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Morningstar

American Funds New Economy F1 ANFFX Sustainability

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

Sustainability Analysis

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Sustainability Summary

 | Morningstar Manager Research  

American Funds New Economy Fund has several promising attributes that may appeal to sustainability-focused investors.

American Funds New Economy Fund's holdings are exposed to average levels of ESG risk relative to those of its peers in the Global Equity Large Cap 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. Unlike impact, which measures positive environmental and societal outcomes attributable to an investment, ESG risk reflects the degree to which investments could be affected by material ESG issues like climate change and inequalities.

One key area of strength for American Funds New Economy Fund is its low Morningstar Portfolio Carbon Risk Score of 6.18 and low fossil fuel exposure of 4.43% over the past 12 months, which earns it the Morningstar Low Carbon Designation. The fund is therefore well positioned to transition to a low-carbon economy.

One potential issue for a sustainability-focused investor is that American Funds New Economy Fund doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes.

The fund exhibits moderate exposure (6.08%) 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.

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ESG Commitment Level Asset Manager

 | Basic , 

Capital Group’s ESG efforts are a work in progress.

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.