Sustainable Equity Fund
Sustainability Report
Key Takeaways
We believe integrating ESG factors into our investment process leads to better decision-making and improved outcomes for our investors.
Ideal portfolio candidates may lie at the intersection of improving business fundamentals and attractive ESG characteristics.
Our 2022 Impact report highlights the five themes that we are using to assess long-term ESG-related risks and opportunities.
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Learn more about our unique ownership structure, read about leaders in the ESG space, review our Proxy Voting Policies, and meet our investment team.
Letter to Shareholders
Recent developments in geopolitics and the global economy—most notably Russia’s invasion of Ukraine, the resulting rise in energy prices and the impact on countries’ access to critical fuel supplies—highlight the importance of investing with a long-term perspective. Sustainable investing inherently adopts a long-term view; the very definition of “sustainable” reflects that perspective.
While we should not ignore the immediate and painful impact of high energy prices that are likely to persist in the near term, we remain focused on long-term sustainability issues, such as the growing risks associated with climate change.
American Century’s ESG and Sustainable Investing team has identified the following five themes and subthemes that we are using companywide to assess long-term ESG-related risks and opportunities:
Diversity, equity and inclusion, wage structures human/labor rights, and upward mobility.
Recycling, production, food systems, and product life extension.
Alternative energy, biodiversity, water, climate mitigation, and climate technologies.
Innovative treatments, improved medical equipment and services, access to medicine and health care services, and solutions to reduce health care costs.
ESG aspects of digitalization, fintech, ecommerce, connectivity, and automation.
Importantly, these themes are not siloed—they impact each other. This framework helps us to identify these interrelationships and take a holistic view of sustainability.
Separately, we note the growing call to require more disclosure from asset managers to support claims about ESG and sustainable investing. We fully support a “truth-in-advertising” approach that would require funds to live up to whatever ESG-related claims they make to investors. In our view, greenwashing (overstating or even fabricating sustainable investing claims) hurts both investors and the asset management industry.
We continue to be encouraged by the sustainability commitments many companies are making across our five themes and we highlight several in this report. While ESG and sustainable investing and investors’ expectations evolve, our core beliefs remain:
Companies that excel at managing both business fundamentals and material ESG issues will likely outperform their peers over time.
ESG analysis complements traditional financial analysis and results in a more comprehensive understanding of risks and opportunities.
ESG integration, rather than exclusionary screening, improves diversification and produces a more robust opportunity set.
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.
How We Invest for Sustainability
Ideal portfolio candidates may lie at the intersection of improving business fundamentals and attractive ESG characteristics.
We seek to deliver competitive long-term financial returns while integrating material ESG factors into the investment process.
We consider ESG issues alongside traditional financial information to provide a more comprehensive view of the value, risk and return potential of a security.
We construct a sustainable large-cap core portfolio driven by security selection, with minimal cash and non-U.S. exposure.
Environmental
Environmental metrics reflect how a company affects nature. The companies in which we invest have less impact on the environment and use fewer resources.
Our portfolio holdings compared to the S&P 500® Index…
Produce 58% lower green house gas emissions
This equates to 29,615 fewer cars on the road
Use 26% less energy
This equates to 48,057 fewer homes' annual energy use
Use 83% less water
This equates to 923 fewer households' annual water consumption
Generate 98% less waste
This equates to 65,417 fewer homes' annual waste generation
Based on portfolio assets under management of $3.3 billion. Data as of 6/30/2022. Source: FactSet, MSCI, Refinitiv.
Typical passenger vehicle carbon dioxide emissions per year (www.epa.gov) = 4.6 metric tonnes.
Average energy use in the U.S. per home per year = 10.65 megawatt-hours.
Average water use in the U.S. per home per year = 414.50 cubic meters.
Average waste generation in the U.S. per home per year = 2.980 tons.
Social
Social metrics help shine a light on a company’s relationship with its stakeholders. This may include reviews of human rights, employee relations, working conditions and the use of child labor among customers, suppliers, employees and their community or region.
Employee Safety
97% of portfolio holdings have a health and safety policy which means 43% fewer workplace injuries and fatalities
Customer Safety
15% more companies than the benchmark have a policy on customer health and safety which means 67% fewer product quality controversies
Workplace Diversity
39% of portfolio holdings have more female employees than the benchmark which means 13% more companies offer flexible working hours
Sources: FactSet, Refinitiv as of 6/30/2022. Comparisons are based on the S&P 500® Index, a measure of 500 selected common stocks most of which are listed on the New York Stock Exchange. The index is not an investment product available for purchase.
Governance
Governance measures highlight policies and practices that encourage corporate board and management diversity and independence, reporting on sustainability and social responsibility and engagement with employees, customers and other key stakeholders.
Sources: FactSet, Refinitiv as of 6/30/2022.
Active Ownership
Building relationships with the companies in which we invest helps us gain insight and promote changes that benefit investors.
Engagement
Based on the total number of firm engagements in 2021.
Source: American Century Investments.
Proxy Voting
Based on the total number of ESG votes for the portfolio in 2021.
Source: American Century Investments.
The value and/or returns of a portfolio will fluctuate with market and economic conditions.
Different investment styles tend to shift in and out of favor depending upon market and economic conditions, as well as investor sentiment. A fund may outperform or underperform other funds that employ a different investment style.
There is no guarantee that the investment objectives will be met.
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.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
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