Visit Investors & Advisors Site | Support |
  • Australia

  • Austria

  • Denmark

  • Finland

  • Germany

  • Iceland

  • Italy

  • Luxembourg

  • Netherlands

  • Norway

  • Spain

  • Sweden

  • Switzerland

  • United Kingdom

  • United States

  • Location not listed

Sustainable Investing

Why Opt for a Best-in-Progress Approach to Sustainable Investing?

Our Global Sustainable Value strategy identifies firms moving toward sustainability and offers potential benefits over sustainability index funds.


Key Takeaways

Global Sustainable Value focuses on undervalued companies with growth potential instead of already recognized sustainability leaders.

The strategy stresses that companies become more valuable in moving toward sustainable practices and the potential benefit to investors during this process.

Instead of relying on external ESG ratings in its analysis of potential investee firms, Global Sustainable Value prioritizes industry-specific KPIs.

The number of sustainability funds and their close relatives — climate, ESG and impact funds — have multiplied in recent years, leaving investors with no shortage of options.

Many of the problems these funds are trying to address continue to proliferate. Greenhouse gas emissions reached record highs last year. So did coal demand. Child labor and deforestation are on the rise.

We believe sustainability funds can be more effective by deploying a different approach. We launched the Global Sustainable Value strategy to demonstrate ours: One that helps, not excludes, companies that are improving their sustainability characteristics while providing investors an opportunity to realize returns and balance style tilts in their portfolios.

In a crowded market of sustainability funds, we think it’s essential to differentiate our Global Sustainable Value strategy by explaining its purpose and constraints.

What’s Our Best-in-Progress Approach to Sustainable Investing?

Sustainability funds tend to place their investments in companies recognized for achieving sustainability in their business practices. These sustainability darlings are often growth companies, the best-in-class for their products or services.

We’re value managers. We seek companies that trade below their fair values or have experienced transitory valuation declines. This guiding principle directs us toward firms with the potential to enhance their sustainability practices or operate in industries such as mining, oil and natural gas, where resource depletion is more common than regeneration.

In these companies and industries, we see opportunities to generate alpha for institutional asset owners by exposing their portfolios to overlooked styles and stocks and driving real-world outcomes.

Investors May Benefit from the Value That Green Transitions Create

The Global Sustainability Value strategy invests in companies making the transition to sustainability. Historically, sustainable investors excluded these businesses from their funds and portfolios. We don’t think that approach works. Instead, we believe companies become more valuable as they progress toward more sustainable business practices. And investors share in the value created during this process.

Companies making the sustainability transition can help create tangible improvements for the world around us. For example, encouraging a business to embrace cleaner fuel sources can reduce greenhouse gas emissions. Pushing a company to source its raw materials from responsible parties can result in less labor exploitation or deforestation.

As Active Owners, We Engage Company Management to Ensure Business Model Progression

Our robust approach to identifying and investing in companies is designed to generate excess returns, not replicate a benchmark.

When Global Sustainable Value invests in a company, the firm’s management team should expect to hear how we think the business could improve its sustainability practices. This process would begin with an engagement plan supported by key performance indicators charting the company’s path to sustainability.

If the company doesn’t initiate its sustainability journey or make meaningful progress within a year, we will revisit discussions with management and the board of directors. We could also use our proxy votes to shape and influence the transition. If we don’t see progress toward sustainability, we might file a shareholder proposal, vote against the board or consider exiting our position in the company.

Ask us how our engagement helped achieve sustainable outcomes for companies like MSM Industrial and Emerson Electric.

Global Sustainable Value Encompasses More Than Environmental and Climate Issues

Sustainability funds are often associated with the environment. And environmental outcomes are often discussed in the context of greenhouse gas emissions, usually carbon.

We believe that’s a far too narrow view of sustainability. Even within the environment, focusing on carbon emissions looks past other pressing ecological problems caused by unsustainable business practices like biodiversity loss and water contamination.

Global Sustainable Value also sees sustainability encompassing more than environmental and climate-related issues. We include social sustainability in our analysis and company engagement. Are employees paid fairly? Do workers have safe working conditions?

Do companies partner with other enterprises that follow the law or common social norms? Does a company’s push toward sustainability in one area compromise its sustainability in another? For example, would a company’s transition to a cleaner type of fuel cause excessive job losses to the point where its move to environmental betterment degraded social outcomes?

We also contemplate governance issues in our decision-making. Do companies have competent and ethical management teams? Do company executive compensation plans incentivize acceptable goals and outcomes? Do they tolerate corruption or bribery?

External ESG Ratings Don’t Drive Our Best-in-Progress Approach

Where can investors turn to learn more about the sustainability factors of the companies they’re evaluating? Third-party data aggregators compile and publish rankings and scorecards. We don’t rely on them because they’re often based on unaudited information from the companies themselves.

Global Sustainable Value adopted its proprietary framework to analyze companies and their sustainability factors and follow their paths toward improvement. Our industry-specific key performance indicators (KPIs) hold companies accountable and track the progression of their business models.

For example, we evaluate the percentage of revenues that information technology companies devote to cybersecurity. A lack of spending and attention to protecting data broadly poses clear risks to the company’s bottom line and society.

We also monitor product safety oversight by health care companies. Companies plagued by product recalls aren’t healthy enterprises, and their customers could face harm if products fail to function as intended.

Our analytical approach provides us with information that external ESG ratings generally lack. It supplements our value-oriented investment philosophy that guides our engagement with companies as they transition to sustainability. In our view, using KPIs enables us to draw more accurate conclusions about a company’s sustainability journey rather than relying solely on the potentially misleading information that a company provides.

Michael Liss, CFA, CPA
Michael Liss, CFA, CPA

Vice President

Senior Portfolio Manager

David Byrns, CFA
David Byrns, CFA

Portfolio Manager

Senior Investment Analyst

Sarah Bratton Hughes
Sarah Bratton Hughes

Senior Vice President

Head of Sustainable Investing

Embrace the Future of Sustainable Investing

Learn more about our Global Sustainable Value capabilities and check out our paper, “Investing with a Best-in-Progress Approach.”

Many of American Century’s investment strategies incorporate sustainability factors, using environmental, social, and/or governance (ESG) data, into their investment processes in addition to traditional financial analysis. However, when doing so, the portfolio managers may not consider sustainability-related factors with respect to every investment decision and, even when such factors are considered, they may conclude that other attributes of an investment outweigh sustainability factors when making decisions for the portfolio. The incorporation of sustainability factors may limit the investment opportunities available to a portfolio, and the portfolio may or may not outperform those investment strategies that do not incorporate sustainability factors. 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.

Sustainable Investing Definitions:

  • Integrated: An investment strategy that integrates sustainability-related factors aims to make investment decisions through the analysis of sustainability factors alongside other financial variables in an effort to make more informed investment decisions. A portfolio that incorporates sustainability factors may or may not outperform those investment strategies that do not incorporate sustainability factors. Portfolio managers have ultimate discretion in how sustainability factors may impact a portfolio’s holdings, and depending on their analysis, investment decisions may not be affected by sustainability factors.

  • Sustainability Focused: A sustainability-focused investment strategy seeks to invest, under normal market conditions, in securities that meet certain sustainability-related criteria or standards in an effort to promote sustainable characteristics, in addition to seeking superior, long-term, risk-adjusted returns. Alternatively, or in addition to traditional financial analysis, the investment strategy may filter its investment universe by excluding certain securities, industry, or sectors based on sustainability factors and/or business activities that do not meet specific values or norms. A sustainability 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 a sustainability investment focus. Sustainability-focused investment strategies include but are not limited to exclusionary, positive screening, best-in-class, best-in-progress, thematic, and impact 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.

References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

Diversification does not assure a profit nor does it protect against loss of principal.

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.