Our history of sustainability begins with American Century’s purpose-driven business model that sets us apart in the asset management industry. Our controlling owner, the Stowers Institute for Medical Research, is a world-class biomedical research organization, and more than 40% of our dividends go to support its efforts to better understand human health and life-threatening diseases. This business model has helped to shape our culture and makes incorporating sustainability principles into our investment practices a natural fit for us.
Is ESG integrated into your investment process? How? Which funds or does this apply to the entire firm?
We believe that integrating ESG factors into our fundamental investment process allows us to assess long-term sustainability of an issuer’s business model or durability of cash-flows over time more holistically. We believe ESG issues can be important inputs into the fundamental analysis process and may contribute to downside risk mitigation or the understanding of upside potential of an issuer’s long-term business value. That is why many of our investment teams incorporate ESG considerations into their investment processes.
To assess whether ESG issues could result in risks or opportunities to a particular security’s valuation or cause a downgrade of its fundamental profile, investment analysts, working with the Sustainable Research team, generate an ESG assessment that incorporates a proprietary ESG scorecard application. Although not every security in every portfolio’s investable universe may have an ESG assessment, for those that do scores are based on material quantitative and qualitative environmental and social indicators that are sector-specific and derived from company reported data. A governance risk assessment complements this analysis by benchmarking issuers against quantitative governance indicators based on company reported and third-party data, regardless of the sector.
The scores are dynamic and intended to capture if an issuer’s ESG management practices are improving or worsening over time. The assessment results in a final ESG rating composed of an ESG score and trend signal for the issuer. For those investment teams that consider ESG factors, the ESG assessment is a potential input into the fundamental research process. The investment analysts may incorporate this assessment of ESG risks and opportunities into their research with a specific focus on portfolio performance implications. However, the portfolio managers retain discretion as to whether or how to incorporate such ESG risk views into their investment decision-making. Even when such data is considered, they may conclude that other attributes of an investment outweigh ESG considerations when making decisions for a portfolio.
While all in-house fundamental ESG research is based on our foundational framework of macro thematic, sector and issuer materiality, investment teams that integrate ESG factors do so in alignment with a specific investment strategy’s asset class, style, time horizon, opportunity set and client objectives.
Who conducts ESG analysis within the team? Is it done by PM, financial analysts or a central ESG team?
Our investment teams are responsible for integrating ESG considerations into investment decisions and work in partnership with our dedicated Sustainable Research team as they seek to incorporate material ESG issues into their fundamental research. The Sustainable Research team is a part of the investment organization and serves as the center of expertise supporting those investment teams that seek to incorporate ESG issues into fundamental analysis and portfolio decision-making. The Sustainable Research team is responsible for:
- Expanding issuer-specific and thematic research and training,
- Developing sustainability assessment models and tools,
- Advancing stewardship practices,
- Publishing thought leadership, and
- Innovating client solutions.
Each investment discipline has a dedicated Sustainable Research analyst who works closely with their respective investment teams to advance integration, enhance engagement practices, and support proxy voting.
Please summarise the key ESG metrics that are core to your strategy?
Material ESG issues determined likely to impact the long-term value of an issuer are not identical or uniform across the investment universe. ESG risks and opportunities facing an issuer can vary by industry or sector, and at the individual issuer level by business model. Therefore, our ESG research framework is designed to account for these differences. We utilize a proprietary materiality mapping framework that seeks to identify key sustainability themes, sector- and issuer-level ESG risk and opportunity.
Depending on the sector, the environmental and social factors include, but are not limited to:
- Circular economy
- Climate change (including carbon reduction and biodiversity)
- Cybersecurity and data privacy
- Health care
- Human capital management
- Product safety and quality (supply chain and manufacturing)
- Water stress
Regardless of the sector, the governance factors include:
- Accounting practices
- Board composition
- Business (mis)conduct
- Executive pay-for-sustainability performance alignment
- Independence and entrenchment
- Ownership structure
How is this research carried out? Positive/negative screening? Qualitative?
The imperfect and evolving nature of ESG data provides our investment teams with an excellent opportunity to demonstrate the value of active management and proprietary research. Because ESG data is typically voluntary and unaudited, our ESG analysis focuses on more than just company disclosures. To complement this research, our investment teams that incorporate ESG considerations may also refer to third-party ESG data from data aggregators and other specialized data providers. However, we do not rely exclusively on third-party ratings. Our conclusions are based on proprietary processes and research.
Our Sustainable Research team incorporates a thematic approach to sustainability research, believing that many of the challenges and opportunities that companies or issuers face cannot be assessed independent of other business drivers. Our five sustainability mega-themes include health care, empowerment, sustainable living, climate, and technological advancement. Opportunities within these areas to innovate solutions, address critical challenges, and transform society will help shape the future of sustainable investing. These themes help drive our sustainable investing research, including thought leadership, and stewardship practices.
How do you measure your success regarding ESG? Performance against benchmarks (which ones) Reports?
Our Sustainable Investing program is solutions driven, and for clients who have specific ESG and/or sustainability objectives, we partner with them to develop custom reporting designed to meet their needs. Our reporting menu includes:
- Proprietary ESG scores and distribution
- External ratings and distribution
- Proprietary ESG screens
- ESG attribution (for relevant portfolios)
- Portfolio-level carbon footprint
- Stranded assets analysis
- SDG and impact alignment (stock- and portfolio-level)
- Sustainability metrics
- ESG engagement activity
- ESG proxy voting
For ESG best-in-class and positive-tilt strategies, we can identify and report on excess return that is attributed to ESG factors.
For impact strategies, we use an impact generation framework to demonstrate each investment we make to exhibit both a financial business case and a quantifiable impact on society and/or the environment. For these portfolios, we provide reporting on sustainable development goal alignment, measurement, and overall portfolio impact.
For those strategies not labelled as ESG, but that systematically integrate ESG considerations alongside traditional financial data, we report performance in holistic fashion, whereby ESG factors serve as an input into attribution, among other factors, including industry specifics, fundamentals, time-horizon, and market-based measures.
Is your business a signatory to PRI? Why, why not?
American Century is a signatory of the Principles for Responsible Investment (PRI) and supports its missions to promote the incorporation of ESG issues into investment processes, ownership policies and practices.
Are you disclosing climate change policies in line with the Task Force on Climate-Related Financial Disclosures (TFCD)? Please briefly outline your policies.
American Century is a supporter of TCFD and believes our sustainable investing approach is aligned with the goals of TCFD. We believe climate change issues present material, systemic risks to the global economy and could affect long-term global market dynamics. We also expect to see tremendous investment opportunities arise as the world seeks to address these risks.
As part of our sustainable investing approach, we seek to understand how issuers are positioned for a world that faces significant threats from climate change even as we work to decarbonize. We also believe that moving to a low-carbon global economy should be consistent with the Climate Justice Alliance’s Just Transition initiative, which is an explicit area of focus in our climate-related engagements. Our approach combines:
- understanding how companies are addressing climate risk,
- investing in companies that provide innovative solutions to climate-related challenges, and
- exercising our rights as active owners to influence companies’ policies and actions.
We assess individual companies’ climate risk using our proprietary materiality map and ESG scorecard, covering material climate-related risks and opportunities and their impact on an investment thesis. Our stewardship practices are focused on material ESG-related issues, including climate change, that we believe could potentially impact the value of an investment. Through engagement, we encourage increased transparency around and the disclosure of material issues related to sustainability and associated risks, including climate-related risks.
Has your business signed up or committed to any other campaigns relating to ESG?
As we further our commitment to stewardship, we participate in a select group of affiliations and industry collaborations that promote sustainable investing. We prioritize involvement with a smaller, more targeted number of initiatives that align with our investment-led approach and advance our sustainability themes. We highlight a few collaborations below:
- Access to Medicine Foundation
- Investors Against Slavery and Trafficking Asia-Pacific
- ShareAction (Healthy Markets Initiative)
- Human Capital Management Coalition
Other important industry affiliations we support that focus on responsible investing, governance, and disclosure include:
- Principles for Responsible Investment (PRI)
- Responsible Investment Association Australasia (RIAA)
- International Corporate Governance Network (ICGN)
- Investor Stewardship Group (ISG)
- Carbon Disclosure Project (CPD)
- Task Force on Climate-Related Financial Disclosures (TCFD)
- Task Force on Nature-Related Financial Disclosures (TNFD)
Many of American Century’s investment strategies incorporate the consideration of environmental, social, and/or governance (ESG) factors into their investment processes in addition to traditional financial analysis. However, when doing so, the portfolio managers may not consider ESG factors with respect to every investment decision and, even when such factors are considered, they may conclude that other attributes of an investment outweigh ESG considerations when making decisions for the portfolio. The consideration of ESG factors may limit the investment opportunities available to a portfolio, and the portfolio may perform differently than those that do not incorporate ESG considerations. ESG data used by the portfolio managers often lacks standardization, consistency, and transparency, and for certain companies such data may not be available, complete, or accurate.
American Century Investments and ESG Clarity are not affiliated investment companies.
No offer of any security is made hereby. This material is provided for informational purposes only and does not constitute a recommendation of any investment strategy or product described herein. This material is directed to professional/institutional clients only and should not be relied upon by retail investors or the public. The content of this document has not been reviewed by any regulatory authority.
The opinions expressed are those of American Century Investments and are no guarantee of the future performance of any American Century Investments portfolio. The information is not intended as a personalized recommendation or fiduciary advice and should not be relied upon for investment, accounting, legal or tax advice.
American Century Investment Management (UK) Limited is authorised and regulated by the Financial Conduct Authority. American Century Investment Management (UK) Limited is registered in England and Wales. Registered number: 06520426. Registered office: 12 Henrietta Street, 4th Floor, London, WC2E 8LH.
American Century Investments (EU) GmbH is registered with the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin)). American Century Investment Management, Inc. is not authorised by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin)).
©2023 American Century Proprietary Holdings, Inc. All rights reserved.
Links and documents
– Ownership Structure
– Corporate Responsibility
– Sustainable Investing
– Diversity, Equity & Inclusion