Brown Advisory Sustainable Growth I BAFWX Sustainability

Brown Advisory Sustainable Growth Fund has a number of positive attributes that may appeal to sustainability-focused investors.

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 Growth category. 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.

Brown Advisory Sustainable Growth 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 Brown Advisory Sustainable Growth Fund is its low Morningstar Portfolio Carbon Risk Score of 2.57 and very low fossil fuel exposure 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. Currently, the fund's involvement in fossil fuels is negligible, and compares favorably with 3.93% for its average peer.

By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons, tobacco, thermal coal, and small arms. The fund fulfills this goal by having negligible investment exposure to each of these activities.

Carbon solutions compose 9.71% of Brown Advisory Sustainable Growth Fund's assets. This percentage lags behind its average peer in the Large Growth category, whose Carbon Solutions Involvement averages 11.23%. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on.

The fund exhibits moderate exposure (3.97%) 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.

Brown Advisory is prioritizing its ESG efforts but only for its ESG-focused strategies. The firm’s ESG beginnings date back more than a decade to its purchase of Winslow Management Company in 2009. Through that acquisition, the firm secured a team with deep roots in ESG analysis and began its first sustainability-focused strategy, Brown Advisory Sustainable Growth. Although Brown Advisory has a longer history with ESG investing than many of its peers, the firm has required and incentivized incorporating sustainability analysis only within its ESG-explicit strategies, which accounted for just 16% of the firm’s assets under management as of June 2020.

The backbone of the firm’s ESG efforts is a stable and growing lineup of sustainability-focused managers and analysts. In alignment with the broader firm culture, both experienced and newer talent make up the ESG-focused analyst team. The group conducts its own proprietary ESG evaluations using ample third-party data and through collaboration with the fundamental analysts, and those assessments are made accessible to the broader investment group.

Brown Advisory has a decent record of exercising active ownership, but the firm could do a better job of disclosing it to fundholders. The firm has thoughtful and systematic proxy-voting guidelines and typically supports ESG-related shareholder proposals. Engagement with companies is a regular occurrence at the firm and takes many forms, but the team prefers direct dialogue with company management. Regular reports discuss the firm’s active ownership but only in broad strokes.