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Morningstar

American Century Sustainable Equity A AFDAX Sustainability

Morningstar Medalist Rating
| Medalist Rating as of | See American Century Investment Hub

Sustainability Analysis

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Sustainability Summary

 | Published as of .  Based on data as of

American Century Sustainable Equity Fund has a number of positive attributes that a sustainability-focused investor may find appealing.

This fund has a Morningstar Sustainability Rating of 5 globes, indicating that the ESG risk of holdings in its portfolio is rather low relative to those of its peers in the Morningstar US Equity Large Cap Blend category. ESG risk measures the degree to which material environmental, social, and governance issues, such as such as climate change, biodiversity, human capital, as well as bribery and corruption, could affect valuations. ESG risk differs from impact, which is about driving positive environmental and social outcomes for society’s benefit.

American Century Sustainable Equity Fund holds itself out to be a sustainable or ESG-focused investment. In other words, ESG concerns are central to the investment process of this strategy. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. One key area of strength for American Century Sustainable Equity Fund is its low Morningstar Portfolio Carbon Risk Score of 5.35 and very low fossil fuel exposure over the past 12 months, which earns it the Morningstar Low Carbon Designation. Thus, the companies held in the portfolio are in general alignment with the transition to a low-carbon economy.

Its 16.0% involvement in carbon solutions is higher than the 13.1% average involvement of its peers in the Large Blend category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on.

The fund has a modest level of exposure (7.77%) to companies with high or severe controversies. Companies with controversies are involved in incidents such as corruption, employee abuses, and that pose some degree of business risks to the company. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, they controversies can damage the reputation of both companies themselves and their shareholders.

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ESG Commitment Level Asset Manager

 | Low , 

Playing catch up.

At the same time, American Century’s active ownership capabilities have only recently begun to take shape. The process behind engaging with portfolio companies has yet to be formalized through published escalation policies, though the firm does use an internal database to track engagements centrally. Portfolio managers lead engagements with companies, and ESG research analysts often sit in on those meetings to provide perspective on specific issues. Notably, the firm’s proxy-voting record shows a significant increase in support for key ESG-related shareholder proposals, jumping from less than 50% support in 2020 to over 90% support in 2021 and remaining high for the 2022 voting season. However, the firm’s proxy-voting policy lacks guidance for handling environmental and social concerns at the portfolio company level, and the firm does not publish proxy-voting rationales. To its credit, the firm regularly publishes insightful thought leadership on topics such as decarbonization, diversity, the “Just Transition,” and much more. Ultimately, while the firm shows strong progress and potential for developing a competitive edge in sustainable investing, American Century still has a long way to go to fill in the gaps to actualize much of its vision.