted operating profit
2022 2023
Personal Wealth £5m (£13m)
ii (excluding Personal Wealth) £67m £127m
Total £72m(4,5) £114m(4)
1. Investment Association, Investment Management in the UK 2022-2023.
Figures as at 31 December 2022 and inclusive of retail and
institutional market.
2. Platforum D2C Market Update, September 2023, AUMA as at September 2023.
3. ii (excluding Personal Wealth) AUMA as at 31 December 2023.
4. Includes loss of £13m in Personal Wealth (2022: profit £5m).
5. Includes ii for 7 months.
The UK's leading subscription-based provider
Empowering retail investors
The acquisition of ii in May 2022 fundamentally changed abrdn as a business.
ii is the UK's second largest investment platform for private investors and
remains the leading subscription-based provider. The business's evolving
platform enables over 400,000 retail investors to access a broad range of
investment and savings products via desktop, mobile app and over the phone.
ii's subscription-based model provides a higher degree of financial resilience
than peers with percentage fee models, however the business has not been
immune from the current subdued levels of investor confidence. ii derives its
revenue from subscription fees, trading commissions, foreign exchange (FX)
transactions and treasury income, with trading commissions and FX most
impacted by the headwinds in the market.
A growing customer base
High inflation and interest rates affected investor confidence throughout the
year and consequently ii's rate of customer acquisition, however total
customer numbers grew from 402,000 to 407,000 in 2023.
Excluding the recently migrated customers from the Investments business, Share
Centre, EQi and customers exiting due to the closure of our pension trading
accounts, customer numbers grew from 299,000 at the end of 2022 to 310,000 at
the end of 2023, an increase of 4%.
As the market begins to show signs of recovery, ii intends to attract net
organic customer growth of over 5% in 2024, driven by further platform
developments, increasing SIPP penetration, the development of our integrated
Financial Planning division and through continued investment in brand and
advertising.
Pleasingly, the business has continued to see inflows of AUMA, with £2.9bn
added in 2023, comprising £3.3bn of inflows into ii and £0.4bn of net
outflows from Personal Wealth, which was largely due to restructuring activity
during the year. If outflows due to the exit of the pension trading account
product are excluded, ii's net inflows increased to £3.9bn, over 7% of
opening AUA. According to Direct Matters, ii delivered the highest net inflows
across UK D2C platforms in 2023.
Resilience in a challenging market
The cost-of-living crisis in the UK has not only lowered customers' propensity
to save and invest but has also contributed to a more risk-averse environment.
Investors are now more likely to move into fixed-income securities and savings
accounts, made more attractive by a steady rise in interest rates, with the
Bank of England's base rate peaking at 5.25% in August 2023, where it has
remained since.
Although the market as a whole saw decreased volumes, ii's market share of
trades increased due to its active customer base, pipeline of new services,
and proposition enhancements. While this market capture is encouraging,
transactional revenues fell 17% in 2023, reflecting lower trade pricing from
September 2023, which reduced the charge for standard UK and US trades to just
£3.99.
Growth potential
Despite relatively flat total customer numbers and reduced trading revenue,
increased treasury income and our focus on simplification and digitalisation
has supported an increased operating margin and an improvement in our cost
efficiency. This highlights the significant growth potential of the business.
As and when the market normalises, new customers can be onboarded at a very
low and decreasing marginal cost, so if customer numbers grow as anticipated
in the medium-term, this lean operating model amplifies that potential for
sustained growth in profitability.
ii's potential is further supported by the medium-to-long term growth drivers
underpinning the UK direct-to-consumer market. The UK is the sixth largest
economy in the world and has a well-developed D2C investment sector. The UK's
D2C industry is already worth over £300bn and with a growing and ageing
population, we are going to see a significant intergenerational transfer of
wealth which will drive further momentum in the market.
A compelling sector
Despite some new entrants, the UK D2C platform market retains high barriers to
entry and better-known platforms with scale and high numbers of active users,
such as ii, benefit from both economies of scale and better developed
technology stacks. UK savings and wealth therefore remains a compelling
industry to be in, particularly as financial education and retail
participation increases.
Our progress in 2023
Introducing Financial Planning
ii's offering has been repositioned during 2023, with the transfer of Managed
Portfolio Service to Adviser in May 2023, and the sale of the discretionary
fund management business to LGT in September 2023.
As ii has continued to grow, we have received numerous requests for financial
planning advice. One of the key synergies outlined when abrdn acquired ii was
to integrate abrdn's financial planning capabilities into the business. Over
the course of 2023, we have further integrated these capabilities, and
restructured our financial planning offering, reducing headcount by 21% and
closing four offices.
Strengthening our platform
One of ii's key growth drivers is the strength of our platform. In a
competitive market with both incumbents and new entrants investing heavily in
their technology, it is essential that both our website and mobile app remain
ahead of the curve. In January 2023, we launched new website infrastructure,
modernising the design, improving user experience, and making our news feed
easier to navigate.
An ever-increasing volume of trades are being made 'in app', with new entrants
to the market, in particular, focusing on creating simple and engaging user
interfaces. While ii still sees the majority of investing activity taking
place via desktop rather than app, close to a fifth of all mobile trades in
the UK were done through our app, highlighting not only the quality of our own
user experience, but the importance of continuing to invest in it. In 2023, we
continued to enhance our app capabilities, including facilitating in-app
currency conversion and AGM/EGM voting capabilities.
- 50,000 new app downloads in 2023
- 26% increase year-on year of clients using our app
- 36% increase year-on-year of in app trades
In Q2 2023, we piloted ii community, a social trading platform allowing users
to discuss shares, compare portfolios and get inspiration from high-performing
retail investors. The app, which will be fully rolled out in 2024 is a social
network encouraging investors to interact and to learn from each other's
trading strategies.
Essential value
In February, ii launched Investor Essentials, an entry-level ISA and/or
trading account, designed for investors with portfolios of under £50,000.
Through the Essentials plan customers below the £50,000 threshold pay a
monthly fee of £4.99 and benefit from free regular investing. At launch,
trading fees were £5.99, which we later reduced in September 2023 to £3.99,
to deliver further value.
Pension Essentials, which was launched in October 2023, is an entry-level
subscription plan for portfolios under £50,000 and is now the best value
pension in the UK for saving pots over £15,000.
SIPP penetration
Increasing product penetration is a key pillar in our growth strategy and
central to this strategy is further market capture of SIPPs. Currently, c15%
of our customers hold a SIPP account with us, an increase of 2.5% over the
last year. In 2023, for the second year running, ii was a Which Recommended
Provider of SIPPs with our growth in the market underpinned by attractive low
fees, including our Pension Essentials plan, and our continuous development of
the customer tools and content.
Introducing the ii's
Despite being the UK's second largest investment platform for private
investors, we have historically tracked behind our peers in terms of brand
recognition. In 2023 we increased investment in marketing, culminating in Q4
with the launch of ii's first television advert and a significant multi-media
campaign.
Award-winning value
In 2023, ii continued to receive positive recognition from its customers,
partners, and stakeholders. At year end, ii had over 23,000 reviews on
Trustpilot, 81% of which were five-star.
In yet another busy year for awards, ii also won Investors Chronicle's Best
ISA, the AIC's Shareholder Engagement Award for the third year running and we
were crowned 'Investor Rights Champion' for a second year running.
Consumer duty
In readiness for the FCA's implementation deadline of 31 July 2023, ii ran a
project to review all requirements in alignment with the Duty's 'Customer
Outcomes'. Areas of focus included: customer journeys and testing of customer
communications; completion of 'fair value' assessments across the product
range; and a review of the 'target market'. Changes to policy and process,
initiated by the project are now embedded within the day-to-day operations of
all functions, with ii well placed to demonstrate compliance with Consumer
Duty.
Our strategy in action in 2023
Building a platform for sustained organic growth
Disposal of DFM business Delivering improved value across our customer base Investment in brand, advertising, and product development
Managed Portfolio Service retained and integrated into Adviser business Launch of Investor & Pension Essentials with over 49,000 customers Launched first national television and out of home (OOH) advertising campaign
benefiting as at December 2023
Sale of DFM to LGT completed allowing the business to focus on platform growth Now the best value platform for portfolios over £15,000 Launched new website and mobile app functionality with further proposition
and financial planning enhancements set to land in 2024
In Q3 2023 over 25% of UK cash market trades in the D2C market were made
through our platform. By upgrading our technology, focusing on delivering
value and by increasing brand awareness with our first national advertising
campaign, in 2023 we laid the foundations for sustained organic growth.
Alain Courbebaisse,
Chief Commercial Officer
"Investment is not something that is generally taught in schools, but it's a
life skill that has the potential to provide financial freedom much earlier in
life."
We asked Alain Courbebaisse, CCO of interactive investor, about the driving
factors behind launching Investor Essentials and why he believes that
investing should be accessible to everyone. Alain joined ii in March 2023 and
is responsible for leading the commercial team, as well as leading ii's
business development and integration activity.
Q: Why does ii use a subscription-pricing model?
"Long-term, a flat fee is just a simpler, fairer way of providing an
investment service. The beauty of flat-fee pricing is that the more people
save and grow their investments, the more they keep. The wider market is
dominated by percentage fee-models, which see customers paying more and more
as their portfolios grow.
Direct feedback from customers and our own market research confirms that
flat-fee is savers' preferred way to invest, and from a business perspective,
it also provides financial resilience with our subscription revenue not being
linked to market levels."
Q: Why did you launch Investor Essentials?
"Investment platforms can be a powerful force for positive change when they
put customer interests at the heart of their pricing. Our flat fee has always
been incredible value for larger pots and we wanted our model to work for a
broader section of the investing public."
Q: How have you found initial client feedback?
"Feedback from clients has been extremely positive and became even more so in
September when we increased the maximum portfolio value to benefit from
Essentials up to £50,000 (from £30,000 at launch). We also made the journey
even simpler by onboarding all our customers onto Essentials plans and then
upgrading them when the value of their portfolio exceeds £50,000."
Q: What does the democratisation of investment mean to you?
"Leaving savings sitting in a low-interest current account or cash,
particularly during periods of high inflation, means that individuals and
families across the UK are at best missing out on the long-term potential of
the stock market and at worse seeing the value of their savings steadily
decline in real terms.
Investment is not something that is generally taught in schools and can be
quite daunting as a novice, but it's a life skill that has the potential to
provide you financial freedom much earlier in life. At ii we don't just want
to enable investment; we want to actively encourage it and you'll certainly be
seeing us continue to focus on education this year."
Our opportunities for growth
- Market penetration: ii continues to focus on organic growth through
increased marketing and aims to continue capturing market share, particularly
from percentage-fee platforms.
- SIPP customers: Our strategy to increase SIPP market penetration continues
and we are targeting 20% net growth in SIPP customers, year-on-year.
- Implementing new solutions: New solutions including the ii Managed ISA and
Managed SIPP, a digitally led financial planning proposition, ii Community and
ii360, a new platform for experienced traders, are being developed to attract
new customers to our platform.
- Group collaboration: ii will continue to collaborate with the wider abrdn
business to share talent, skills, products, and operational capability to
improve the quality and breadth of investment products and services on offer
to customers right across the group.
Sustainability - Overview
Sustainability overview
Supporting our clients, our people, and a credible transition toward a better
world.
Our focus:
Environment Social Governance
Climate and People and opportunities Trust and
nature impact
transparency
Investments
41%
In-scope public market portfolio carbon intensity reduction versus 2019
baseline
(2022: 27%)
25%
In-scope real estate portfolio carbon intensity reduction versus 2019 baseline
(2021: 7% increase)
Operations
69%
Operational emissions reduction versus 2018 baseline
(2022: 70%)
Our people
54%
Employee engagement level (2022: 50%)
43%
Female representation across global workforce (2022: 43%)
Our communities
£2.1m
Contribution to charitable causes
(2022: £2.4m)
Our conduct
99%
Mandatory training completed (2022: 99%)
External rating
AA
MSCI ESG Rating
(2022: AAA)
Climate - Introduction
Delivering our climate strategy
We are committed to enabling our clients and customers to achieve their
climate goals and to contribute to real world decarbonisation.
Learn more about our approach in our 2023 Sustainability and TCFD report.
2018 Our operational emissions baseline.
2019 Our portfolio emissions intensity baseline.
Launched operational climate working group.
Launched investments climate working group.
2020 Published our interim operational emissions reduction target.
Initial pilot with the eco-app Pawprint to help colleagues understand and
reduce their carbon footprint.
Launch of our carbon footprinting tools for investment desks.
Published our first TCFD aligned report.
First report portfolio emissions intensity for equities and fixed income.
2021 Published climate change approach document for Investments.
Published our long-term climate targets for operations and investments.
Appointed our Head of Climate Change Strategy and joined the Net Zero Asset
Managers initiative.
Published our first-year climate scenario analysis research.
First rollout of carbon metrics reporting for clients, in-line with SFDR.
Launched four climate focused products including our strategy in partnership
with the Big Issue Group.
First published real estate net zero investment framework.
2022 Climate performance first included in Executive Director Remuneration policy.
10-year anniversary of Environmental Champions colleague network.
ii integrated into operational footprint.
ii ACE 40 list supports retail investors to find sustainable solutions.
Pilot biodiversity study in partnership with Natural History Museum at Far
Ralia estate.
Publication of credibility assessment pilot research.
Launch of engagement strategy focused on highest financed emitters.
Appointed Chief Sustainability Officer for Investments.
2023 69% reduction in operational emissions versus baseline.
41% reduction for in-scope public market portfolio carbon intensity versus
baseline.
25% reduction for in-scope real estate portfolio carbon intensity versus
baseline.
ii wins AIC Shareholder engagement award, supporting retail investors to
engage with their investments.
Net Zero award from the Scottish Financial Enterprise for our research papers
identifying climate transition leaders.
'ESG fixed income fund of the year' award from Environmental Finance.
2024 First standalone TCFD reporting for Adviser entity.
We intend to publish our Climate Transition Plan.
2025 Target date for 50% reduction in operational emissions versus 2018.
Real estate net zero studies complete for all in-scope funds.
2030 Target date for 50% reduction for in-scope portfolio carbon intensity versus
2019 baseline.
2040 Target date for operational net zero.
Investments business Adviser business ii business Operational impacts
Climate - Governance
Climate oversight and management
Information flow and climate-related actions during the year
Our governance framework
abrdn plc operates using a governance framework aligned to the principles of
the UK Corporate Governance Code (2018) (page 86). Our Board of Directors
oversee the implementation of the company business model and activities of our
businesses: Investments, Adviser, and ii.
The role of our Board and Committees
The Board and Committees provide specific oversight in relation to material
business activities and challenge management on matters, which includes
climate-related risks and opportunities. Examples of this oversight are
outlined on this page, with a focus during 2023 on non-financial disclosure
requirements and approach.
Our Executive Directors
Our Chief Executive Officer serves as the climate sponsor for the business and
bears delegated responsibility from the Board for oversight of climate-related
risks and opportunities. Our Chief Financial Officer is incentivised through
our Executive Director Remuneration policy, alongside our Chief Executive
Officer, to achieve sustained performance against our public targets.
Climate change working groups
Our Chief Executive Officer delegates authority from the Board to our
Executive Leadership Team, and in turn to our climate working groups, to
support the assessment of climate-related risks and opportunities and to
provide related recommendations.
Our Head of Sustainability Insights & Climate Strategy and Head of
Corporate Environment Strategy chair two climate-related working groups, which
are key to our climate governance structure and consist of subject matter
experts from across the business. The groups meet to review and discuss
material climate risks and opportunities and shape strategic approaches to
climate change. These groups are key forums for identifying matters to be
escalated through the Executive Leadership Team and to the Board for
consideration. In 2023, we also established a Climate Transition Plan Steering
Group and supporting taskforces to prepare for the publication of our first
Transition Plan. These forums supported engagement across the business beyond
our existing working group activities.
Our wider sustainability governance
We continue to take a forward-looking view and have taken steps to advance our
governance beyond climate and to sustainability as a whole. Additional
information is available in our Sustainability and TCFD report, available at
www.abrdn.com/annualreport (http://www.abrdn.com/annualreport)
January 2023
Audit Committee review of strategy and approach for non-financial disclosure,
alongside regulatory requirements, and forward-looking objectives.
February 2023
Audit Committee review of paper advising of controls and processes for key
sustainability disclosures related to the 2022 Annual report.
Remuneration Committee review of performance against sustainability-related
targets to inform Executive Director remuneration.
Board noting of 2022 Sustainability and TCFD report.
June 2023
Remuneration Committee review of performance against sustainability-related
targets.
Strategic update from Chief Corporate Affairs and Investor Relations Officer
to the Board, including corporate sustainability priorities.
October 2023
Remuneration Committee review of performance against sustainability-related
targets.
December 2023
Audit Committee review of paper advising of controls and processes for key
sustainability disclosures, as relates to the 2023 Annual report.
Strategic update from Chief Corporate Affairs and Investor Relations Officer
to the Board, including actions taken to prepare our first Climate Transition
Plan.
Climate - Strategy
Climate-related risks and opportunities
Our climate risk and opportunity radar
Our sustainable investing opportunity Our focus on reporting
Many of our clients are interested in opportunities from sustainable The regulatory landscape for sustainability reporting continues to move at
investing. This is a strategic focus for our Investments business as we pace. Due to the global nature of our business, we are exposed to an array of
provide the solutions and insight to enable these objectives. In early 2022 we emergent reporting standards, and there is a risk of inadvertent
appointed a Chief Sustainability Officer for the business, alongside a newly non-compliance, alongside costs to resource and report the required
created Sustainability Group. Our focus has since been recognised with disclosure. Our first and second-line teams continue to monitor the regulatory
external awards, such as Environmental Finance's ESG fixed income fund of the landscape and we are alert to the implications of frameworks such as ISSB and
year, and the Scottish Financial Services Award for Net Zero in 2023. We CSRD. We have historically been an early adopter of sustainability reporting
believe there is a long-term opportunity to enable sustainable investment for frameworks, such as TCFD, so believe we have a strong foundation to achieve
our clients and continue to invest in our people, tools, and capabilities to implementation. Nevertheless, there is a risk that we inadvertently fail to
support this. Conversely, we also recognise the risk innate to shifting client meet the expectations of our stakeholders, with potential costs and
preferences should we not be positioned to meet evolving needs. reputational impacts as the consequence.
Identified climate opportunities Potential financial impact to abrdn Applicability Time horizon Likelihood
Products Development of lower Revenue opportunity from demand for lower-carbon products and services A B C D 0-10 yrs Possible
and services
carbon investment products and services
Resource efficiency Use of more efficient buildings, technology and transport Reduced operational costs D 0-10 yrs Probable
Identified climate risks Potential financial impact to abrdn Applicability Time horizon Risk score
Policy Burdensome costs and/or regulatory non-compliance due to enhanced reporting Costs to gather, analyse, and publish data A B C D 0-5 yrs Medium
and legal regulations
Costs of inadvertent non-compliance, due to volume of global regulation A B C D 0-5 yrs Hi
gh
Market Not understanding shifts to client and customer preferences Reduced revenue from decreased demand for products and services A 0-10 yrs Medium
Potential for missed opportunities due to lack of suitable products and A B C 0-10 yrs Me
services di
um
Uncertainty regarding public policy on climate change Lack of clarity regarding the pace, direction and evolution of public policy A 0-10 yrs Me
exacerbates market uncertainties and associated returns di
um
Climate-related events impact the financial markets Volatility impacting clients and reducing revenue and financial performance. A 0-10 yrs Me
Potential for financial instability di
um
/H
ig
h
Potential for financial market instability and uncertainty A D 0-10 yrs Me
di
um
/H
ig
h
Reputational Increased stakeholder concern or negative sentiment Reduced revenue from decreased demand for products and services A B C 0-5 yrs High
Costs associated with potential litigation due to investment decisions A D 0-5 yrs Hi
gh
Physical Increased severity of extreme weather events Costs associated with damage to infrastructure, technology, and disruption to D Ongoing Medium
power networks
Costs and operational impact of non- office-based disruption to D Ongoing Me
colleagues/third party suppliers di
um
Time periods for climate risk and opportunity radar: A Investments B ii C Adviser D Operational impacts
Short: 0-5 years Medium: 5-10 years Long: 10+ years
Climate scenario analysis
Our approach to understanding transition pathways, within managed investments.
Our beliefs driving our analysis
We believe climate scenario analysis is a critical tool to enable a thorough
understanding of climate-related risks and opportunities. It is vital that we
understand how physical climate change, and the energy transition, may
potentially affect the investment returns of the companies and markets in
which we invest on behalf of clients. We believe that doing so will support
increased resilience, enable us to encourage positive change at the companies
in which we invest, and support client objectives. However, there is still
uncertainty regarding exactly how policies, technologies and physical impacts
will unfold in the future.
Our bespoke approach
Climate scenario analysis provides the means to conduct a forward-looking,
quantitative assessment of potential financial impacts arising from climate
change. We use a combination of 18 bespoke and industry standard scenarios
across a range of temperature rises (between 1.3 and 3.2˚C by 2100) and
transition pathways up to a time horizon of 2050. Our industry standard
scenarios are based upon those created by the Network for Greening the
Financial System (NGFS), with our bespoke approach allowing us to incorporate
plausible policy assumptions across regions and sectors. This results in a
mean scenario that captures our view of the most plausible energy transition.
Our third-party modelling partner supports our analysis and refinement of our
insights on an annual basis. Our approach goes further to consider the
credibility of company transition plans, using a six-factor scoring framework
developed in-house. This addresses one of the primary challenges of scenario
analysis in that companies negatively exposed to the energy transition can
also alter their strategies and take advantage of transition opportunities.
Our credibility assessment covers approximately 1,200 of the largest firms by
sector, which means that 79% of the 1,000 largest equities in our climate
scenario tool are covered by this assessment.
Limitations of modelling
Our framework has limitations inherent to forward-looking analysis and
assumptions. Our analysis is primarily focused on equity and fixed income
assets, and it is important to acknowledge a reliance on external data, which
though improving, remains lacking across some regions and sectors. Our climate
scenario analysis cannot capture the impacts from companies coming into and
out of business during the energy transition. Our baseline scenario also
assumes that the market has accurately priced transition risks and does not
account for market inefficiencies or level of understanding of market
participants. The overriding limitation is that our exercise is a
simplification of the real world and must be reviewed alongside other analysis
to support effective decision-making.
Our insight and conclusions
Our latest insight suggests the world is not on track to achieve Paris
Agreement goals, with our analysis suggesting that the most likely outcome is
a 2.3°C world by 2100. Our framework allows us to generate forecasts on the
effects of our climate scenarios on over 24,000 equity assets and 52,000
corporate bonds. This can be aggregated to sector, regional, and fund levels.
However, our core insight is that the impact from climate change is mostly a
micro phenomenon. This is because at an aggregate level the negative impacts
on individual securities are largely offset by positive effects on others;
therefore, suggesting actionable insight comes from looking at the dispersion
across and within sectors. Figure 1 illustrates this and plots the dispersion
of uplifts and impairments across sectors using our mean scenario as our most
plausible view of the energy transition.
Resilience of abrdn as a firm
Our climate scenario analysis takes an external view to inform our investment
processes. The resilience of the Group is explored in the Viability statement
on page 74.
Figure 1: Diagram removed for the purposes of this announcement. However it can be viewed in full in the pdf document
Estimated asset impairments and uplifts from our latest research
Probability weighted mean scenario, February 2023.
Climate - Risk management
Our climate change toolkit
Identifying and managing climate-related risks
Climate-related risk is integrated within our Enterprise Risk Management
Framework, which is subject to Board oversight. We operate 'three lines of
defence' with defined roles and responsibilities across the business. Climate
change is considered amongst our principal risks and uncertainties but is not
defined as a principal risk due to its close association with other risk
categories.
In other words, we view climate risk to be material, but it is better
perceived through financial or regulatory and legal risk categories at the
enterprise level. More information on our principal risks from pages 76-79.
Identifying and assessing climate-related risks
Our identification of climate-related risks and opportunities is led by our
first line sustainability teams, with our Group risk assessment being based on
our Enterprise Risk Management risk impact matrix. Our Investments business
has a dedicated Sustainability Group, led by our Chief Sustainability Officer,
and we have a Corporate Sustainability team which works closely with our
businesses to identify and manage sustainability risks and opportunities,
including those related to climate change.
Our climate risk and opportunity radar (page 41) reflects our assessment.
Climate change considerations are part of our day-to-day risk management
processes, but we periodically revalidate our Group assessment. In January
2024, our Chief Risk Officer chaired a workshop with representatives from
across abrdn to refresh our radar. The focus of the radar is the likelihood
and impacts of risks and opportunities, and we have mitigation, or realisation
strategies aligned to each risk or opportunity. We consider inherent risk and
quality of controls to determine a residual risk score.
Our business is predominantly exposed to transition risk (and opportunity) as
markets, policy, and regulations come to terms with alignment to a lower
carbon world. This is of particular significance for our Investments business
as we invest on behalf of our clients and incorporate material climate-related
risks and opportunities into our investment processes. We believe our Adviser
and ii businesses face less direct exposure to climate-risks, as platform
versus investment management businesses.
Managing risk with our climate change toolkit
In addition to the expertise of our sustainability and ESG professionals, we
have developed a range of tools to integrate and inform both our internal
decision-making processes and those of our platform clients. These tools
support decision-making with data, research, and insight, and in the case of
our Investments business, are integrated with our risk management
processes.(1) It is important to be clear that climate considerations are not
material to every investment decision, and integration depends on the
objective of the fund or strategy, nor are tools without limitations.
Supporting data is drawn from a range of vendors with different levels of data
coverage. We aim to improve our capabilities each year.
A Carbon metrics
Provides a baseline for measuring climate impact, providing an understanding
of portfolio carbon intensity and financed emissions. This enables an
understanding of climate-related risks at portfolio, sector, and company
levels.
A Climate scenario analysis platform
Provides a forward-looking view on transition and physical risks and
opportunities. Enables assessment of potential financial impacts by geography,
sector, and company. Supports portfolio construction and solution development.
A Credibility assessment framework
Our framework assesses corporate net zero targets using a six-factor scale,
considering ambition, performance, readiness, policy environment, market
penetration, and governance. This supports our identification of transition
leaders.
A Portfolio alignment
In 2023 we developed a portfolio alignment tool, which assesses target design
and emissions performance of 20,000+ companies. We translate the output to
three alignment metrics, with initial application to a subset of our funds.
A Blueprint for Decarbonisation: Real Estate
Our direct real estate investment process is informed by 21 sustainability
indicators, which include climate factors to support the determination of
risks and opportunities. This is an input into our due diligence process.
B ii ACE 40 investments
The 'ACE 40' list aims to support retail investors to find quality choices
among the available universe of sustainable funds across asset classes,
regions, and investment styles to allow them to construct a global
well-diversified portfolio.
C Adviser platform enablement
Our platform provides access to a range of sustainable investment options. We
believe this is an increasing consideration for advisers and provide
information outlining common types of sustainable investments on our website.
A Investments
B ii
C Adviser
1. Further information on toolkit applicability in our 2023 Sustainability
and TCFD report, available at www.abrdn.com/annualreport
Climate - Risk management
Active ownership and solutions
Enabling decarbonisation through ownership and solutions
Focus on real-world decarbonisation
Our climate engagement strategy is focused on understanding climate-related
financial risks within our holdings and driving real-world decarbonisation.
One way we can do this is through engaging with our largest financed emitters
to seek transparency on decarbonisation milestones and to advocate for
increased disclosure. In 2022, for our public market investments, we launched
a two-year engagement programme with our top 20 largest financed emitters. Our
expectation is that over two years we will observe meaningful progress against
climate-related milestones. If we do not see sufficient progress against these
milestones, we will take voting action and/or consider reducing our financial
exposure, if we believe a lack of progress represents a clear financial risk
to our clients. Our assessment of companies is informed by relevant standards,
such as the Climate Action 100+ net zero benchmark, and our own credibility
assessment framework. We provide additional information on our progress to
date in our Stewardship report and Sustainability and TCFD report. Available
at www.abrdn.com/annualreport (http://www.abrdn.com/annualreport)
Exercising voting and ownership rights
In addition to encouraging improvement through targeted engagement, we may
take voting action at companies that we identify as climate laggards and on
climate-related shareholder resolutions. Our public voting policy outlines our
expectations, and we disclose our voting decisions on our website the day
after a general meeting. We use data from groups, such as CDP, to inform our
decisions and understanding.
Climate change resolutions 2023 2022
Resolutions voted 162 141
Votes in favour 40% 56%
Votes against management 55% 26%
'Say on climate' resolutions
We are supportive of ambitious corporate sustainability strategies and targets
but note an increasing trend toward those strategies being tabled for
shareholder approval. While we welcome the intention of the transparency, we
believe they have the potential to dilute board accountability and limit
potential future investor challenge. We have therefore taken the decision to
abstain from those resolutions, as we believe other mechanisms offer more
effective approaches.
Collaboration and advocacy
We are members of the Net Zero Asset Managers initiative, the Institutional
Investors Group on Climate Change (IIGCC), the Powering Past Coal Alliance
(PPCA) and Climate Action 100+. We are also research funding partners for the
Transition Pathway Initiative. Our belief is that industry collaboration is an
important mechanism to encourage action and promote best practice. The Net
Zero Investment Framework (NZIF) from the IIGCC is the foundation for our
approach to climate solutions. We contributed toward NZIF as part of our
involvement with IIGCC.
Investment solutions in support of climate goals
We are proactively developing climate transition and low carbon investment
solutions to align climate ambition with investment opportunity, to help our
clients achieve their climate goals. We work with current and prospective
clients to understand and enable their objectives. Our focus is to offer a
range of options for clients, whether they have made commitments to net zero,
or are interested more broadly in transition opportunities.
Climate considerations are incorporated to different extents across our fund
range, with our sustainability focused solutions designed to meet four broad
types of client needs. We offer a small number of climate thematic funds, but
also apply climate-related screens, or decarbonisation targets to other
sustainability focused products. We also work directly with clients on
segregated mandates to outline how we can support any climate-related
objectives they may have. This is in addition to using tools, such as climate
scenario analysis, and research capabilities to inform our wider investment
processes (pages 42 to 43) .
Many of our clients have set goals aligned to net zero but this does not
automatically translate to mandates. Markets and policy environments need to
align to support decarbonisation at pace. Equally, terms like sustainability
and ESG are increasingly subject to public challenge. Against this backdrop
our Head of Sustainability Insights and Climate Strategy spent time during
2023 speaking with clients in the US, Australia, Singapore, Hong Kong, and at
COP28; hearing first-hand from investors as to their priorities, and
highlighting some of the risks and opportunities we have identified related to
climate change. We will continue to actively engage with our clients in
support of their objectives.
Climate - Metrics and targets
Portfolio decarbonisation
We are targeting a 50% reduction in the carbon intensity of in-scope assets
versus a 2019 baseline by 2030, within our Investments business.
In 2023 we report a 41% reduction in the carbon intensity of in-scope public
market assets (2022: 27%), and a 25% reduction to the carbon intensity of
in-scope direct real estate assets (2021: 7% increase), versus our 2019
baselines.
Public markets: Progress to date
This is our second year of reporting against our target, with a 41% reduction
in the carbon intensity of in-scope public market assets versus our 2019
baseline (2022: 27%). In-scope assets include equities, fixed income, and
active quantitative strategies, with decarbonisation across each asset class.
Our progress to date is in-line with our initial expectations, based on
emission intensity trajectories from climate scenario analysis, and we note a
gradual increase to client mandated decarbonisation in segregated accounts,
which is an important enabler to achieving our target. We also note client
inflows to low-carbon quantitative strategies over the last three years, with
these products being a significant contributor to reducing public market
carbon intensity, due to targeting low-carbon exposures as part of the product
strategy mandate.
Real-world decarbonisation
There remain significant challenges to overcome to achieve real-world
decarbonisation, including favourable policy environments, data availability,
and client demand. Reductions in portfolio carbon intensity may not be
attributable to real-world impact. Our strategy to drive this change is
supported by climate scenario analysis, work to understand corporate
credibility (page 42), active ownership, and solutions development (page 44).
Our carbon target is an aggregate indicator and does not reflect specific
objectives of all clients and funds.
Additional portfolio emissions metrics
Our teams can monitor a range of carbon metrics, with tools enabling
disaggregation to specific holdings. These metrics are not part of our target
but can inform our processes, and support climate-related risk management.
Real estate: Reporting a less volatile metric
In our 2022 disclosure we noted our intention to introduce the calculation of
real estate emissions intensity by floor area (m(2)). This is a static
denominator; whereas our previous metric used valuation (£GAV), which can be
volatile and may less meaningfully represent the carbon intensity of real
estate assets. We are restating our data using the floor area metric, as we
believe this to be a more credible basis to monitor our long-term target.
Drivers of change in carbon intensity
Between 2019 and 2022, we note a reduction in carbon intensity by floor area
of 25%. This can be attributed to changes to property type composition of
in-scope portfolios, decarbonisation of UK and EU energy grids, and more
efficient management of assets. We note a reduction by floor area of 35% to
office assets, which typically have a higher carbon intensity than other asset
types. This is often due to the proportion of landlord procured energy (Scope
1 and 2) being higher for offices than for retail and industrial parks, where
tenants often procure a higher proportion of energy. Changes to our portfolio,
such as this, mean that our reported reduction cannot be directly attributed
to real-world changes. However, on a like-for-like basis (e.g. assets that
were held through 2019 and 2022), we note an 18% reduction in carbon
intensity, illustrating a carbon intensity reduction irrespective of portfolio
change.
Taking the long-term view
Our portfolio of assets is diverse, and we have a framework to understand the
actions required to support our target. This is expected to outline transition
pathways for all our direct real estate funds by 2025, with supporting actions
to achieve real-world decarbonisation.
Public market decarbonisation 26% AUMA) Real estate decarbonisation (2% AUMA)
WACI: tCO(2)e/$m Revenue (Scope 1 and 2) Carbon intensity: kgCO(2)e/m(2) (Scope 1 and 2)
41% reduction (2022: 27% reduction) 25% reduction (2021 : 7% increase)
2019 234.4 2019 11.05
2022 171.5 2022 11.78
2023 139.0 2023 8.26
Weighted average carbon intensity (WACI) is our method of tracking public Carbon intensity for in-scope direct real estate is normalised by floor area
market decarbonisation, in line with the original recommendations of TCFD. and reported for the 2022 financial year. There is a significant lag to the
In-scope assets include equities, fixed income, and active quantitative collection of real estate metrics from individual assets, preventing reporting
strategies. to 31 December 2023.
2019 11.05
2022 11.78
2023 8.26
Weighted average carbon intensity (WACI) is our method of tracking public
market decarbonisation, in line with the original recommendations of TCFD.
In-scope assets include equities, fixed income, and active quantitative
strategies.
Carbon intensity for in-scope direct real estate is normalised by floor area
and reported for the 2022 financial year. There is a significant lag to the
collection of real estate metrics from individual assets, preventing reporting
to 31 December 2023.
Further information available in our 2023 Sustainability and TCFD report,
available at www.abrdn.com/annualreport
Operational targets and emissions
We are targeting operational net zero by 2040, with clear progress versus our
interim objective.
In 2023 we remained on track to meet our objective of a 50% reduction in
reported operational emissions by 2025. We report a 69% reduction versus our
2018 base year. This is driven largely by a significant reduction to business
travel since 2018, which we attribute to the adoption of hybrid working within
abrdn, and amongst those we work with. We also note significant declines in
emissions associated with energy use in our office since 2018, which we have
consolidated as part of wider organisational change programmes. Year-on-year,
we note an increase in reported operational emissions by 4%.
Despite a fall in travel related emissions since our baseline year, we note an
uptick in business travel since 2022, which is offset by reductions in energy
use in our offices, and a reduced estimate for employees working from home
(see page 47). This increased business travel demonstrates a partial return to
pre-COVID-19 working patterns, with our challenge now to support behaviour
change to address these residual emissions. Our ways of working have
fundamentally changed, with this now fully reflected in our corporate
emissions profile. Further information, including limitations, and reporting
method provided on page 47.
Operational climate targets(1) 2018 2022 2023 % change
base year
versus base year
in metric tonnes of CO(2)e (tCO(2)e)
Operational net zero by 2040 32,218 9,550(2) 9,919 -69%
50% reduction in operational emissions by 2025
Scope 1 and 2 reported emissions
in metric tonnes of CO(2) e (tCO(2) e)
Scope 1(3) 2,667 817 739 (r) -72%
Scope 2 (Location based)(4) 7,069 2,031 1,821 (r) -74%
Total Scope 1 and 2 (Location based) 9,736 2,848 2,560 -74%
Scope 2 (Market based) 4,376 687 558 -87%
Scope 3 reported emissions(5)
in metric tonnes of CO(2) e (tCO(2) e)
Fuel- and energy-related activities 451 150 135
Waste from operations - 5 7
Business travel(6) 22,031 4,175 6,012
Employees working from home(7) - 2,372 1,205
Total Scope 3 22,482 6,702 7,359 (r) -67%
Total energy consumption
in kilowatt-hours (kWh '000s)
UK energy consumption 26,658 10,639 10,746 -60%
Global energy consumption (excluding UK) 8,451 2,388 1,812 -79%
Total energy consumption 35,109 13,027 12,558 (r) -64%
Emissions intensity metric
in metric tonnes of CO(2) e (tCO(2)e)
Scope 1 & 2 emissions intensity per full-time employee 1.57 0.56 0.54 -66%
equivalent (FTE)(8)
Reported emissions by location
in metric tonnes of CO(2) e (tCO(2) e)
Scope 1 UK 2,629 776 702 -73%
Global (excluding UK) 38 41 37 -3%
Scope 2 (Location based) UK 4,181 1,305 1,275 -70%
Global (excluding UK) 2,888 726 546 -81%
1. Operational net zero and interim reduction targets are based on reported
Scope 1, 2, and 3 absolute emissions (tCO(2)e) reductions.
2. 2022 total restated to 9,550 tCO(2)e (previously 14,246 tCO(2)e)
following the application of a revised method to estimate employees working
from home.
3. Scope 1 emissions include natural gas, fluorinated gas, company-owned
vehicles, and stationary fuel.
4. Scope 2 emissions include purchased electricity and district heating.
5. Scope 3 reported emissions do not include some emissions categories
deemed to be material but where data is currently unavailable. Refer to page
47.
6. Rail and flight journeys for business travel are calculated using the GHG
Protocol's distance-based method. Exclusions apply to countries in APAC, where
only Singapore and Australia are included.
7. 2022 estimate associated with employees working from home restated to
2,372 tCO(2)e (previously 7,068 tCO(2)e) due to methodology changes. Refer to
page 47.
8. Emissions intensity reporting based on FTE as of 31 December 2023 of
4,719 (2022: 5,130 and 2018: 6,192). We deem this the most applicable
intensity metric for our operational emissions footprint due to our impacts
largely relating to how and where we work, e.g., offices, travel, and
homeworking.
r 2023 data subject to Independent Limited Assurance in accordance with
ISAE(UK)3000 and ISAE3410 by KPMG. Assurance statement and detailed reporting
criteria included in the Sustainability and TCFD report at
www.abrdn.com/annualreport
Emissions reporting
Method and supporting commentary
Operational reporting methodology
Our emissions inventory on page 46 is reported in line with Greenhouse Gas
(GHG) Protocol. We use an operational control boundary and exclude any joint
ventures and associates. Emissions associated with our direct operations are
therefore representative of abrdn plc and its wholly-owned and operated
subsidiaries.
Scope 1 and 2 emissions categories
Scope 1 and Scope 2 emissions are captured and converted from recorded
metrics, such as kilowatt-hours (kWh) to tonnes of carbon dioxide equivalent
(tCO(2)e) using regional guidance on conversion factors. If data is
unavailable for in-scope sites on 31 December, emissions are estimated using
comparative time periods or other applicable methods.
Reported Scope 3 emissions categories
We report fuel and energy related activities (Category 3), waste from
operations (Category 5), business travel (category 6), and an estimate for
employees working from home. For each category we follow GHG Protocol guidance
and prioritise the conversion of real data, such as passenger kilometres
travelled, to tCO(2)e using applicable conversion factors. We are reliant on
third parties for the collection of some of this data, including waste
contractors and travel booking platforms. There are also immaterial
limitations linked to completeness in that data may not always be available
for our entire estate or is subject to estimates or apportioning due to shared
offices. We prioritise reporting based on proportion FTE and aim for
continuous improvement year on year.
Other Scope 3 emissions categories
We do not currently report against all 15 categories of Scope 3 defined by the
GHG Protocol. Our assessment is that some categories are not material due to
the nature of our operations. However, we acknowledge gaps related to
purchased goods and services (Category 1), capital goods (Category 2),
employee commuting (Category 7) and investments (Category 15). During 2023 our
procurement function has worked to develop a Category 1 and 2 baseline, which
we expect to report in future. We also carried out an employee survey which
will enable us to establish a Category 7 baseline. Our focus for Category 15
has been to enable our clients to understand emissions related to their
portfolios and we disclose portfolio carbon intensity metrics on page 45, with
scope limited by data coverage and availability. This does not currently
include financed emissions associated with the assets on the abrdn balance
sheet (pages 162-163). Our intention is to disclose all material emissions
categories over time. However, our priority is to ensure the data capability
to enable client objectives. We will continue to allocate resources with that
view but expect to add to our disclosure over time. This may result in
adjustments to our reported baseline and targets in future periods.
Restating emissions linked to homeworking
In 2022 we noted our intention to reflect on our approach to estimating carbon
emissions associated with colleagues working from home. We continue to believe
this is the right thing to do but acknowledge the lack of an accepted standard
method to calculate those emissions. In 2023 we have revised our approach in
collaboration with our partners, Pawprint, using an employee survey to inform
the basis of the calculation. Our 2023 figure (1,205 tCO(2)e) is significantly
lower than previous years' estimations. This is due to a reduction in
homeworking, more nuanced analysis of home energy use and the model now
accounting for numbers of people working from home and dividing the energy
requirements per individual. We have also restated our 2022 figures using our
new methodology with Pawprint to enable the reporting of comparative figures.
Portfolio emissions metrics
As investors we do not have access to real-time emissions data from companies
and assets. There also remain significant reporting gaps across some regions
and sectors, with Scope 3 reporting still to fully develop. We use Scope 1 and
2 data to track progress against our target and report core portfolio level
metrics (page 45). The source for this data set in public markets is a
specialist third-party provider, whereas data for real estate is collected
directly from those assets. Both routes include a lag associated with data
being reported, collated, and made available to investors. Asset classes other
than listed equity, corporate credit, and real estate remain difficult to
accurately monitor due to data availability and nascent methodologies. Our
portfolio metrics are based upon the original recommendations of TCFD, and
methods established by the Partnership for Carbon Accounting Financials
(PCAF), which we believe to be best practice. It is also important to
recognise that portfolio-carbon metrics are subject to volatility not related
to changes in emissions, with revenues, asset values, and markets as key
drivers. We believe that tracking and reporting these metrics is critical, but
that tools such as climate scenario analysis (page 42) are also essential to
support decision-making.
People - Our commitments
Our commitments
We are:
Client first "I'm a problem solver - if I can't find the solution to a clients' needs,
From every seat in our business, we understand our unique role in enabling our clients to be better investors, regardless of where we fit in the organisation. I'll find someone who can (and see it through to the end!)"
Kate Doyle
Empowered "Empowerment leads to trust and a sense of ownership, and this can in turn
lead to increased speed of delivery"
We speak up, challenge and act. We take ownership for our work, we accept Will Lynch
accountability for our successes and, when they happen, our failures too.
Ambitious "Ambition means constantly seeking new and improved ways of doing things"
Jacqueline Tan
We strive for exceptional performance. We also know when to balance pace with
perfection to get things done. We are passionate about the positive impact we
can have on our business.
Transparent "Transparency is about being open with people - it helps to build trust and
confidence in one another"
We have the honest and important conversations that fuel our performance and Jose Paulino
build trusted relationships.
Empowered
We speak up, challenge and act. We take ownership for our work, we accept
accountability for our successes and, when they happen, our failures too.
"Empowerment leads to trust and a sense of ownership, and this can in turn
lead to increased speed of delivery"
Will Lynch
Ambitious
We strive for exceptional performance. We also know when to balance pace with
perfection to get things done. We are passionate about the positive impact we
can have on our business.
"Ambition means constantly seeking new and improved ways of doing things"
Jacqueline Tan
Transparent
We have the honest and important conversations that fuel our performance and
build trusted relationships.
"Transparency is about being open with people - it helps to build trust and
confidence in one another"
Jose Paulino
People - Engagement
Embedding our commitments
Actions we are taking in support of colleague engagement
In early 2022 we set out to redefine our culture at abrdn, which supports the
delivery of our purpose and strategy. This involved looking across the
business to understand what our colleagues feel proud of and reflecting on
what our clients need from us to deliver our strategy. Our commitments are the
output of this reimagining. Our objective was to create an environment where
colleagues feel empowered to speak up, where we are ambitious in what we do,
but also transparent in how we go about it, ensuring we enable our clients to
be better investors.
During 2023 we have focused on integrating our commitments into every stage of
colleague experience, supported by powerful storytelling and robust feedback
mechanisms. We have also been focused on taking actions to improve
transparency, communication, and recognition across the organisation, with a
series of engagement programmes.
Our 2023 engagement results
Each year our annual engagement survey provides colleagues with the
opportunity to have their voices heard. Our November 2023 survey saw 79% of
our people take part, with over 5,200 comments providing a rich picture of how
we are doing across areas of focus. Amidst a challenging market, ongoing
transformation, and organisational change, overall colleague engagement
increased slightly to 54% (2022: 50%). We see positive scores attributed to
the roles people play, their sense of inclusion, the nature of their work, and
motivation levels. Where we have focused, we see improvements across 2023,
with increased scores around leadership, systems, and processes. As we
transform abrdn, we continue to focus on our culture and the actions we need
to take to shape our overall colleague experience. Whilst we know there is
work to do, we are ambitious and committed to making demonstrable progress for
our people.
Talking talent series Awards and recognition
We are focused on creating an environment where colleagues feel abrdn is the In 2022 only 44% of colleagues felt recognised for their work in the business.
place to grow their careers. Building on our 2022 series we invited leaders We want colleagues to feel celebrated for the extraordinary work they do, so
and colleagues to come together to share personal development stories through we launched our first 'abrdn awards,' with over 600 colleagues receiving a
'Talking talent'. This helps amplify our existing learning and development nomination which was a great response as we came together in celebration. In
programmes and illustrate opportunities available at different career stages. 2023 we saw an improvement to 64% of colleagues feeling recognised for their
work.
Leadership communication programme
Colleagues told us they needed to hear more from our senior leaders. In
response we launched six new communication channels to facilitate authentic
conversations between colleagues and leaders. This includes monthly CEO
broadcasts, frequent townhalls, and informal coffee sessions with targeted
groups. We collect feedback from these sessions and have seen upticks to how
colleagues feel about transparency and in their understanding of our strategy.
"This is exactly what we need as staff - honesty, transparency and the
opportunity to ask questions."
Anonymous survey feedback
Between January 2023 and November 2023, we observed a 12% increase in
colleague confidence in our leaders.
Leadership communication channels active during 2023 Leadership visibility Clarity of strategy Understanding and connection to our purpose Building confidence in our future Equipping leaders for success
As it is (CEO messaging) ⚫ ⚫ ⚫ ⚫
Monthly broadcast to all colleagues
Let's Hear It (colleagues) ⚫ ⚫ ⚫ ⚫
Bi-monthly live Q&A with our leaders
Let's Hear It (leaders) ⚫ ⚫ ⚫ ⚫ ⚫
Bi-monthly live Q&A with our leaders
Leader Essentials ⚫ ⚫ ⚫ ⚫
Monthly email for all people leaders
Results ⚫ ⚫ ⚫ ⚫ ⚫
Live Q&A focused on performance
Executive Leadership Team (ELT) coffee sessions ⚫ ⚫ ⚫ ⚫
Small informal group conversations
People - Diversity, equity & inclusion
Diversity, equity & inclusion (DEI)
We believe in the benefits of a diverse and inclusive workforce, with
different perspectives helping to improve decision making
Our strategy intends to make a positive impact across our business and is led
by our Executive Leadership Team, with oversight from our Board. We are
focused on delivering our gender, ethnicity, and social mobility action plan,
with four guiding priorities. We also believe setting targets is an effective
way to make progress. Our targets to 2025 are outlined on page 51, and we have
introduced a senior leadership ethnicity target, which we will begin reporting
on from 2024, with the aim to be delivered in 2027. This follows the
recommendation of the UK Government supported Parker Review. Our approach is
recognised externally, and we were delighted to be named in the 2023 Financial
Times Diversity Leader List and be given recognition from Citywire, 100 Women
in Finance, and the Equality Group. Find out more at
www.abrdn.com/annualreport (http://www.abrdn.com/annualreport)
Our four guiding priorities:
1 DEI is part of our purpose.
We embed our commitment to DEI through our brand, culture, suppliers and
partners we choose, and the way we engage with companies we invest in.
2 Our ways of working are inclusive.
Our priority is to make sure people feel connected and that all opportunities
are equitable. Managers lead inclusive working for hybrid teams.
3 We feel valued and included everyday.
We focus on building the capability and awareness to drive inclusive
conversations and active allyship.
4 We bring diverse talent through our organisation.
We focus on minimising any potential bias or barriers in our processes,
policies, and approach.
Our gender, ethnicity, and social mobility action plans
Gender Ethnicity Social mobility
Achieve gender balance across all levels of our organisation. Improving outcomes for ethnic minority colleagues. Positive outcomes for people facing barriers in society.
What we have done: What we have done: What we have done:
Recruitment Recruitment Fair work
Tools such as augmented writing software for job adverts, returnship Tools such as diverse interviewer pools, and partnerships with organisations We are accredited UK Living Wage and Living Hours employers.
programmes for women, and partnerships with organisations such as GAIN (Girls such as 10000 Interns Foundation to help us reach minority ethnic candidates.
are Investors) help attract more women into roles in our business.
Recruitment
Developing understanding
Development
We have partnerships with organisations such as SEO London to help us reach
We produced a 'Talk about race' guide to support colleagues talking openly candidates from different economic backgrounds.
Introduction of development offerings for women at early and mid-career about race and to build inclusion.
stages.
Developing understanding
Data
Data
We produced a 'Talk about class' guide to support colleagues talking openly
We believe industry transparency helps drive progress and have published about social mobility issues.
We promote accountability by providing leaders with increasingly detailed ethnicity data on regional representation.
data.
Data
Capability
Capability
We have embedded social mobility questions into our recruitment processes to
We run cultural awareness workshops and promote 'Human Library' learning deepen our understanding.
Actions taken to address barriers to career progression, such as steps to opportunities.
build our Career Framework, and creating safe spaces to share and learn.
Colleague support
Colleague support
Colleague support
Our NextGen colleague network runs regular events across the business.
Our Unity colleague network runs regular events and provides learning
Our Balance colleague network provides support and runs sessions on topics opportunities across the business. Working across our industry
such as mental health and career progression.
Public commitments. We work collaboratively with groups including the Living Wage Foundation.
Policy
These collaborations help us share best practice and encourage cross industry
We were one of the inaugural signatories to the Race At Work Charter in 2018 working.
Our benefits policies and gender policies are inclusive, including equal and also joined the Corporate Call to Action and Coalition for Equity and
parent leave in the UK. Opportunity.
Example actions from our business to support inclusivity:
Active ownership and gender diversity Adviser ii and Pension Essentials
In 2023 we wrote to 16 US companies to outline our minimum expectation of 30% In 2023 our Client Engagement Hub piloted the use of biometric technology, In 2023 we launched Pension Essentials, expanding our Which? Recommended SIPP
female representation on boards of companies with a market capitalisation of which can monitor stress levels at work. We hope to identify insights from the pension product to provide lower fees for pots under £50,000. Our Great
$10bn or more. In total we took voting action at 90 US companies due to board data to support colleague wellbeing, and to help us be client first, through British Retirement survey supports this need, finding that 76% of
gender diversity concerns. increased learning, or training, on common themes. self-employed people are paying nothing into a pension.
Diversity targets
We have set 2025 targets to improve diversity across abrdn
Our diversity targets have been in place since 2020 and those relating to our
Board members are consistent with the FCA reporting requirements introduced in
2022. We go further and report additionally on gender representation across
our global business, and senior leadership teams. We note that, as part of
organisational redesign, reductions in total headcount correlate with a
reduction in gender representation for our senior leadership population. We
know there is much more to do and remain committed to our targets and actions.
Statement of the extent of consistency with the FCA Listing Rules requirements
for reporting Board diversity
As of 31 December 2023, 40% of the abrdn plc Board identified as women, with 1
Director identifying as from a minority ethnic background. This information is
self-reported by Board members. No senior positions on the abrdn plc Board, as
defined by FCA LR 9.8.6 R(9), were held by women on the reference date. This
represents a change from 2022 due to a change of Chief Financial Officer
during the period. Other senior roles retain continuity between periods. abrdn
is committed to diversity, equity, and inclusion and Board appointments are
always with due regard to the benefits of diversity. The Board continues to
support its Diversity Statement. Further detail on pages 92-93.
abrdn plc Board
Target: 40% women, 40% men, 20% any gender by 2025
Women Men
2022 45% 55%
5 (of 11)
6 (of 11)
2023 40% (r) 60%
4 (of 10)
6 (of 10)
Senior leadership(8)
Target: 40% women, 40% men, 20% any gender by 2025 (CEO-1 and 2)
Women Men
2022 39% 61%
(of 132)
(of 132)
2023 34% (r) 66%
(of 96)
(of 96)
Global workforce(9)
Target: 50% gender balance
(+/-3% tolerance) by 2025
Women Men
2022 43% 57%
(of 5,147)
(of 5,147)
2023 43% (r) 57%
(of 4,742)
(of 4,742)
abrdn plc Board
Ambition: 2 Directors identifying as minority ethnic by 2025
Minority Majority
2022 9% 91%
1 (of 11)
1 (of 11)
2023 10% (r) 90%
1 (of 10)
1 (of 10)
r 2023 data subject to Independent Limited Assurance in
accordance with ISAE(UK)3000 and ISAE3410 by KPMG. Assurance statement and
detailed reporting criteria included in the Sustainability and TCFD report at
www.abrdn.com/annualreport
Board and executive management Number of Percentage Number of senior positions on Number Percentage
gender representation(1,2)
Board members
of the Board
the Board(3)
in executive management(4)
of executive management
Men 6 60% 4 12 86%
Women 4 40% - 2 14%
Board and executive management
ethnic representation(5)
White British or other White (including minority-white groups) 9 90% 4 10 71%
Asian/Asian British 1 10% - 1 7%
Not specified/prefer not to say(6) - - - 3 21%
Subsidiary Director Number Percentage Number Percentage
of Subsidiary Directors in 2023
of Subsidiary Directors in 2023
of Subsidiary Directors in 2022
of Subsidiary Directors in 2022
gender representation(7)
Men 16 (of 30) 53% 13 (of 25) 52%
Women 14 (of 30) 47% 12 (of 25) 48%
1. Gender for Board members is self-reported.
2. Gender for executive management is obtained from self-reported employee
records.
3. Senior positions on the abrdn plc Board are Chief Executive Officer,
Chief Financial Officer, Senior Independent Director, and Chair.
4. Executive management team includes Executive Leadership Team and excludes
administration roles.
5. Ethnicity data for Board and executive management is self-reported (using
local census data categories and collected where legally possible).
6. Includes one individual based in a country where we do not collect
diversity data.
7. Relates to Directors of the Company's direct subsidiaries as listed in
Note 44(a) of the Group financial statements and not otherwise classified
above.
8. Senior leadership includes Company Secretary but excludes administration
roles, and individuals on garden leave.
9. 63 colleagues without gender data on our people system are excluded from
the headcount data (2022: 60).
People - Talent
Identifying, attracting and retaining talent
We segment the approach we take to talent, which helps us focus on specific
DEI and development priorities for each career stage
Identifying, attracting and retaining the best talent for our business is
fundamental to our strategy. Through a period of transformation, we have
continued to prioritise the importance of inclusive recruitment with our
Hiring for Success interviewer training programme. This equips our hiring
communities to identify and mitigate potential biases. Colleagues can also
volunteer to be part of our Diverse Interviewer Pool, which we expanded during
2023. Our role profiles are monitored for non-inclusive language using
technology, and we use personalised automated onboarding to keep successful
candidates engaged in advance of their start dates.
Early careers
Our focus is to build and maintain diverse early careers talent globally. We
work with partners to reach talent who may not be attracted to opportunities
in our industry. In 2023 we became a corporate sponsor of GAIN and provided
internships to members. We also committed to offering internships via the Able
Intern Programme, which seeks to address the underrepresentation of disabled
talent in the UK. In 2023 our graduate intake was 44% identifying as female
(2022: 61%) and 19% identifying as from a minority ethnic background (2022:
26%). Also, 78% of our UK trainees attended a state school (2022: 72%).
Mid-career
We aim to identify a strong talent pipeline and demonstrate the value of
growing our internal talent, with around 31% of our roles being filled
internally. We have development programmes targeted toward mid-career
colleagues, also with courses run specifically for women. We also continued to
run our Returners Programme, for the third-consecutive year.
Senior career
All our search partners for senior talent are obliged to present diverse
candidates as part of the recruitment process. We also look to ensure our
Executive Leadership Team succession pipeline has the breadth and diversity of
experience needed to deliver our strategy. This has shaped our 'Future
Leaders' programme, which is entering into its second cohort and is designed
to include learning tailored to strategic objectives.
Developing talent with our learning strategy
There is no one-size-fits-all approach to learning. We aim to give all our
colleagues the tools and resources they need to take control of their
development, and to support the delivery of our strategy. Our aim is to:
- Develop skills and capabilities to support our strategy.
- Support colleagues to build successful careers.
- Create engagement in our organisation.
Technology is at the heart of our learning strategy, allowing us to create an
inclusive approach to development while also managing costs and the
environmental impact of travel. Virtual classroom sessions and digital
resources are established mechanisms for delivering courses and content.
Our Leadership Academy
Launched in 2023, our Leadership Academy takes a segmented approach to ensure
we develop leadership skills at every career stage. We have developed
programmes on the following themes:
Leading self
Devoting time and energy to self-development. Topics include: collaboration,
creativity, and problem solving.
Leading others
Building the ability to get the best from others. Topics include: coaching,
developing others, and strategic thinking.
Leading the business
Inspiring others to build for the future. Topics include: storytelling,
personal impact, strategy, and empowering inclusivity.
The development of our academy was informed directly by colleague feedback, as
we aim to amplify opportunities available at all career stages. We collate
continuous feedback and track KPIs for our all programmes. We provide
additional detail in our Sustainability and TCFD report, available at
www.abrdn (http://www.abrdn) .com/annualreport
In addition to our Academies, we continue to provide graduate, school leaver
and internship programmes, each of which have dedicated development support,
including apprenticeships and professional qualifications. We also have a
process for employees to apply for funding for external courses and
qualifications. We work across the business to identify organisational needs
on an ongoing basis and colleague feedback is central to our approach.
Achieving the right blend of human and digital learning opportunities
continues to be a key focus as we support colleagues to get the most from AI
and technologies that are being introduced through business transformation.
People - Equity and inclusivity
Our role in enabling a fairer, more inclusive, society through examples of our
actions supporting our people, clients, and communities
Our UK gender pay and bonus gaps
We have reduced our UK gender pay gaps in 2023 for the sixth consecutive year
and believe we have the appropriate actions in place to address this long
term. Our mean bonus gap increased by 9.1 percentage points during 2023.
Average bonuses for both men and women decreased but some types of bonus
payments, such as those associated with sales roles, were less impacted. These
roles currently have a higher proportion of men, therefore driving an increase
in the mean bonus gap.
UK gender pay and bonus gaps 2023 2022
Mean pay gap 24.8% 28.7%
Median pay gap 18.8% 24.2%
Mean bonus gap 55.3% 46.2%
Median bonus gap 34.6% 47.4%
We are committed to continued reductions in our gender pay gap, with a key
contributing factor being that more men occupy senior roles than women. We
have four actions in place to address this imbalance:
1 Representation targets We set targets for representation of women at all levels across the
organisation.
2 Gender action plan We have a gender action plan in place to focus actions on attraction,
retention and progression of women at early, mid and senior career stages.
3 Industry collaboration We set a collective industry target to reduce the industry gender pay gap by
50% by 2030, in partnership with the Diversity Project.
4 Executive accountability We were one of the first signatories to the HM Treasury Women in Finance
Charter, linking delivery of our targets to pay through our Executive Director
scorecard.
We benchmark our progress every year through the Bloomberg Global Gender
Equality Index and have been recognised on the index for the last five years.
Feeling valued and included everyday
Ethnicity, gender, and social mobility are our primary areas of focus, but in
2023 we set out LGBTQ+ priorities for the organisation and put more support in
place for disability and neurodiversity. We are working to create a culture
where everyone feels they belong and were proud to secure 'Excellent' rating
for LGBTQ+ equality by the Human Rights Campaign in 2022 (100%) and 2023
(95%). We also became a Disability Confident employer in 2023, under the UK
Government Scheme.
Support for customers in vulnerable circumstances
We support advisers to achieve the best outcomes for their clients, which
includes additional support for customers in vulnerable circumstances. Anyone
could find themselves in vulnerable circumstances in their lives. The FCA
identifies four key drivers of vulnerability including: health, life events,
resilience, and capability.
Through our Client Engagement Hub, we can provide the support and tools for
clients with vulnerabilities and aim to make processes as effortless as they
would be for anyone. We have a team of specialists who are trained to provide
additional help when a vulnerability is identified, and we tailor our services
in instances where the client may contact us again. We do this using the data
and advanced technology behind our platform.
Our accessibility services also support additional needs. We can translate
certain documents into braille, or large print, and can accept calls from
registered Sign Language interpreters, or through RelayUK, which enables users
to type to talk. During 2023 we have also been working to identify third
parties we can engage with to help further support advisers and their clients
with vulnerabilities. With our proactive focus on training, technology and
collaboration, our goal is to lead the way, as vulnerability could affect
anyone at any time.
Supporting financial education with MyBnk
In 2022 we launched a three-year partnership with MyBnk, whose mission is to
empower young people to take charge of their future by bringing money to life.
We expanded this partnership in 2023, with our total commitment now over
£1,300,000 via the abrdn Charitable Foundation. Our support will enable MyBnk
to deliver financial education programmes and money management workshops.
Learn more about community impact in our Sustainability and TCFD report at
www.abrdn.com/annualreport (http://www.abrdn.com/annualreport)
"We are excited to be supporting MyBnk, by working together we can make a
difference to the financial confidence of young people across the UK."
Kirsty Brownlie
Sustainability Manager, Social impact
Stakeholder engagement and section 172 statement
Delivering our purpose in collaboration with our stakeholders
We are driven to enable our clients to be better investors, and work with all
our stakeholders to achieve our purpose
Section 172 (1) statement
The Board recognises the requirements of reporting against matters set out in
section 172 (1) (a) to (f) of the Companies Act. The illustration on this page
and information on pages 55 to 56 identifies key stakeholders and summarises
actions and engagement activities undertaken during 2023, in support of the
success of the company and for the benefit of members as a whole. Further
information is also provided on pages 86 to 89 of the Directors report.
Engaging with our stakeholders
We recognise our responsibility to engage with our stakeholders and this plays
an important role in the long-term decisions we make
Examples of stakeholder engagement during 2023
Clients How do we engage? Related outcomes:
- Our purpose is to enable our clients to be better investors. We have - Examples of our investments in action on pages 16 to 17.
client first teams across the business, and we monitor specific success
metrics to holistically capture the experience of different client groups. - Learn more about our Adviser client experience on page 31.
- We are strengthening the ii platform for our customers. Learn more on page
35.
What did we learn?
- Our Investments business has a diverse client base. We monitor a range of
measures to track client experience, with independent client survey feedback
highlighting strong client service and account management.
- Listening to feedback is critical, with indicators, such as consistently
'Excellent' ratings from ii customers on Trustpilot, illustrating this in
practice.
- Similarly for Adviser, we are targeting world-class customer satisfaction
scores, with a satisfaction score of 90% in our Adviser business.
Shareholders How do we engage? Related outcomes:
- Our Annual General Meetings (AGM) offer shareholders the opportunity to - On 24 January 2024 we confirmed our intention to provide the market with a
interact directly with our Chair and Board. trading update, including AUMA and net flows, for the first and third quarters
of the year. This reflects our understanding of investor appetite for an
- In November 2022 we delivered a 'Spotlight on Adviser' presentation to increase in the frequency of our communication.
investors, which received positive feedback. Following this, in July 2023 we
held an analyst day to spotlight the ii business and strategy. - The business aims to encourage all-employee share ownership. Learn more on
page 127.
- During 2023, we also carried out a comprehensive programme of meetings
with domestic and international investors.
What did we learn?
- Feedback from our analyst day in July 2023 was positive, with
acknowledgement of the market opportunities for ii and benefits of the
subscription model for abrdn.
- Feedback from our programme of meetings reflects a broad range of investor
interests. Learn more on page 86.
Suppliers How do we engage? Related outcomes:
- All suppliers providing services within the scope of our third-party - In 2023 the business onboarded a new supplier risk assessment and
risk management framework are engaged through due diligence assessment and monitoring platform to better understand our supply bases exposure and
ongoing monitoring. approach to sustainability related risks (environment, labour and human
rights, business ethics, and supply chain).
- Strategic supplier relationships have dedicated relationship managers to
support greater oversight and engagement.
- Environmental, social, and governance topics are included within our
oversight reviews.
What did we learn?
- Through due diligence and ongoing monitoring, we are able to assess
suppliers against our third party expectations as outlined in our Global Third
Party Code of Conduct.
- Many of our suppliers align with our expectations and, in many cases,
demonstrate an established understanding of ESG related risks. However, where
suppliers do not align, we have discovered that we must establish stronger
controls to support them and monitor their performance.
Regulators How do we engage? Related outcomes:
- abrdn retains membership of various industry groups and forums, which - During 2023 we responded to the Transition Plan Taskforce consultation on
supports the development of a collective sector view. its Disclosure Framework.
- We proactively respond to consultations on major sustainability reporting - Our Adviser business have published a series of insights to support
standards, which impact us both as investors and disclosers. implementation of Consumer Duty requirements.
What did we learn?
- We are supportive of the regulatory focus on non-financial reporting as we
work towards common sustainability disclosure standards.
- We are also strong believers in client first outcomes and support the
implementation of requirements such as Consumer Duty.
Communities How do we engage? Related outcomes:
- We conduct research and publish insights relating to topics such as - £2.1m contributed to charitable causes in 2023 (2022: £2.4m).
financial inclusion, savings and retirement, and the low carbon transition.
- 3,248 hours spent volunteering by colleagues during 2023 (2022: 2,842).
- The abrdn Charitable Foundation directs our community impact strategy,
with a focus on tomorrow's generation. - Insights from research can inform product offering, with ii launching its
pension essentials product in 2023.
- Our colleagues volunteer and fundraise for a variety of charitable causes.
We provide 3 paid volunteering days to abrdn colleagues to enable this.
What did we learn?
- Insights from our research such as, ii's Great British Retirement survey
shows that 56% of those aged 41 to 55 believe they may never retire.
- Our colleagues have primarily chosen to volunteer for environmental and
social welfare causes, accounting for 50% of the total time disclosed.
Colleagues How do we engage? Related outcomes:
- Our annual colleague engagement survey (page 49). - Focus on increased visibility and communication from senior leaders, with
Let's Hear It and As It Is sessions.
- Pulse surveys throughout the year checking in with colleagues.
- Talking Talent internal communications campaign to highlight learning and
Our Let's Hear It sessions and townhalls provide candid Q&A opportunities development opportunities.
with our Executive Leadership Team.
- Our first global abrdn Awards to recognise teams and individuals across
the business.
What did we learn?
- Where we have focused, we have driven improvements through 2023, with
increased scores around leadership, systems, and processes.
- With support from culture champions around the business our commitments
are now integrated into each stage of colleague experience.
- Colleagues' sense of transparency and understanding of strategy have been
positively impacted by six new communication channels (page 49).
- Our Board Employee Engagement programme includes a number of opportunities
throughout the year for employees to engage with our designated NED for
employee engagement.
Board Employee Engagement (BEE) programme
Hannah Grove continued as our designated Non-Executive Director for employee
engagement.
BEE purpose
- Ensure that employee perspectives and sentiments are heard and
understood by the Board to help inform decision-making.
- Develop an environment where colleagues understand the role of the plc
Board and have direct access to our Non-Executive Directors (NEDs).
Programme pillars
1. Listening sessions
2. Meet the NEDs events
3. Employee network engagement
4. Reporting and measurement
"Without doubt the biggest highlight for me is interacting with abrdn's
people. The company has an extraordinary depth of talent and it's been a
privilege to get to know our colleagues better."
Hannah Grove
BEE programme - 2023 in summary
Total employee attendance Listening sessions Meet the Employee network engagements NEDs involved in the programme Site visits Average event rating
NEDs events
797 11 6 9 100% 14 8.6/10
including in UK, US and APAC
Find out more about our BEE engagement on page 87.
Non-financial and sustainability information
Summary of climate disclosure
We continue to support disclosure against the recommendations of the TCFD
framework. This is critical for us as we assess climate-related risks and
opportunities as investors. The information on this page summarises where we
have made required disclosures under FCA LR 9.8.6R (8) and Companies Act 414CA
and 414CB in this report. We also provide additional information in our
separate Sustainability and TCFD report (pages 11-48), which we believe adds
value for our stakeholders and reflects common market practice.
Climate and environment
Our continued focus is on managing our climate-related risks and
opportunities, which is presently the most material environmental matter for
our business. This is reflected through our related governance, management,
and targets. In 2023, we also took steps to understand potential
nature-related impacts and dependencies in our public market portfolios, with
nature-based risks and opportunities increasingly an area of focus. We also
recognise other environmental matters, such as operational resource
consumption and responsible waste management. Our team are looking at
improving available data on metrics such as water and waste, but this is not
presently assessed as material, relative to other non-financial matters.
Relevant policies
- Our Sustainability and TCFD report provides additional information on our
areas of focus
Policy outcomes
- Climate targets applicable to operations and investments
- Active engagement approach, and solutions development
Related risks
- Refer to page 41.
Risk management
- Sustainability and ESG professionals across the business
- Tools developed to support and inform processes
Selected non-financial KPIs
- GHG emissions metrics
- Climate-related voting and engagement activity
Statement of the extent of consistency with FCA LR 9.8.6R (8) for TCFD aligned
disclosure
We believe our disclosure within this report, and the additional information
in our Sustainability and TCFD report, to be consistent with the 11
recommendations of the TCFD framework, except for complete disclosure of Scope
3 financed emissions. Data availability continues to be a challenge and has
bearing on the completeness of information we can report. We acknowledge that
our reporting may evolve in future periods. Our view is that sufficient
climate-related data is available to better enable our investment processes
and to manage our objectives as a responsible business. This also allows us to
track our progress against targets, outlined on pages 45 and 46.
Recommended TCFD-aligned disclosure(1)
Governance
Describe the Board's oversight of climate-related risks and opportunities. Page 40.
Describe management's role in assessing and managing climate related risks and Page 40.
opportunities.
Strategy
Describe the climate-related risks and opportunities the organisation has Page 41.
identified over the short, medium, and long term.
Describe the impact of climate-related risks and opportunities on the Pages 41-44.
organisation's businesses, strategy, and financial planning.
Describe the resilience of the organisation's strategy, taking into Pages 41-42.
consideration different climate related scenarios, including a 2°C or lower
scenario.
Risk management
Describe the organisation's processes for identifying and assessing Pages 43-44.
climate-related risks.
Describe the organisation's processes for managing climate-related risks. Pages 43-44.
Describe how processes for identifying, assessing, and managing Page 43.
climate-related risks are integrated into the organisation's overall risk
management.
Metrics and targets
Disclose the metrics used by the organisation to assess climate-related risks Pages 45-47.
and opportunities in line with its strategy and risk management process.
Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) Pages 45-47.
emissions, and the related risks.
Describe the targets used by the organisation to manage climate-related risks Pages 45-47.
and opportunities and performance against targets.
1. This table exists to support users to navigate to climate-related
disclosures in this report, which we believe addresses both requirements of
FCA LR 9.8.6R (8) and Companies Act 414CA and 414CB. abrdn is required to
report against the original 11 TCFD recommendations under the former, with the
language in the latter mirroring those recommendations but rationalising the
original 11 to 8 disclosure requirements. We refer to the language of the
internationally recognised original 11 recommendations here to avoid
duplicative signposting and believe our disclosure between pages 39 and 47 to
be consistent against both reporting standards.
Non-financial and sustainability information statement
Summary of other matters
The information on this page addresses the requirements of Companies Act 414CA
and 414CB with summary information on other important non-financial matters.
Our sustainability aspiration is to create long-term sustainable value and we
focus on those areas where we have significant impact or influence. This
includes the areas outlined below, with additional information also available
in our Sustainability and TCFD report available at www.abrdn.com/annualreport
(http://www.abrdn.com/annualreport)
Employees Social matters
Our people are essential to our success and our objective is to create a We are committed to helping our customers build long-term financial resilience
transparent, inclusive, culture, where the best talent from all backgrounds and take control of their financial futures. Our focus begins with our
can succeed. In 2023 we have been focused on embedding Our Commitments, products and services and extends to our communities through our focus on
increasing transparency across the organisation, and enabling colleagues to tomorrow's generation. In 2023, ii published the fifth Great British
develop. We have targets to improve representation across the business and Retirement survey, which highlights common financial challenges and reinforces
continue to see reductions in our UK gender pay gap. Our aspiration is that the role our sector can play through education, financial planning, and
abrdn is a place where people love to work but changes to our business have advice. ii also works with a peer-to-peer learning initiative to support women
meant reductions in headcount and resource pressures. We disclose detail to expand or start their investment journey. We also expanded our partnership
relating to colleague engagement on page 49. with MyBnk to support financial education in the UK.
Relevant policies
- Diversity, equity and inclusion policy - Client and customer policy
- Global code of conduct - Charitable giving strategy
Policy outcomes
- Colleague engagement survey - More inclusive products and services
- Inclusive recruitment and development programmes - Charitable partnerships via the abrdn Charitable Foundation
Related risks
- Noted amongst principal risks and uncertainties - Lack of financial inclusion for our key stakeholders
Risk management
- Listening and responding to colleague feedback - More inclusive products and services
- Published research and insights
- Third sector partnerships
Selected non-financial KPIs
- Employee engagement scores - Client and customer satisfaction
- Increased representation across abrdn by 2025 - Impact reporting from our charitable partnerships
Further information
Pages 48-53. Pages 50 and 53.
Human rights Anti-corruption and anti-bribery
It is critical to embed respect for human rights throughout our business. We abrdn and its people conduct business fairly, honestly, transparently, and
take an active approach and work across our operations and through our with integrity, and do not take part in acts of corruption or pay or receive
investments. Our annual Modern Slavery Statement provides the opportunity to bribes, whether directly or indirectly to gain business advantage. Employees
chart our progress as we focus on the assessment of risk in our supply chain, are prohibited from engaging in acts of corruption and from paying or
with our Stewardship report outlining actions we taken to influence the accepting bribes or kickbacks. We have a programme and procedures in place to
companies and assets in our value chain. Our position is zero tolerance for implement and support our Anti Bribery and Corruption Policy. In particular,
modern slavery and child labour in supply chains. We have invested time and employees must refuse any bribe or inducement in a manner which is not open to
resources to better understand related risks, amidst a complex global network misunderstanding or which may give rise to false expectations, report any
of third party suppliers and relationships. offers of bribes or inducements and report any suspicious behaviour.
Relevant policies
- Global code of conduct - Anti-Financial Crime policy
- Third-party code of conduct - Anti Bribery and Corruption standards
- Modern slavery statement - Global code of conduct
- Privacy and data protection
Policy outcomes
- Human rights is a focus of our active equities engagement strategy for our - Gifts and entertainments processes working effectively
Investments business
- Anti Bribery and Corruption controls embedded within operating procedures
- Evolving capability relating to our supply chain management
Related risks
- Safe and secure work - Noted amongst principal risks and uncertainties
- Data protection and security
Risk management
- Influencing our value chain and developing further understanding of the - Colleague Anti-Financial crime and Anti Bribery and Corruption training
related risks in our supply chain
- Controls to prevent and detect instances of bribery and corruption
- Data protection procedures
Selected non-financial KPIs
- Voting and engagement - Completion rates of staff training
- Third party risk assessments - Gifts and entertainment incidents and breaches
- Data incidents and breaches
Further information
Page 55. Page 79.
Our business model enables our clients to be better investors Illustration on pages 12-13.
Key performance indicators
Our key performance indicators
Net operating revenue KPI APM Cost/income ratio KPI APM
£1,398m 82%
2021 £1,515m 2021 79%
2022 £1,456m 2022 82%
2023 £1,398m 2023 82%
This measure is a component of adjusted operating profit and includes revenue This ratio measures our efficiency. We are focused on improving our
we generate from asset management charges, platform charges and other cost/income ratio by increasing revenue and continued cost discipline.
transactional/advice charges and treasury income.
Adjusted operating profit KPI APM Adjusted diluted earnings per share KPI APM
£249m 13.9p
2021 £323m 2021 13.7p
2022 £263m 2022 10.5p
2023 £249m 2023 13.9p
Adjusted operating profit is our key alternative performance measure and is This measure shows on a per share basis our profitability and capital
how our results are measured and reported internally. efficiency, calculated using adjusted profit after tax.
IFRS (loss)/profit before tax1 KPI Full year dividend per share KPI
(£6m) 14.6p
2021 £1,115m 2021 14.6p
2022 (£612m) 2022 14.6p
2023 (£6m) 2023 14.6p
IFRS profit/loss 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 and is assessed each year in line with
restructuring costs, profit on disposal of interests in associates and our stated policy to hold at 14.6p until it is covered at least 1.5 times by
goodwill impairment. adjusted capital generation.
Adjusted capital generation KPI APM
£299m
2021 £366m
2022 £259m
2023 £299m
This measure aims to show how adjusted profit contributes to regulatory
capital.
2021 79%
2022 82%
2023 82%
This measure is a component of adjusted operating profit and includes revenue
we generate from asset management charges, platform charges and other
transactional/advice charges and treasury income.
This ratio measures our efficiency. We are focused on improving our
cost/income ratio by increasing revenue and continued cost discipline.
Adjusted operating profit
£249m
KPI APM
Adjusted diluted earnings per share
13.9p
KPI APM
2021 £323m
2022 £263m
2023 £249m
2021 13.7p
2022 10.5p
2023 13.9p
Adjusted operating profit is our key alternative performance measure and is
how our results are measured and reported internally.
This measure shows on a per share basis our profitability and capital
efficiency, calculated using adjusted profit after tax.
IFRS (loss)/profit before tax1
(£6m)
KPI
Full year dividend per share
14.6p
KPI
2021 £1,115m
2022 (£612m)
2023 (£6m)
2021 14.6p
2022 14.6p
2023 14.6p
IFRS profit/loss before tax is the measure of profitability set out in our
financial statements. As well as adjusted profit, it includes items such as
restructuring costs, profit on disposal of interests in associates and
goodwill impairment.
The total annual dividend (interim and final) is an important part of the
returns that we deliver to shareholders and is assessed each year in line with
our stated policy to hold at 14.6p until it is covered at least 1.5 times by
adjusted capital generation.
Adjusted capital generation
£299m
KPI APM
2021 £366m
2022 £259m
2023 £299m
This measure aims to show how adjusted profit contributes to regulatory
capital.
1. 2022 results have been restated for the HASL implementation of IFRS 17.
2021 results have not been restated. Refer Basis of preparation in the Group
financial statements section.
Investment performance KPI Employee engagement survey KPI
(Percentage of AUM above benchmark over three years)
42% 54%
2021 78% 2021 51%
2022 65% 2022 50%
2023 42% 2023 54%
This measures our performance in generating investment return against This measure is important in gauging the engagement and motivation of our
benchmark. Calculations for investment performance are made gross of fees people in their roles. It also enables our managers at all levels to take
except where the stated comparator is net of fees. local action in response to what their teams are telling them.
Other indicators
AUMA Gross inflows
£494.9bn £64.1bn
2021 £542.1bn 2021 £72.3bn
2022 £500.0bn 2022 £69.0bn
2023 £494.9bn 2023 £64.1bn
Net flows - Total Net flows - Excl liquidity and LBG tranche withdrawals
(£17.6bn) (£13.9bn)
2021 (£6.2bn) 2021 (£3.2bn)
2022 (£37.9bn) 2022 (£10.3bn)
2023 (£17.6bn) 2023 (£13.9bn)
IFRS diluted earnings per share1 APM Alternative performance measures
We assess our performance using a variety of performance measures including
0.1p APMs such as 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.
2021 £46.0p
2022 (26.6p)
2023 0.1p
2021 51%
2022 50%
2023 54%
This measures our performance in generating investment return against
benchmark. Calculations for investment performance are made gross of fees
except where the stated comparator is net of fees.
This measure is important in gauging the engagement and motivation of our
people in their roles. It also enables our managers at all levels to take
local action in response to what their teams are telling them.
Other indicators
AUMA
£494.9bn
Gross inflows
£64.1bn
2021 £542.1bn
2022 £500.0bn
2023 £494.9bn
2021 £72.3bn
2022 £69.0bn
2023 £64.1bn
Net flows - Total
(£17.6bn)
Net flows - Excl liquidity and LBG tranche withdrawals
(£13.9bn)
2021 (£6.2bn)
2022 (£37.9bn)
2023 (£17.6bn)
2021 (£3.2bn)
2022 (£10.3bn)
2023 (£13.9bn)
IFRS diluted earnings per share1
0.1p
APM
Alternative performance measures
We assess our performance using a variety of performance measures including
APMs such as 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.
2021 £46.0p
2022 (26.6p)
2023 0.1p
1. 2022 results have been restated for the HASL implementation of IFRS 17.
2021 results have not been restated. Refer Basis of preparation in the Group
financial statements section.
Chief Financial Officer's overview
Taking action to rebuild
profitability and growth
Our diversified business and strong balance sheet are clear strengths but we
need to deliver a step change in our cost base in order to lay the foundation
for future growth.
I am proud to join a company with a strong conviction to enable clients at all
financial stages to be better investors.
Jason Windsor
Chief Financial Officer
Overview
2023 was a challenging macro environment for the investment industry. This is
evident in lower adjusted operating profit, largely reflecting lower revenues
in Investments, which is closely related to the market context.
Despite this, the advantage of our three business model is clear in these
results. We have built resilience into the Group and the benefits of
diversification are already evident with Adviser and ii on a stronger
trajectory of growth, with more efficient operating margins and clear
opportunities for the future. We exceeded expectations on our net £75m cost
reduction target, with savings of £102m achieved.
ln addition to this £102m reduction, we are now targeting further annualised
cost savings of at least £150m across the Group by the end of 2025, with the
majority of actions to be taken this year.
We have undertaken a comprehensive review of our operating model. The
programme is targeting the removal of management layers, increasing spans of
control, and reducing overheads particularly from Group functions and support
services. Approximately 80% of the cost reduction benefits will be seen in the
Investments business. The total implementation costs are estimated to be
around £150m.
This transformation programme will drive improved profitability and allow for
reinvestment into growth areas, which is fundamental to improving performance.
Initial work to deliver these efficiencies is already well underway and we
will provide further updates over the course of the programme.
In 2023, we delivered on our commitment to return a significant proportion of
capital generated from our Indian stake sales to shareholders: £300m by way
of share buybacks and the remainder via dividends. We also generated capital
following the sales of our discretionary fund management and US private equity
businesses which supported the strategic moves to acquire closed-end funds
from Macquarie, Tekla, and First Trust to further strengthen our capabilities
in this area.
Our balance sheet remains strong, and this enables us to fund the
implementation costs of our transformation programme from our balance sheet.
We will continue to be disciplined in our allocation of capital to invest in
the business in order to drive growth and to support continued returns to
shareholders.
I believe the actions that we have taken to build resilience into our business
and move towards improved profitability, despite industry headwinds, combined
with the significant additional cost savings we are now targeting, will put us
in a stronger position to deliver on our commitment to enable our clients to
be better investors.
Profit
Adjusted operating profit for 2023 was down 5% to £249m (2022: £263m). This
includes a reduction of £80m in Investments principally due to a significant
decline in revenue in this business. This was partly offset by an increase in
adjusted operating profit in both our Adviser and ii businesses, to £118m
(2022: £86m) and £114m (2022: £72m) respectively. ii includes the benefit
of a full 12 months contribution compared to 7 months in 2022.
The IFRS loss before tax was £6m (2022: loss £612m(1)) including adjusting
items of £336m (2022: £865m(1)), with a decrease in the impairment of
intangible assets and restructuring costs compared to 2022. The goodwill
impairments in 2023 of £62m (2022: £340m) include the impact of lower
projected revenues as a result of adverse markets and macroeconomic
conditions, and for Finimize the impact of lower short-term projected growth
following a strategic shift that prioritises profitability over revenue
growth.
The cost/income ratio was stable at 82% (2022: 82%) reflecting the benefit
from the efficient Adviser and ii cost models, offset by lower revenue in
Investments.
Net operating revenue
Net operating revenue of £1,398m (2022: £1,456m) was down 4%, including the
impact of the challenging market conditions in Investments. This was partially
offset by increases in revenue in both Adviser and ii, reflecting higher
treasury income for both businesses, and the benefit of a full 12 months of
ii.
In Investments, net operating revenue was 17% lower than in 2022 largely due
to net outflows and lower market performance impacting average AUM, and
changes to the asset mix. While redemptions were lower, gross flows were also
lower reflecting the client response to the uncertain market environment,
particularly in equities and multi-asset. Net outflows and market performance
in multi-asset and equities resulted in a reduction in average AUM of 16% and
14% respectively. Our Phoenix partnership continues to produce results with
£6.0bn (2022: £2.9bn) of gross inflows from their bulk purchase annuity
business, reflecting our insurance asset management capabilities and
proprietary techniques.
In our Adviser business, net operating revenue was 21% higher than 2022 at
£224m (2022: £185m) comprising £167m Platform charges (2022: £174m), £31m
treasury income (2022: £11m) and £26m other (2022: £nil). The higher
revenue included the c£15m benefit of a revised distribution agreement with
Phoenix and c£11m from threesixty/MPS following the transfer from the
Personal Wealth business.
In our ii business (excluding Personal Wealth), net operating revenue
increased to £230m (2022: £114m), largely reflecting the benefit of a full
12 months of revenue. Revenue continues to benefit from diverse streams.
Treasury income on client cash balances contributed £134m, benefiting from
the continued rise in interest rates. Trading revenue of £48m was impacted by
muted levels of customer activity given the uncertain market conditions.
Revenue from subscriptions was £54m.
In Personal Wealth, net operating revenue of £57m (2022: £87m) reduced by
£30m due to a c£19m impact from the transfer of the MPS business to Adviser
and the sale of abrdn capital to LGT, c£6m from the transfer of threesixty to
Adviser, and the impact of adverse market movements.
1. Comparatives have been restated for the HASL implementation of IFRS 17.
Refer Basis of preparation in the Group financial statements section.
Adjusted operating expenses
Adjusted operating expenses decreased by 4% to £1,149m (2022: £1,193m),
reflecting management actions to reduce costs, mostly offset by the inclusion
of £103m (2022: £47m) of ii(1) expenses for the full 12 month period.
Excluding ii(1), expenses were 9% lower at £1,046m (2022: £1,146m).
In the Investments business, we exceeded the targeted £75m reduction that we
outlined previously. The £102m cost reduction in Investments was driven by
lower staff costs reflecting 8% lower front/middle office FTEs and reduced
market data and outsourcing costs, partly offset by the impact of staff cost
inflation.
In Adviser, the cost/income ratio improved to 47%, benefiting from higher
treasury income and the revised distribution agreement with Phoenix.
For ii overall, expenses increased reflecting the full 12 months of ii
(excluding Personal Wealth). The cost/income ratio improved from 64% to 60%,
despite the impact on profitability in Personal Wealth due to the revenue
impacts on this business outlined above.
As I have touched on already, further significant cost savings across the
business are targeted to improve efficiency and profitability.
Capital
Our capital position provides us with resilience during periods of economic
uncertainty and volatility.
In 2023, we have been disciplined in our allocation of capital with a
combination of investment in the business to drive growth and continued
returns to shareholders.
We generated a total of £713m capital from the sales of our listed Indian
stakes (£576m), and the disposals of our discretionary fund management and US
private equity businesses (£137m). We have now completed the sale of our
remaining stakes in HDFC Life and HDFC Asset Management, which further
simplifies our group structure.
We have continued to invest in the business through strategic bolt-on
acquisitions, building out our global top three position in closed-end funds.
In 2023, we completed the acquisition of four closed-end funds from Macquarie
and acquired the healthcare fund management capabilities of Tekla for a total
of £152m. We also used the proceeds from our non-core disposals to support
restructuring costs of £121m, including the reshaping of the Investments
business.
We returned £300m by way of share buybacks in line with our commitment to
return a significant proportion of the proceeds of our stake sales. As we
outlined in our FY 2022 results, we returned £0.6bn of capital in total to
shareholders in 2023 by way of dividends and share buybacks.
Going forward, we will continue to have a disciplined approach to generation
and allocation of our capital:
- We are committed to taking significant cost actions to restore our core
Investments business to a more acceptable level of profitability. To achieve
the desired simplification and cost savings, total implementation costs are
estimated to be around £150m. We will deploy CET1 surplus capital to fund
this restructuring over 2024 and 2025.
- We will continue to scan the market for bolt-on acquisitions within key
thematic markets, such as the most recent acquisition of the healthcare fund
management capabilities of Tekla.
- As part of our approach to allocating capital, we hold a buffer over
regulatory capital to provide a level of management flexibility and capital
strength and resilience during periods of volatility.
- It remains the Board's current intention to pay a total annual dividend of
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. Over the short term, the
dividend will largely be supported by adjusted capital generation and our
surplus capital.
Outlook
As demonstrated in our 2023 results, we have reshaped the business. The
resulting diversification in sources of revenue and inherent cost efficiency
within Adviser and ii partly offset the revenue impact from net outflows and
adverse market movements within Investments. Looking forward, we expect
inflation to moderate slowly, and we have assumed a stable interest rate
environment. This will continue to benefit ii and Adviser where we expect the
average cash margin for 2024 to be broadly in line with 2023. The outlook for
global markets remains uncertain. Where market conditions, structural and
cyclical, remain challenging for active asset managers we continue to expect
headwinds arising from changing client demand and preferences. Within
Insurance in particular, we expect the asset rotation from active equity and
fixed income strategies to passive quantitative strategies experienced in 2023
to continue into 2024. This together with related pricing changes, may result
in a further contraction of revenue margin.
Notwithstanding this backdrop we are taking action to restore profitability
and to transform the way we operate, through simplification and leveraging
technology across the Group, particularly in Investments. As we have said, the
work to achieve at least £150m of cost savings is now underway. While 80% of
the cost savings is expected to benefit Investments, we anticipate cost growth
in ii and Adviser to be approximately 3-5% per annum over 2024-2026 reflecting
continued growth and reinvestment in these businesses. Implementation of the
transformation programme is expected to take place primarily in 2024, with
c£60m benefit from lower adjusted operating expenses expected in 2024, and
will be completed by the end of 2025. We expect total restructuring costs of
less than £150m in 2024, to support the group cost transformation programme,
and further investment in the Adviser platform.
The strength of our balance sheet allows us to fund these restructuring
expenses, and to maintain the dividend. Our balance sheet is further
strengthened by our Phoenix stake and the staff pension scheme which has a
significant surplus. Our focus remains to be disciplined in our allocation of
capital to drive growth, and to maintain the dividend payment until capital
generation improves.
1. Relates to ii (excluding Personal Wealth).
Results summary
Analysis of profit 2023 2022(1)
£m
£m
Net operating revenue 1,398 1,456
Adjusted operating expenses (1,149) (1,193)
Adjusted operating profit 249 263
Adjusted net financing costs and investment return 81 (10)
Adjusted profit before tax 330 253
Adjusting items including results of associates and joint ventures (336) (865)
IFRS loss before tax (6) (612)
Tax credit 18 66
IFRS profit/(loss) for the year 12 (546)
The IFRS loss before tax was £6m (2022: loss £612m) including an adjusted
operating profit of £249m (2022: £263m). Adjusting items were £336m (2022:
£865m) including:
- Losses of £178m (2022: losses £187m) from the change in fair value of
significant listed investments (HDFC Asset Management, HDFC Life and Phoenix)
as a result of the fall in the share price of these companies in 2023.
- Restructuring and corporate transaction expenses were £152m (2022:
£214m), mainly consisting of property related impairments, severance,
platform transformation and specific costs to effect savings in Investments.
- Adjusted operating profit was £14m lower than 2022 largely due to the
revenue impact of continued net outflows and adverse market movements, which
particularly impacted high yielding equities. The 2023 results included a
contribution from ii(2) for the full 12 months (2022: seven months) which
benefited net operating revenue by £230m (2022: £114m) and adjusted
operating profit by £127m (2022: £67m). Removing ii(2), adjusted operating
profit was 38% lower than 2022 at £122m (2022: £196m).
Net operating revenue
2022 Net flows Investments margin Other margin Markets ii Perf fees and other 2023
£1,456m (£65m) (£59m) £31m (£51m) £116m (£30m) (£1,398m)
Net operating revenue decreased by 4% reflecting:
- Impact from net outflows3 of c4%, and adverse Investments margin
movements.
- Although the market declines seen in 2022 began to reverse in 2023, the
lower average AUMA compared with 2022 impacted revenue by c4%.
- Benefit of £116m from the full 12 months of ii(2) in 2023.
- Performance fees reduced by £16m mainly within real assets, where 2022
saw a number of funds coming to the end of their natural lifecycle, triggering
performance fees at maturity.
The diversification that now drives our sources of revenue has helped to
mitigate the impact of market volatility, including the benefit from ii's
subscription model and the higher total treasury income of £165m (2022:
£69m). Net operating revenue reduced by 13% excluding ii(2).
Adjusted operating expenses
2023 2022
£m
£m
Staff costs excluding variable compensation 511 527
Variable compensation 75 85
Staff and other related costs(4) 586 612
Non-staff costs 563 581
Adjusted operating expenses 1,149 1,193
Adjusted operating expenses decreased by 4% reflecting management actions to
reduce costs, mostly offset by the inclusion of £103m (2022: £47m) of ii(2)
expenses for the full 12 month period. Excluding ii(2), expenses were 9% lower
at £1,046m (2022: £1,146m) reflecting:
- 7% lower staff costs (excluding variable compensation), with the benefit
of lower FTEs (13%), partly offset by wage inflation.
- Lower variable compensation reflecting business performance.
- 9% lower non-staff costs, with cost savings partly offset by the impact of
inflation.
The Group cost/income ratio was stable at 82%
(2022: 82%) reflecting the benefit from the efficient Adviser and ii cost
models, offset by lower revenue in Investments.
1. Comparatives have been restated for the HASL implementation of IFRS 17.
Refer Basis of preparation in the Group financial statements section.
2. Relates to ii (excluding Personal Wealth).
3. Reflects the estimated impact on net operating revenue as a result of net
outflows in both the current and prior period, as a percentage of prior
period revenue.
4. See Supplementary information for a reconciliation to IFRS staff and
other employee related costs.
Investments
Adjusted Net operating revenue Net operating Net flows
operating profit
revenue yield
£878m
(Excl. liquidity)
£50m 23.5bps
(£15.3bn)
Total Institutional and Retail Wealth1 Insurance Partners1
2023 2022 2023 2022 2023 2022
Net operating revenue2,3 £878m £1,060m
Adjusted operating expenses(2) (£828m) (£930m)
Adjusted operating profit(2) £50m £130m
Cost/income ratio(2) 94% 88%
Net operating revenue yield 23.5bps 25.4bps 32.6bps 36.1bps 10.0bps 10.5bps
AUM £366.7bn £376.1bn £211.2bn £231.2bn £155.5bn £144.9bn
Gross flows £50.3bn £59.3bn £28.1bn £36.5bn £22.2bn £22.8bn
Redemptions (£69.3bn) (£100.3bn) (£46.0bn) (£48.1bn) (£23.3bn) (£52.2bn)
Net flows (£19.0bn) (£41.0bn) (£17.9bn) (£11.6bn) (£1.1bn) (£29.4bn)
Net flows excluding liquidity4 (£15.3bn) (£37.8bn) (£14.2bn) (£8.4bn) (£1.1bn) (£29.4bn)
Net flows excluding liquidity and LBG4,5 (£15.3bn) (£13.4bn) (£14.2bn) (£8.4bn) (£1.1bn) (£5.0bn)
Adjusted operating profit
- Profit reduced by £80m (62%) to £50m, reflecting 17% lower revenue,
partly offset by 11% lower costs.
- Results in our Investments business reflect the challenging economic
environment and market turbulence that has impacted across the industry.
Net operating revenue
- 17% lower than 2022 largely due to net outflows and lower market
performance impacting average AUM, and changes to the asset mix.
- Performance fees of £14m (2022: £30m) were earned mainly from Asian
equities and Insurance Partners.
Adjusted operating expenses
- Whilst there is a reduction in profitability in the year, we exceeded
the £75m net cost reduction target.
- Adjusted operating expenses reduced by £102m (11%) to £828m (2022:
£930m(2)) driven by lower staff costs reflecting 8% lower front/middle office
FTEs and reduced market data and outsourcing costs, which was partly offset by
the impact of staff cost inflation.
- Adjusted operating expenses also benefited from reduced brand
marketing activity and lower project change costs compared to 2022.
Institutional and Retail Wealth
Net operating revenue
- 17% lower at £724m (2022: £868m(2)) due to a 7% reduction in average
AUM to £220.0bn (2022: £236.2bn). Multi-asset and equities average AUM down
16% and 14% respectively.
- Reduction in average AUM primarily relates to net outflows and market
performance.
Gross flows
- Excluding liquidity, £6.8bn (26%) lower at £19.5bn (2022: £26.3bn)
mainly in equities, multi-asset and alternative investment solutions. This
reflected the client response to the uncertain market environment which
impacted the wider industry, as many clients delayed investment decisions.
Revenue yield
- 3.5bps lower at 32.6bps largely due to the decrease in the higher
margin equities average AUM impacting the asset mix. Equities are 22% (2022:
24%) of average AUM at a yield of 60.7bps (2022: 62.5bps).
- The reduction in the multi-asset yield reflects the growing proportion
of lower yielding MyFolio in this asset class.
Net flows
- Net outflows were £5.8bn higher than 2022 at £14.2bn (excluding
liquidity) due to lower gross flows.
- Excluding liquidity, net outflows represent 7% of opening AUM compared
with 4% in 2022.
- Redemptions (excluding liquidity) were £1bn lower than 2022 at
£33.7bn due to lower real asset outflows.
1. Wholesale has been renamed Retail Wealth, Insurance has been renamed
Insurance Partners.
2. Finimize and our digital innovation group have moved from Investments to
Other. Comparatives have been restated.
3. Includes performance fees of £14m (2022: £30m).
4. Institutional/Retail Wealth liquidity net flows excluded.
5. Flows excluding LBG do not include the final tranche withdrawals in 2022
of £24.4bn relating to the settlement of arbitration with LBG.
Insurance Partners
Net operating revenue
- 20% lower in 2023 at £154m (2022: £192m), reflecting the impact of
13% reduction in average AUM to £147.7bn primarily due to net outflows,
market declines in 2022 and the impact of the final LBG tranche withdrawal of
£24.4bn in 2022.
Gross flows
- £0.6bn lower than 2022 at £22.2bn (2022: £22.8bn).
- Our Phoenix partnership continues to produce results with £6.0bn
(2022: £2.9bn) of gross inflows from their bulk purchase annuity business,
reflecting our insurance asset management capabilities and proprietary
techniques.
AUM
- Insurance AUM increased by £10.6bn to £155.5bn with net outflows
offset by positive market movements.
Revenue yield
- Net operating revenue yield decreased to 10.0bps (2022: 10.5bps). We
expect the asset rotation from active equity and fixed income strategies to
passive quantitative strategies experienced in 2023 to continue into 2024,
this together with related pricing changes, is expected to result in a further
contraction of yields.
Net flows
- Net outflows improved by £3.9bn in 2023 at £1.1bn (2022: £5.0bn
outflow excluding LBG tranche withdrawals), representing (0.8%) of opening AUM
compared with (2.4%) in 2022.
Investment performance
% of AUM ahead of benchmark1 1 year 3 years 5 years
2023 2022 2023 2022 2023 2022
Equities 27 30 17 63 48 65
Fixed income 81 65 75 72 84 79
Multi-asset 12 13 15 50 22 22
Real assets 30 57 56 63 45 52
Alternatives 100 88 100 100 100 100
Quantitative 100 17 100 27 37 29
Liquidity 100 84 95 97 97 97
Total 44 41 42 65 52 58
Investment performance over the three-year time period has weakened, with 42%
of AUM covered by this metric ahead of benchmark (2022: 65%). The drop in the
three-year performance reflects a challenging period for active managers,
particularly those with a quality equity investment style with a bias towards
Asia and Emerging Markets.
Performance for fixed income, quantitative, alternative investment strategies,
and liquidity remains consistently strong and illustrates the resilience of
our performance delivery in these asset classes. Key outperforming strategies
include Emerging Market Debt, Euro Investment Grade, Euro High Yield, Money
Markets, Ultra Short Munis and our full range of Quantitative Enhanced Index
strategies.
Equities has been impacted by our AUM bias towards Asia and Emerging Markets
and the quality growth style which have both struggled when compared to the
exceptionally narrow performance of the Magnificent 7 stocks in the US. The
faltering recovery in China has been a headwind for our larger Asia, Emerging
Markets and China strategies due to our domestic overweight. However, there
are strong areas of outperformance in Emerging Market Income, Emerging Market
Small Cap, UK Value and European Small Cap strategies.
2023 was also a challenging backdrop for our multi-asset strategies. However,
our Multi-Manager range, while behind long term cash based composite
benchmarks used in the calculation above, is performing well versus peers with
67% ahead of peer group2.
Real estate valuations experienced some of the sharpest corrections in history
in late 2022/early 2023 which impacted returns over all periods. However,
after the sharp de-rating in our favoured sectors of logistics and industrials
we have seen some performance recovery coming through YTD to Q3 2023, with
funds benefiting from being underweight to UK offices and continued robust
performance from German Residential. Our Listed Real Estate funds are
outperforming over 1, 3 and 5 years.
1. Calculations for investment performance use a closing AUM weighting basis
and are made gross of fees except where the stated comparator is net of fees.
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. The investment performance calculation covers all
funds that aim to outperform a benchmark, with certain assets excluded where
this measure of performance is not appropriate or expected. Further details
about the calculation of investment performance are included in the
Supplementary information section.
2. Morningstar category peer group average over 3 years to 31 December 2023.
Adviser
Adjusted Net operating revenue Net operating Net flows
operating profit
revenue yield
£224m
(£2.1bn)
£118m 30.6bps
20231 2022
Net operating revenue £224m £185m
Adjusted operating expenses (£106m) (£99m)
Adjusted operating profit £118m £86m
Cost/income ratio 47% 54%
Net operating revenue yield 30.6bps 26.1bps
AUMA2 £73.5bn £68.5bn
Gross flows £5.8bn £6.6bn
Redemptions (£7.9bn) (£5.0bn)
Net flows (£2.1bn) £1.6bn
Adjusted operating profit
- Strong earnings performance with profit up 37% to £118m, against a
backdrop of challenging market conditions.
- Cost/income ratio improved to 47%, benefiting from higher revenue as
detailed below, and outsource costs savings.
Net operating revenue
- 21% higher than 2022 at £224m, comprising £167m Platform charges
(2022: £174m), £31m treasury income (2022: £11m) and £26m other (2022:
£nil).
- Rise in interest rates resulted in an increase in treasury income on
client balances to £31m and increase in cash interest paid to clients.
- H2 2023 includes c£15m benefit of a revised distribution agreement
with Phoenix, relating to the SIPP product that we will be taking legal
ownership of in 2024.
- 2023 revenue also included c£11m from threesixty/MPS following the
transfer from the Personal Wealth business.
- The average margin earned on client cash balances during 2023 was
c228bps and the indicative Adviser average cash margin for 2024 is expected to
be broadly in line with 2023.
Revenue yield
- Increased to 30.6bps due to the higher revenue explained above, with
average AUMA in line with
2022 at £70.8bn.
AUMA
- 7% increase in 2023 due to inclusion of AUM of c£2.6bn relating to
our Managed Portfolio Service (MPS) business and favourable market movements.
- Our MPS business, which was part of the discretionary fund management
business, has been retained and moved to the Adviser business from the
Personal Wealth business in May 2023 in order to maximise opportunities
available through the Adviser distribution model. Our platforms have a
footprint with 50% of UK adviser firms, resulting in a significant opportunity
for the MPS business.
Gross flows
- Inflow activity (including MPS) reduced by 12% in 2023, reflecting
muted client activity across the industry due to ongoing market uncertainty
and the cost of living impact on customers' ability to save. This has a
heightened impact on our Adviser business where gross flows are primarily
driven by existing customers.
Net flows
- Net outflows of £2.1bn reflect the market conditions, customer
behaviours in response to the increased cost of living and the short-term
impact in 2023 resulting from the technology upgrade.
1. The threesixty and MPS businesses moved from Personal Wealth to Adviser
from January 2023 and May 2023 respectively. Comparatives have not
been restated.
2. Includes Platform AUA of £70.9bn (2022: £68.5bn).
ii
Adjusted Net operating revenue Net operating Net flows
operating profit
revenue yield
£287m
£2.9bn
£114m 58.8bps
Total1 ii (excluding Personal Wealth) Personal Wealth1
2023 2022 12 months to 7 months to 2023 2022
31 Dec 2023
31 Dec 20222
Net operating revenue £287m £201m £230m £114m £57m £87m
Adjusted operating expenses (£173m) (£129m) (£103m) (£47m) (£70m) (£82m)
Adjusted operating profit/(loss) £114m £72m £127m £67m (£13m) £5m
Cost/income ratio 60% 64% 45% 41% 123% 94%
Net operating revenue yield3 58.8bps 59.2bps
AUMA £66.0bn £67.1bn £61.7bn £54.0bn £4.3bn £13.1bn
Gross flows £10.2bn £5.6bn £9.5bn £4.1bn £0.7bn £1.5bn
Redemptions (£7.3bn) (£3.7bn) (£6.2bn) (£2.5bn) (£1.1bn) (£1.2bn)
Net flows £2.9bn £1.9bn £3.3bn £1.6bn (£0.4bn) £0.3bn
Adjusted operating profit
- Higher profit reflects the inclusion of £127m for the full 12 month
result for ii(4), compared to only seven months in 2022.
- ii(4) has continued to perform well against an uncertain market
environment.
- Personal Wealth restructured during 2023, with transfers of business
to Adviser and the sale of abrdn Capital to LGT. The loss of £13m in 2023 was
mainly due to the lower revenue detailed below and the impact of inflation on
expenses.
Net operating revenue
- Revenue(4) of £230m continues to benefit from diverse revenue
streams. Treasury income contributed £134m (2022: £58m), benefiting from the
continued rise in interest rates. Trading revenue of £48m (2022: £27m) was
impacted by muted levels of customer activity in uncertain market conditions.
Revenue from subscriptions was £54m (2022: £32m).
- Average cash margin was 236bps in 2023 and the indicative ii average
cash margin for 2024 is expected to be broadly in line with 2023.
- Personal Wealth revenue reduced by £30m due to a c£19m impact from
the transfer of the MPS business to Adviser and the sale of abrdn capital to
LGT, c£6m from the transfer of threesixty to Adviser, and the impact of
adverse market movements.
Revenue yield
- Personal Wealth revenue yield was broadly flat at 58.8bps with average
AUMA of £9.7bn, 28% lower than 2022.
AUMA
- ii(4) AUA increased to £61.7bn (2022: £54.0bn) including £0.5bn
from internal customer transfers in December 2023, with the industry leading
AUA per customer up 13% to £152k.
- Personal Wealth AUMA decreased to £4.3bn (2022: £13.1bn) mainly due
to the sale of abrdn Capital, (AUM of c£6bn) to LGT, which completed on
1 September 2023 and MPS AUM of c£2.5bn moving to the Adviser business in H1
2023.
Gross and net flows
- ii(4) net inflows remained strongly positive in 2023 at £3.3bn
despite a subdued retail market across the year.
- Personal Wealth net outflows of £0.4bn include the impact of client
uncertainty following the announcement of the sale of our discretionary
fund management business.
ii(4) operational metrics 2023 2022
12 Months
12 Months
Total customers at year end 407k 402k
Total customers excluding EQi and Share Centre migrated customers and pension 310k 299k
trading accounts
Customers holding a SIPP account 62.4k 51.5k
Customer cash balances £5.5bn £6.0bn
AUA per customer £152k £134k
New customers 30.2k 29.2k
Daily average retail trading volumes 15.7k 17.3k
1. The threesixty and MPS businesses moved from Personal Wealth to Adviser
from January 2023 and May 2023 respectively. Comparatives have not
been restated.
2. Results for interactive investor (excluding Personal Wealth) included
following the completion of the acquisition on 27 May 2022.
3. Net operating revenue yield is shown for Personal Wealth only. Revenue
for ii(4) is not aligned with AUA and therefore revenue yield is not
presented.
4. Relates to ii (excluding Personal Wealth).
Overall performance
Adjusted IFRS loss Adjusted capital generation Net flows
operating profit
before tax
£299m (£17.6bn)
£249m (£6m)
Adjusted operating profit AUMA Net flows
Segmental summary 2023 2022 2023 2022 2023 2022
£m
£m
£bn
£bn
£bn
£bn
Investments(1,2) 50 130 366.7 376.1 (15.3) (13.4)
Adviser 118 86 73.5 68.5 (2.1) 1.6
ii(3) 114 72 66.0 67.1 2.9 1.9
Other(1) (33) (25) - - - -
Eliminations - - (11.3) (11.7) 0.6 (0.4)
Total 249 263 494.9 500.0 (13.9) (10.3)
Liquidity net flows (3.7) (3.2)
LBG tranche withdrawals - (24.4)
Total net flows (including liquidity and LBG) (17.6) (37.9)
Assets under management and administration
Assets under management reduced by 1% to £494.9bn (2022: £500.0bn):
- Net outflows excluding liquidity of (£13.9bn), with outflows in
Investments and Adviser partly offset by positive flows of £2.9bn in ii.
- Market and other movements of £19.4bn mainly reflecting positive
movements in Investments, driven by Insurance partners.
- Net impact of corporate actions of (£6.9bn) primarily due to the sales of
the discretionary fund management and US private markets businesses, partly
offset by the acquisition of the specialist healthcare fund management
business of Tekla.
Analysis of profit
2023 20224
£m
£m
Net operating revenue 1,398 1,456
Adjusted operating expenses (1,149) (1,193)
Adjusted operating profit 249 263
Adjusted net financing costs and investment return 81 (10)
Adjusted profit before tax 330 253
Adjusting items including results of associates and joint ventures (336) (865)
IFRS loss before tax (6) (612)
Tax credit 18 66
IFRS profit/(loss) for the year 12 (546)
Adjusted net financing costs and investment return
Adjusted net financing costs and investment return resulted in a gain of £81m
(2022: loss £10m):
- Investment losses, including from seed capital and co-investment fund
holdings reduced to £3m (2022: loss £34m).
- Net finance income of £50m (2022: costs £5m) reflecting a higher rate of
interest on cash and liquid assets and the benefit from the redemption of
the 5.5% Sterling fixed rate subordinated notes in December 2022.
- Higher net interest credit relating to the staff pension schemes of £34m
(2022: £29m) reflecting an increase in the opening discount rate due to a
rise in corporate bond yields.
1. Adjusted operating loss consists of net operating revenue £9m (2022:
£10m) and adjusted operating expenses £42m (2022: £35m). Finimize and our
digital innovation group have moved from Investments to Other. Comparatives
have been restated. Refer Note 2 in the Group financial statements section.
2. Investments net flows exclude Institutional/Retail Wealth liquidity and
LBG tranche withdrawals.
3. Personal has been renamed ii and includes Personal Wealth unless
otherwise stated.
4. Comparatives have been restated for the HASL implementation of IFRS 17.
Refer Basis of preparation in the Group financial statements section.
Adjusting items
2023 20221
£m
£m
Restructuring and corporate transaction expenses (152) (214)
Amortisation and impairment of intangible assets acquired in business
combinations
and through the purchase of customer contracts (189) (494)
Profit on disposal of subsidiaries and other operations 79 -
Profit on disposal of interests in associates - 6
Change in fair value of significant listed investments (178) (187)
Dividends from significant listed investments 64 68
Share of profit or loss from associates and joint ventures 1 5
Reversal of impairment/(impairment) of interests in associates and joint 2 (9)
ventures
Other 37 (40)
Total adjusting items including results of associates and joint ventures (336) (865)
Restructuring and corporate transaction expenses were £152m, comprising
restructuring costs of £121m (2022: £169m) in property related impairments,
severance, platform transformation, and specific costs to effect savings in
Investments, offset in part by a £32m release of provision for separation
costs, with further details provided in Note 33 of the Group financial
statements. Corporate transaction costs of £31m (2022: £45m) primarily
related to prior year transactions and the sale of our European-headquartered
private equity business.
Amortisation and impairment of intangible assets acquired in business
combinations and through the purchase of customer contracts reduced to £189m,
mainly due to the lower impairments of £63m (2022: £369m). Impairments of
goodwill in 2023 of £62m (2022: £340m), comprising £36m (2022: £nil) for
our financial planning business and £26m (2022: £41m) for Finimize. In 2022,
there was also a goodwill impairment of £299m in Investments. The impairments
in 2023 include the impact of lower projected revenues as a result of adverse
markets and macroeconomic conditions, and for Finimize the impact of lower
short-term projected growth following a strategic shift that prioritises
profitability over revenue growth. Further details are provided in Note 13 of
the Group financial statements.
Profit on disposal of interests in subsidiaries and other operations relates
to the sales of our discretionary fund management business and our US private
equity and venture capital business. See Note 1 for further details.
Profit on disposal of interests in associates was £nil. The 2022 profit of
£6m related to the sale of our stake in Origo Services Limited.
Change in fair value of significant listed investments of (£178m) from market
movements is analysed in the table below:
2023 2022
£m
£m
Phoenix (77) (44)
HDFC Asset Management (96) (105)
HDFC Life (5) (38)
Change in fair value of significant listed investments (178) (187)
The final HDFC Life and HDFC Asset Management stakes were sold on 31 May 2023
and 20 June 2023 respectively.
Dividends from significant listed investments relates to our shareholdings in
Phoenix (£54m) and HDFC Asset Management (£10m).
Share of profit or loss from associates and joint ventures reduced to a profit
of £1m (2022: £5m). The results for HASL have been impacted by the adoption
of IFRS 17 on 1 January 2023. As required by IFRS 17, the standard has been
applied retrospectively with a resulting restatement of the carrying value of
the joint venture and opening retained earnings as at 1 January 2022. This
change resulted in our 2022 share of HASL profit increasing from the £7m
previously reported to £10m.
2023 20221
£m
£m
HASL 3 10
Virgin Money UTM/Other (2) (5)
Share of profit or loss from associates and joint ventures 1 5
Reversal of impairment/(impairment) of interests in associates and joint
ventures was £2m in 2023 relating to a reversal of impairment on Virgin Money
UTM. See Note 14 for further details. The £9m in 2022 related to an
impairment of Tenet Group Ltd.
Other adjusting items in 2023 includes the £36m liability insurance recovery
of the £41m single process execution event provision reflected at 2022, net
of a £5m excess. Other adjusting items in 2023 also includes a £21m
provision expense for a potential tax liability. See Note 11 for further
details of other adjusting items and Note 33 for further details on
provisions.
See pages 179 and 194 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.
1. Comparatives have been restated for the HASL implementation of IFRS 17.
Refer Basis of preparation in the Group financial statements section (page
167).
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 tax credit attributable to the IFRS loss for the year, excluding amounts
relating to prior periods, is £1m which gives rise to an effective tax rate
of 17%. The overall IFRS tax credit, including tax credits relating to prior
periods of £17m, is £18m (2022: credit £66m) which results in an effective
tax rate of 300% (2022: 11%) due to the relative scale of the loss in the
year. The difference to the UK Corporation Tax rate of 23.5% is mainly driven
by:
- Dividend income and fair value movements from our investments in Phoenix
not being subject to tax.
- Movements in the fair value of our investment in HDFC Asset Management
being tax effected at the Indian long-term capital gains tax rate, which is
lower than the UK Corporation Tax rate.
- Profit on the sale of abrdn Capital not being subject to tax.
- Goodwill impairments not deductible for tax purposes.
- Prior year adjustments to deferred tax liabilities on intangibles.
The tax expense attributable to adjusted profit is £50m (2022: £22m), an
effective tax rate of 15% (2022: 9%). This is lower than the 23.5% UK rate
primarily due to changes in the applicable deferred tax rates on temporary
differences and pension scheme surplus movements included on a net of tax
basis.
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 £449m (2022: £443m). Of the total, £201m (2022:
£186m) was borne by abrdn whilst £248m (2022: £257m) represents tax
collected by abrdn 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.
2021 £447m
2022 £443m
2023 £449m
You can read our tax report on our website www.abrdn.com/annualreport
Earnings per share
- Adjusted diluted earnings per share increased to 13.9p (2022: 10.5p) due
to the higher adjusted profit after tax and the benefit from share buybacks in
2022 and 2023.
- Diluted earnings per share was a profit of 0.1p (2022: loss 26.6p(1))
reflecting the factors above, impairments and fair value losses of significant
listed investments.
Dividends
The Board has recommended a final dividend for 2023 of 7.3p (2022: 7.3p) per
share. This is subject to shareholder approval and will be paid on 30 April
2024 to shareholders on the register at close of business on 15 March 2024.
The dividend payment is expected to be £130m.
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.
The adjusted capital generation trend and related dividend coverage is shown
below:
2021 £366m 1.18x
2022 £259m 0.88x
2023 £299m 1.12x
Return of capital
On 5 June 2023 we commenced a £150m share buyback which was extended to
£300m on 8 August 2023. This completed on 19 December 2023 with a total of
161m shares repurchased at an average price of £1.86 per share.
Capital and liquidity
Adjusted capital generation
Adjusted capital generation which shows how adjusted profit contributes to
regulatory capital increased by 15% to £299m.
2023 2022
£m
£m
Adjusted profit after tax 280 231
Less net interest credit relating to the staff pension schemes (34) (29)
Less AT1 debt interest (11) (11)
Add dividends received from associates, joint ventures and significant listed 64 68
investments
Adjusted capital generation 299 259
Restructuring and corporate transaction expenses (net of tax) (121) (178)
Net capital generation 178 81
1. Comparatives have been restated for the HASL implementation of IFRS 17.
Refer Basis of preparation in the Group financial statements section.
IFPR surplus CET1 capital
The indicative surplus CET1 capital at 31 December 2023 was £876m (2022:
£711m). Disposal of our remaining HDFC Life and HDFC Asset Management stakes,
in May and June 2023 respectively, benefited regulatory capital by £576m.
Key movements in surplus CET1 capital are shown in the table below.
Analysis of movements in surplus CET1 capital (IFPR basis) 2023 2022
£m
£m
Opening surplus regulatory capital 711 1,799
Sources of capital
Adjusted capital generation 299 259
HDFC Life, HDFC Asset Management(1) and Phoenix sales 576 789
Disposals(2) 137 -
Uses of capital
Restructuring and corporate transaction expenses (net of tax) (121) (178)
Dividends (267) (295)
Share buyback (302) (302)
Acquisitions(3) (152) (1,364)
Other (5) 3
Closing surplus CET1 capital 876 711
1. Capital benefit of HDFC Asset Management sales reflects the pre-tax
proceeds.
2. Discretionary fund management and US private equity businesses. Capital
benefit of discretionary fund management disposal includes derecognition of
related intangibles (£58m).
3. ii (excluding Personal Wealth) in 2022 and Tekla and Macquarie funds in
2023.
The full value of the Group's significant listed investments is excluded from
the capital position under IFPR.
A summary of our CET1 coverage is shown in the table below.
CET1 coverage 2023 2022
£m
£m
CET1 capital resources 1,466 1,301
Total regulatory capital requirements 1,054 1,054
CET1 coverage 139% 123%
Note 42 of the Group financial statements includes a reconciliation between
IFRS equity and surplus regulatory capital and details of our capital
management policies.
Cash and liquid resources and distributable reserves
Cash and liquid resources remained robust at £1.8bn at 31 December 2023
(2022: £1.7bn). These resources are high quality and mainly invested in cash,
money market instruments and short-term debt securities. Cash and liquid
resources held in abrdn plc were £0.4bn at 31 December 2023 (2022: £0.3bn).
Further information on cash and liquid resources, and a reconciliation to IFRS
cash and cash equivalents, are provided in Supplementary information.
At 31 December 2023 abrdn plc had £3.1bn (2022: £3.2bn) of distributable
reserves.
IFRS net cash flows
- Net cash inflows from operating activities were £221m (2022: £110m)
which includes outflows from restructuring and corporate transaction expenses,
net of tax, of £78m (2022: £149m).
- Net cash inflows from investing activities were £542m (2022: outflows
£86m) and primarily reflected £535m net proceeds from the final HDFC Asset
Management and HDFC Life stake sales.
- Net cash outflows from financing activities were £711m (2022: £761m)
with the decrease mainly due to the repayment of subordinated liabilities in
2022.
The cash inflows and outflows described above resulted in closing cash and
cash equivalents of £1,210m as at 31 December 2023 (2022: £1,166m).
IFRS net assets
IFRS net assets attributable to equity holders decreased to £4.9bn (2022:
£5.6bn(4)) mainly due to the share buyback and dividends paid in the year:
- Intangible assets remained at £1.6bn (2022: £1.6bn) due to additions
being offset by amortisation and impairments. Further details are provided in
Note 13.
- The principal defined benefit staff pension scheme, which is closed to
future accrual, continues to have a significant surplus of £0.7bn (2022:
£0.8bn). Further details are provided in Note 31. As part of ongoing actions
taken in recent years to reduce risk in abrdn's principal defined benefit
pension plan, the trustee submitted a petition to the Court of Session in
March 2023 seeking a direction on the destination of any residual surplus
assets that remain after all plan-related obligations are settled or otherwise
provided for. On 1 August 2023, the Court of Session, among other things,
confirmed that if a buy-out were to be completed and sufficient provision made
for: (i) any remaining liabilities; and (ii) expenses of completing the
winding-up of the pension scheme, there would be a resulting trust in respect
of any residual surplus assets in favour of the employer. We are continuing to
work with the trustee on next steps. Any residual surplus will be determined
on a different basis to IAS 19 or funding measures of the plan surplus. The
timing of release of any surplus remains a matter for the trustee. The IAS 19
defined benefit plan asset is not included in abrdn's regulatory capital.
- Financial investments decreased to £2.0bn (2022: £2.9bn) primarily due
to the final stake sales in HDFC Asset Management and HDFC Life, which
completed in H1 2023. At 31 December 2023 financial investments included
£0.6bn (2022: £1.3bn) in relation to significant listed investments
(Phoenix).
1. Comparatives have been restated for the HASL implementation of IFRS 17.
Refer Basis of preparation in the Group financial statements section.
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. These prospects have been enhanced as a result of
actions taken during the year, including through actions to simplify the
business.
The assessment reflects (i) the Group's focus on its strategic priorities as
set out on pages 14 to 15 and how this is expected to drive client-led growth
in abrdn's three businesses and (ii) the expected impact of
the transformation programme announced in
January 2024.
In forming their assessment of the Group's longer-term prospects, the
Directors have also taken into account:
- The Group's capital position as set out on page 73.
- The Group's substantial holdings of cash and liquid resources as well as
holdings in listed equity investments, as set out on page 73.
- The Group's principal and emerging risks as set out on pages 76 to 79.
Assessment of prospects
The Directors consider the Group's focus on its strategic priorities will
deliver growth while allowing the Group to maintain its regulatory capital
position and the dividend policy described on page 64.
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 has reviewed and assessed
the Group's principal risks in order to understand potential vulnerabilities
for the business. In addition to this, the Directors assessed the Group's
viability taking into account:
- Output from the Group's business planning process.
- Results from the Group's stress testing and scenario analysis programme.
- Results from the Group's reverse stress testing exercise.
- Work performed in connection with the UK's FCA and PRA rules on
operational resilience.
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 which
reflects various factors, including the changing market conditions following
the significant geopolitical and economic developments in recent years.
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 241.
The Group's stress testing and scenario analysis programme develops financial
projections over a three-year horizon in response to a range of severe but
plausible stresses to the business plan to understand the Group's financial
resilience. This includes exploring (i) the impacts of market-wide stresses,
(ii) stresses that are specific to abrdn, and (iii) stresses that combine both
these elements. Whilst all of the Group's principal risks could potentially
impact on the Group's financial resilience, our combined stress testing
scenarios focused on those risks expected to have the most significant impact:
- Financial risk was considered through stresses to market levels, flows,
and margins. The scenarios that were explored included stressing flows over
all three years and assuming a market shock in 2024 with an impact that might
be expected around 1-in-20 years. This included equity markets falling
approximately 24% in Q1 2024 with recovery occurring from Q3 2024 through 2026
and the UK Base rate falling to 0.1% by Q1 2025 where it remains.
- Operational risks were considered in the context of the Group incurring
£90m of operational losses which were assumed to represent the cumulative
impact of a number of severe losses across a range of principal risk
categories, such as: process execution and trade errors, technology risk,
security and resilience risk, or fraud and financial crime risks.
All the scenarios explored 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.
Given the strength and quality of the Group's financial position, the Group
had sufficient capital and liquid resources to remain above its regulatory
requirements without needing to take any management actions other than those
assumed within the business plan.
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 range of management actions it would be able to take, including a
number of sizeable management actions wholly within the Group's control. This
includes drawing down on the revolving credit facility, reducing discretionary
expenditure, and dividend management actions.
The Group is considered to be resilient to adverse climate change over the
three-year horizon; the stresses to market levels and flows explored under the
stress testing and scenario analysis programme are deemed to capture the
possible consequences of climate change over this period.
Reverse stress testing involves exploring the quantitative and/or qualitative
impacts of extreme scenarios which could threaten the viability of our
business model. For this year's exercise, we investigated the potential for
cyber-attacks to impact on the Group's viability.
Initial analysis highlighted that, given the diversification of revenues
arising from the Group's three businesses, the Group's viability was most
likely to be threatened where significant disruption was experienced by more
than one business.
The Group's IT architecture and related controls were found to reduce the risk
of a single cyber-attack having a material impact on more than one business.
As a result, it was concluded that significant disruption was only likely to
be experienced by more than one business where the Group suffered more than
one cyber-attack.
Based on the above, the reverse stress test scenario that was explored focused
on a ransomware cyber-attack impacting on the abrdn Group, followed a few
months later by a cyber-attack impacting FNZ's ability to serve abrdn. In
exploring this extreme scenario, consideration was given to understanding the
possible disruption that could arise in the Investments and Adviser business
such that the abrdn Group could become non-viable.
The investigations concluded that the Group's non-viability was most likely to
arise due to (i) a significant outflow of AUMA from the Investments business
following the cyber-attack on the abrdn Group and (ii) the Adviser business
reaching a point of non-viability following disruption caused by the
cyber-attack on FNZ.
The Group operates extensive controls to protect the business against
cyber-attacks and engages actively with third parties to understand and, where
necessary, request improvement in the controls they operate.
The likelihood of two cyber-attacks arising in the manner described is
considered to be very remote. This, and the controls in place to mitigate the
impact of such cyber-attacks, supports the assessment of viability and no
qualification is considered necessary.
Over recent years the Group has also explored reverse stress tests including
the failure of a critical third-party administrator in the Investments
business, the loss of critical staff and extreme financial market shocks. The
work performed concluded that these events had a low likelihood of occurrence
and were not considered likely to threaten the Group's viability. These
conclusions are considered to remain valid.
Operational resilience reflects the ability of firms and the financial sector
as a whole to prevent, adapt and respond to, and 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.
To support the Group's operational resilience, and in line with UK regulatory
expectations, the Group reviews and approves important business services,
impact tolerance thresholds, and operational resilience self-assessments on an
annual basis. The Group also undertakes measures where relevant to comply with
operational resilience regulations in overseas jurisdictions, for example
Singapore and Ireland.
The Group continues to enhance its operational resilience and defences against
risks through enhancement programmes. This is to ensure the Group complies
with UK regulatory expectations around operational resilience that must be met
by March 2025 and helps to further reduce risks of non-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 our commitment to put client
and customers first and safeguard the interests of our shareholders. Our Board
has ultimate responsibility for risk management and oversees the effectiveness
of our Enterprise Risk Management (ERM) framework.
ERM framework
The ERM framework supports risk management throughout our business. We operate
'three lines of defence' with defined roles and responsibilities. We
continually evolve our framework to meet the changing needs of the company and
to make sure it keeps pace with industry best practice. In 2023, improvements
to the framework included:
- Delivering a new approach to Risk and Control Self Assessments, focused
on key business outcomes and executive accountability.
- Improving abrdn's risk acceptance process.
- Improved management information to better measure how the framework is
applied in practice.
- Reviewing our risk taxonomy.
- Strengthening capabilities within Enterprise Risk.
- Further embedding of capabilities to support Operational Resilience and
Consumer Duty outcomes.
- Updating our Global Code of Conduct.
Business risk environment
The commercial environment remained challenging during 2023 given the market
and economic environment and geopolitical events and risks. Inflation remained
high, accompanied by the continued tightening of monetary policy. These
conditions adversely impacted market levels and client flows over the year.
We have continued to simplify our business model, delivering on recent
transformation projects and continued diversification of the Group's revenue,
following the acquisition of ii in 2022.
We have simplified and focused our investment capabilities on areas where we
have both the skill and the scale to capitalise on the key theme shaping the
market, through either public markets or alternative asset classes. We have
completed the sales of our US private equity and discretionary fund management
businesses and announced the sale of our European private equity business. We
have also acquired the healthcare fund management capabilities of Tekla, as
part of our journey to refocus our business to become a 'specialist' manager.
We continue to manage a lot of change across the business, to simplify and
achieve sustainable growth. The volume of change may create bandwidth issues
and operational stretch on top of our core activities, whilst we balance the
demands of the business simplification and growth agendas. We continue to
monitor how we attract, retain and develop our colleagues and engage regularly
on colleague engagement.
Client and customer interests are at the heart of our business. We continue to
focus on good outcomes which we deliver across our business. During 2023, we
implemented the FCA's new Consumer Duty requirements, which came into force on
31 July. This is embedded in our Global Code of Conduct and supported by our
Consumer Duty mandatory training and our Client and Customer Policy.
The Consumer Duty requirements place specific obligations on the abrdn Group's
businesses to demonstrate Value for Money for its clients. This is achieved by
avoiding biased incentive schemes and by our Value for Money framework,
underpinned by our culture and strategy.
Evolving and emerging risks
We are vigilant to risks that could crystallise over different horizons and
impact our strategy, operations and our clients. These risks vary in nature as
they cover geopolitical, economic, societal, technological, legal, regulatory
and environmental themes. We distil internal and external research to consider
how risks could emerge and evolve.
We provide our clients and customers fair and transparent fee structures and
are engaged with the FCA (in the UK) on retention of interest earned on cash
balances. Some notable risks (and opportunities) for our business include
adoption of modern technologies, uncertainty driven by geopolitics,
unprecedented market shifts, evolving cyber threats and climate change.
Sustainability risks(1)
We have a responsibility to shareholders, clients, customers and all
stakeholders to assess, report on, manage and mitigate our sustainability
risks. As an investment firm, we need to consider the impact of our corporate
activities while making investments in line with client mandates. We are
mindful of the increasing challenges around providing consistent ESG
disclosures across multiple geographies.
During 2023, we continued to deliver against a number of key milestones. These
included regulatory disclosure requirements under the EU SFDR and UK TCFD and
enhancing our climate and carbon analytical tools. We completed the
integration of ESG data into our investment data platform to support 2024
regulatory reporting and transitioned to a new ESG screening and exclusion
tool. We have commenced a review of the UK SDR reporting and disclosure
requirement for delivery in 2024.
1. See Note 34 for disclosure relating to the financial impact of
climate-related risk on the Group financial statements.
Principal risks and uncertainties
We categorise our risks across 12 principal risk categories which have both
internal and external drivers. Within our ERM framework, we have developed
more detailed taxonomy of risks under these principal risk categories. This
allows us to systematically monitor the risk profile of our business.
Principal and emerging risks are subject to active oversight and robust
assessment by the Board. These risks are described in the following table.
Risk to our business How we manage this risk
1 Strategic risk
- The current external geopolitical and macroeconomic environment presents We continued to simplify our business model, increase efficiency and improve
a wide range of risks that could impact our business plan and the the blend of capabilities, technology and processes.
implementation of our strategy.
We successfully completed key acquisitions and disposals to simplify our
- The volume of internal change also poses a risk to the delivery of our business and strengthen our capabilities for future growth. Each business has
plans. a clear growth strategy. We rigorously assess inorganic opportunities for
their contribution to our core strategy and client needs. Market and
- Risks could include failing to meet client expectations, poor strategic competitor intelligence has aided decision-making.
decision-making or failure to adapt.
We have maintained focus on geopolitical and macroeconomic developments to
understand and manage implications.
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 and confirm the financial resilience of
impacted by our flows experience, global market conditions and the fees we our business. During 2023, we continued to operate to the UK Investment Firms
charge on investment mandates, platforms and wealth management services. Prudential Regime which determines regulatory capital and liquidity
requirements for the group and its key entities. Our UK regulator completed a
- Our strong capital and liquidity position enabled the continuation of planned Supervisory Review and Evaluation Process during 2023, as standard for
returning capital to shareholders through share buybacks, while still the industry.
maintaining a strong capital position.
Our Treasury Policy includes minimum standards for managing liquidity, market
and counterparty risks, including the credit quality of our counterparties.
3 Conduct risk
- Our business relies on our ability to deliver good service and fair Being client and customer-led is a commitment and an essential aspect of our
client and customer outcomes. culture. This means the continuous focus on client and customer outcomes in
all that we do.
- There is a risk that we fail to achieve this through our operational
activities and the implementation of our change programmes. Our ERM framework supports the management of conduct risk with clear
expectations around conduct goals and responsibilities. In 2023, we updated
- This could lead to customer and client harm, reputational damage and our Global Code of Conduct and implemented the FCA's Consumer Duty. Work is
loss of income. continuing to embed the new framework, improve management information and
ensure compliance of closed book products, required by
31 July 2024.
4 Regulatory and legal risk
- High volumes of regulatory change can create interpretation and We actively monitor developments and engage with our regulators on the
implementation risks. regulatory landscape, given the broad and complex rules that the firms'
operations must apply globally, including the implementation of new regulatory
- Compliance failures can lead to poor customer and client outcomes, policy initiatives. We also invest in compliance and monitoring activity
sanctions, reputation damage and income loss. across the business. The evolution of regulatory divergence between the UK and
EU rulebooks is a particular focus for the group in view of our business
- During 2023 the company continued to respond to and implement regulatory footprint.
change, including in relation to ESG and the new Consumer Duty requirements in
the UK. We work with our regulators and tax authorities, to address requirements and
expectations.
- Potential risks of changing capital and liquidity requirements.
Our relationships with key regulators are based on trust and transparency
- Tax risk is inherent in the nature of our global business. This could while our compliance and legal teams support senior managers across our
lead to reputational risk and/or financial loss for our business. business.
Operational risks (5-12)
5 Process execution and trade errors
- This is the risk that processes, systems or external events could We have established processes for reporting and managing incidents, risk
produce operational errors. events and issues. We monitor underlying causes of error to identify areas for
action, promoting a culture of accountability and continuously improving how
- During 2023 there was continued management focus on process execution we address issues.
and trade errors.
6 People
- Our people are our greatest asset. Business change has the potential to We invest considerable time listening to and communicating with our staff and
impact engagement and morale. have well-established approaches to engaging at all levels.
- Engaging with our people, and supporting their wellbeing, is critical to We continue to monitor and have responded to market pressures and increased
our strategy and the success of our business. competition for talent in our industry. We use targeted approaches to support
retention and recruitment for our key business functions.
7 Technology
- There is a risk that our technology may fail to keep pace with business We have an ongoing programme to invest in and enhance our IT infrastructure
needs. There is also the significant risk of unauthorised access of our controls. We benchmark our IT systems environment to identify areas for
systems and cyber-attack. improvement and further investment.
- These risks are relevant to a wide range of potential threats to the We delivered our Adviser platform technology upgrade in February, to allow
business including internal failure, external intrusion, supplier failure and abrdn to deliver better adviser and customer outcomes, greater operational
weather events. efficiency, and exit transitional services with Phoenix.
- Our current IT estate is complex and there are dependencies on third We maintain heightened vigilance for cyber intrusion, with dedicated teams
party suppliers that need to be managed in a dedicated way. monitoring and managing cyber security risks. We carry out regular testing on
penetration and crisis management.
8 Security and resilience
- Incidents that can impact business resilience and continuity include We continue to strengthen our operational resilience. Crisis management and
environmental issues, terrorism, economic instabilities, cyber-attacks and contingency planning processes are regularly reviewed and tested, to
operational incidents. strengthen our resilience and response. We are preparing to implement changes
in relation to the new EU Digital Operational Resilience Act, to be
- The risk of disruption from inside the organisation is broadly stable. implemented by January 2025.
However, tools for exploiting IT vulnerabilities are becoming more widely
available globally and are frequently used by criminal groups to enable
ransomware attacks.
9 Fraud and financial crime
- As a business that handles clients' money, we are exposed to the risk of We have improved the control environment for anti-money laundering. Processes
fraudulent and dishonest activity. are in place to identify client activity linked with financial crime,
globally. These include controls for anti-money laundering, anti-bribery,
- As we engage with a wide number of external parties, we have to be fraud and other areas of financial crime.
vigilant to the risk that these parties are connected with criminal behaviour,
or subject to sanctions by national or global authorities. We continue to work with the financial authorities and our industry peers to
assist those targeted by scams.
10 Change management
- As a diverse, global investment firm, we are continually implementing The ongoing simplification of our business model enables us to be more agile
change to improve our business or meet regulatory expectations. As well as and respond at pace to changes in the economic environment.
being costly, failure to deliver change effectively can lead to poor client
and customer outcomes and/or regulatory non-compliance. In our commitment to transformation, we are positioning our business for a
longer-term sustainable future and have committed to actions to align our
resources and capabilities. We have established governance processes with
project resources and clearly defined roles across the three lines of defence.
11 Third party management
- We outsource various activities to third party suppliers and are exposed Our Third-Party Risk Management framework continues to evolve in line with
to a variety of delivery, regulatory and reputational risks as a result. external developments, industry practice and regulatory developments.
12 Financial management process
- We have extensive financial reporting obligations to clients, customers, Our financial reporting activities align to external reporting standards and
shareholders, regulators and other stakeholders. Failures in these processes industry best practice. These activities are subject to extensive internal
could impact decision-making and lead to regulatory and litigation risk. control and external assurance.
The cover to page 79 constitute the Strategic report which was approved by the
Board and signed on its behalf by:
Stephen Bird
Chief Executive Officer
abrdn plc
(SC286832)
26 February 2024
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