Aberdeen Standard to manage AIIB’s $500m ESG infra bonds portfolio

The credit portfolio, which is targeting total returns of 5-7 percent, aims to boost awareness of environmental, social and governance issues in emerging Asian markets.

The Asian Infrastructure Investment Bank has chosen Aberdeen Standard Investments as the manager for its $500 million AIIB Asia ESG Enhanced Credit Managed Portfolio. The portfolio aims to invest in infrastructure-related bonds in Asia’s emerging markets and boost ESG investment across the region.

“We expect our engagement to raise awareness about sustainability,” Paul Lukaszewski, head of corporate debt for Asia and Australia at ASI, told Infrastructure Investor.

He said the portfolio would mainly focus on dollar-denominated corporate bonds with an average rating of BB+.

Thomas Walenta, senior investment officer at AIIB, said he was “confident” the funds would be deployed in three months. He added that the portfolio would be targeting returns of 5-7 percent.

AIIB previously said the portfolio would aim to invest an average of $10 million in around 50 different bond issuers, and that securities would have an average maturity of five years.

Walenta and Lukaszewski emphasised that the ESG framework developed for the portfolio focuses on “engagement” with market players. He explained that an ESG score would be created using information provided by corporates and third-party rating providers. It will evaluate, among other factors, a firm’s trajectory and its “willingness to improve” its ESG standards.

“The framework also includes triggers, such as reputational risk triggers or strategy shifts, that would put securities on our watchlist and trigger an engagement process,” he said.

On the other hand, ASI’s Lukaszewski said conditions were ripe for change in Asia over the next five to 10 years, as “influential asset owners” from the region are already moving towards ESG investment.

“Over time, we would expect the companies which think about sustainability and provide greater transparency about their plans will have easier access to capital,” he said.

Both firms have also decided to launch the Sustainable Capital Markets Initiative. A statement from the AIIB said that this would involve various market participants – including bond issuers, rating agencies and index providers – with the aim of expanding ESG rating coverage in Asia’s emerging markets.

Potential partners

Walenta said the AIIB would start to look for other partners, including pension funds, insurance companies and sovereign wealth funds, to invest in the portfolio after it had been built up. The bank also hopes these partners will adopt its ESG framework to invest across the region.

He added that the institution was open to considering deploying more capital to the portfolio if it “reaches its objectives,” but declined to provide a specific timeframe for this.

“The [investment] market universe is large enough for topping up our commitment,” he said.

Asked about the selection of ASI as portfolio manager, Walenta stressed the firm’s “strong footprint” in emerging markets and its “sophisticated” bottom-up capabilities and strong fundamental research.

“[ASI] also has an ESG team with high capabilities, and a very strong link between the portfolio manager and the ESG team,” he said.

Lukaszewski said the credit portfolio would be managed by ASI’s fixed-income team in Singapore, which currently employs 22 investment professionals and manages $3 billion in AUM.

The AIIB is a multilateral development bank based in Beijing that was launched in 2016 to finance infrastructure projects across Asia. During its annual meeting last week, it announced that it now had 100 member states, after Benin, Djibouti and Rwanda joined the institution.