Aberdeen Standard launches sustainable index funds

Standard Life Aberdeen's HQ in Edinburgh

Edinburgh-based investment giant Aberdeen Standard Investments (ASI) said on Thursday it has launched a range of sustainable index funds.

“The sustainable index funds each track customised MSCI sustainable equity indices that have been developed for ASI to provide materially improved, broad-based sustainability outcomes,” said Aberdeen Standard.

“This is achieved by excluding companies with significant sustainability risks; specifically, those companies engaged in and/or demonstrating very severe ESG controversies such as UN Global Impact fails; controversial weapons; tobacco production and distribution; and thermal coal and unconventional oil and gas.”

The funds are launched within a tax efficient Authorised Contractual Scheme (ACS) structure aimed at pension funds and other institutional investors.

David Wickham, Global Head of Quantitative Investment Solutions at Aberdeen Standard Investments, said: “The ASI Sustainable Index funds, and our customised MSCI sustainable equity indices that they track, are designed to provide institutional investors with an opportunity to address their sustainability concerns through traditional indexation.

“Our sustainable index funds target broad improvements in sustainability outcomes – enhanced portfolio-level ESG scores, increased ‘green’ revenues, and reduced carbon intensity in addition to specific (financially-based) exclusions – with risk controls to retain the benefits of traditional indexing.

“Accordingly, they may represent a suitable core investment with the added benefit of tax transparency for fund investors.”

Caroline Silander, Head of Equity Indexation at Aberdeen Standard Investments, said: “The QIS team has been managing indexation strategies with a demonstrable track record of success on behalf of sophisticated institutional investors for over 15 years.

“The launch of our sustainable indexation range is a natural extension of our market-leading indexing capability and, while there are a growing number of sustainable equity indices to choose from, we felt there was a gap in the market as many index designs tend to be highly specific in their purpose.

“However, these approaches often induce greater tracking error and greater index/portfolio turnover than we believe is justifiable for those seeking a broad market-capitalisation weighted indexing approach.”

The ASI Sustainable Index funds are authorised in the UK within an ACS tax transparent fund structure, namely the Aberdeen Standard Investments Authorised Contractual Scheme I, which means that each fund is “looked through” and investors are treated for tax purposes as if they held their proportionate share of the underlying investments directly.

The sustainable index funds are managed by the Aberdeen Standard’s QIS indexation team who currently manage £37 billion in index assets across equity and fixed income.

The QIS team is comprised of 30 investment professionals located across offices in London and Edinburgh and manages a range of systematic strategies including indexation, sustainable indexation, enhanced indexation, smart beta, and active quant powered by artificial intelligence.

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