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How One ESG-Focused Shop Continues to Stand Out

A look at where Parnassus Investments has focused its recent efforts.

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More fund managers are incorporating environmental, social, and governance, or ESG, criteria into investment decisions. A record number of sustainable funds launched in 2018, while many existing funds added sustainability or ESG criteria to their prospectuses, according to Morningstar’s Sustainable Funds U.S. Landscape Report. With 35 years of history and $28.5 billion in assets under management, Parnassus is the largest and one of the oldest sustainability-focused U.S. fund managers. As socially responsible investing has become more prevalent, pioneers and major players in the field such as Parnassus have evolved. Looking at Parnassus’ recent initiatives is a good way to gauge where socially responsible investing trends may be heading next.

Fossil Fuel Divestment
Parnassus has long filtered out firms that derive significant revenue from alcohol, tobacco, weapons, nuclear power, or gambling, as many socially responsible funds do. In September 2019, the firm also started shunning fossil fuel-companies to reflect the consensus that they contribute to global warming and its own managers’ and analysts’ concerns that many fossil fuel firms will become less relevant as economy shifts to low-carbon alternatives.

The decision didn’t actually change the portfolios much. Parnassus (PARNX) and Parnassus Endeavor (PARWX) have been fossil-fuel-free since 2015, while Parnassus Core Equity (PRBLX) and Parnassus Mid Cap (PARMX) typically have had light fossil fuel stakes and sold what little they had by May 2019. It is too soon to tell whether this move will add to or detract from returns, or if fossil fuel firms are really doomed to irrelevance, but Parnassus’ decision does differentiate it from other ESG strategies. According to Morningstar’s data, 62 funds in the large-blend Morningstar Category incorporate ESG criteria in processes, but just 10 have committed to avoiding fossil-fuel stocks; three are Parnassus funds.

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Connor Young does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.