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Sustainable Investing: Perspectives From ESG Leaders

Asset owners share their current practices, preferences and challenges

Investors worldwide now understand the importance of ESG factors­—as both a source of risk and an opportunity to create value. While many people have questions about how to implement these principles within their portfolios, top institutional asset owners in Northern Europe are leading the way.

In a survey commissioned by American Century Investments and carried out by Danish consultant Kirstein A/S, asset owners from the Netherlands, Sweden, Denmark, Norway and Finland reveal differences in why and how they incorporate sustainable mandates and measure value.

Explore insights from world leaders in sustainable investing and learn what our head of sustainable investing, Sarah Bratton Hughes, has to say about how the landscape is evolving.

Dive Into the Data

Leaders in sustainable investing share their current practices, preferences and challenges implementing sustainable mandates with third-party asset managers.

A Firm Commitment to Investing Sustainably

There’s no turning back for leading asset owners—they are committed to embedding sustainability in their investment portfolios. And they expect the same commitment from the asset managers they work with. Most asset owners now consider only article 8 and 9 funds.¹

The European Union is far from the only regime implementing sustainability guidelines. The UN Principles for Responsible Investment notes that "[among] top 50 economies, 48 have some form of policy designed to help investors consider sustainability risks, opportunities or outcomes.”²


Research Panel Breakdown by Country and AUM

Low acceptance of Article 6 funds

¹As defined by the European Union’s Sustainable Finance Disclosure Regulation (SFDR), Article 8 and 9 products consider sustainability in a binding way. Article 8 products promote environmental or social characteristics in the pursuit of other financial objectives. Article 9 products seek to make a positive impact on society or the environment through sustainable investment and have a nonfinancial objective at the core of their objective.

²Principles for Responsible Investment, “Responsible investment regulation map,” September 9, 2019.

Our Take

We see a clear shift in focus away from viewing sustainable investing as just a risk mitigator to an alpha generator. We call this concept Alpha-plus, as we believe integrating ESG factors into the investment process has the potential to provide market-beating returns driven by traditional, financial alpha and by how companies pursue sustainability. See asset management preferences.

We expect policies and regulations governing sustainable investing to expand, with some of the potentially most impactful unfolding in the United States.

Active ESG Strategies Have the Edge Over Passive

Asset owners favor active management in ESG investing over passive or enhanced passive strategies. Integration is the preferred active approach, followed by best in progress.


Integration is Clearly the Favored Active Approach

Integration is clearly the favored active approach

Our Take

Passive strategies are easy to explain to a board of directors and to those on whose behalf the assets are being invested. However, tracking an ESG index means accepting the challenges embedded in whatever ESG scores are used to rank stocks and build the index. It also forces those index-tracking funds to buy and sell stocks based on those scores, which are inherently backward-looking. Explore ESG investment style preferences.
Global Perspectives on Sustainable Investing report.

Read the Complete Report

See all survey questions and responses.

True Progress Requires Active Engagement

Engaging with investee companies and reporting on the progress that engagement generates shows that ESG factors are truly integrated into the investment process.

The emphasis here is on progress. Two activities asset owners believe asset managers should pursue are:

  • Meeting regularly with senior management at investee companies

  • Monitoring and reporting on progress and outcomes

Engagement Activities With Positive Impact on ESG

Engagement activities with positive impact on ESG.

Our Take

There is no shortcut for good old-fashioned due diligence, and the survey participants clearly recognize that engagement takes the crown. It is not the number of meetings that makes engagement but the quality of the meetings. Read more views on engagement goals.
Sarah Bratton Hughes

“We believe that best in progress is one way to provide both ESG improvement and traditional alpha.”

Sarah Bratton Hughes, Head of Sustainable Investing

Expected Influence of Different ESG Approaches on Financial Performance

ESG Reporting: Outcomes and Data

Asset owners identified their top three elements for ESG reporting:

  1. Progress and outcome of engagement activities

  2. Greenhouse gas intensity

  3. Carbon footprint

Our Take

Being data-driven is critical, but you do not want the pursuit of perfection to get in the way of the good when it comes to data. We believe ESG reporting capabilities will evolve along with the investment landscape. Learn more about ESG reporting challenges.
Cover of Global Perspectives on Sustainable Investing report.

Want to Know More?

In their own words: Read the comments of Nordic and Dutch asset owners who shared their views on incorporating and overseeing sustainable mandates.

Kirstein A/S is not affiliated with American Century Investments.

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.

ESG Definitions:

  • ESG Integrated: An investment strategy that integrates ESG factors aims to make investment decisions through the analysis of ESG factors alongside other financial variables in an effort to deliver superior, long-term, risk-adjusted returns. Therefore, ESG factors may limit the investment opportunities available, and the portfolio may perform differently than those that do not incorporate ESG factors. Portfolio managers have ultimate discretion in how ESG issues may impact a portfolio's holdings, and depending on their analysis, investment decisions may not be affected by ESG factors.

  • ESG Focused: An investment strategy that focuses on ESG factors seeks to invest, under normal market conditions, in securities that meet certain ESG criteria or standards in an effort to promote sustainable characteristics, in addition to seeking superior, long-term, risk-adjusted returns. This investment focus may limit the investment opportunities available to a portfolio. Therefore, the portfolio may underperform or perform differently than other portfolios that do not have an ESG investment focus. ESG-focused investment strategies include but are not limited to impact, best-in-class, positive screening, exclusionary, and thematic approaches.

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.

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.