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American Funds Income Fund of Amer F2 AMEFX Sustainability

| Analyst rating as of | See American Funds Investment Hub

Sustainability Analysis

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Sustainable Summary

American Funds Income Fund of Amer is likely to concern sustainability-focused investors given certain substandard ESG attributes.

American Funds Income Fund of Amer's holdings are exposed to average levels of ESG risk relative to those of its peers in the Aggressive Allocation category, thus earning it an average Morningstar Sustainability Rating of 3 globes. Competing funds in the category with ratings of 4 or 5 globes have less ESG risk in their holdings. ESG risk provides investors with a signal that reflects to what degree their investments are exposed to risks related to material ESG issues, such as climate change and inequalities, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.

One potential issue for a sustainability-focused investor is that American Funds Income Fund of Amer doesn’t have an ESG-focused mandate. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. The fund's current involvement in fossil fuels reaches 14.41%, surpassing 10.58% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas.

American Funds Income Fund of Amer's Carbon Risk Score of 11.23 is at the lower end of the medium carbon risk band. This score represents the asset-weighted carbon risk score of the portfolio's equity or corporate bond holdings, averaged over the trailing 12 months. This suggests the fund’s current holdings are moderately positioned to transition to a low-carbon economy. Such funds invest in companies that tend to operate in sectors less exposed to the transition (such as healthcare and IT) and/or companies in more carbon-intensive sectors (such as industrials and utilities) but that consider climate change in their business strategy and products, and therefore are positively aligned with the transition. The fund exhibits moderate exposure (5.74%) to companies with high or severe controversies. From bribery and corruption to workplace discrimination and environmental incidents, controversies are incidents that may negatively affect stakeholders, the environment, or the company’s operations.

ESG Commitment Level Asset Manager

 | Basic

Capital Group is making a concerted effort to improve its scattered approach to ESG incorporation, warranting a Basic Morningstar ESG Commitment Level.

Capital’s ESG efforts have lacked structure and direction. The firm tasked its investment professionals with evaluating ESG risks and opportunities but didn’t provide top-down guidance or additional support. Capital didn’t have the necessary ESG specialists to support its army of investment analysts and monitor exposures across the firm’s large number of portfolio holdings. Further, the firm lacked a standardized approach to ESG analysis and engagement.

Yet Capital has recently prioritized ESG, leveraging its scale to construct internal processes. The firm has carved out a 16-person ESG team, with plans to hire additional support in the coming months. This group is working with Capital's industry analysts to construct and codify a firmwide ESG framework, which includes layering ESG metrics into quantitative investment screens to evaluate investment risks and prompt engagement with company management. The ESG team will also help portfolio managers monitor ESG exposures at the strategy level. Capital is also building a proprietary platform that will serve as the firm’s central ESG repository, housing internal and third-party data and fostering collaboration. Although these tangible efforts should bolster Capital’s ESG capabilities, there’s still considerable work outstanding.

Capital’s nascent ESG team should help clarify the firm’s philosophy. The firm has long advocated for shareholder-friendly corporate governance policies, though its stance on environmental and social issues is less clear. Capital eschews comprehensive, decisive statements, preferring to handle those matters internally at the industry and company levels. Although two of the firm’s oldest strategies exclude alcohol and tobacco stocks, most strategies don’t face exclusionary restrictions. Finally, Capital has robust systems to track and report proxy voting by strategy, but the firm could provide more insight into key voting decisions in its disclosures.