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Morningstar

American Funds Global Balanced 529F1 CBFFX 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 Global Balanced Fund is likely to concern sustainability-focused investors given certain substandard ESG attributes.

This fund has the second-lowest Morningstar Sustainability Rating of 2 globes, indicating it holds securities with relatively high ESG risk compared to that of its peers in the Moderate Allocation category. Investors concerned about ESG risk may be better off with funds in the category that receive 4 or 5 globes as they tend to hold securities less exposed to ESG risk. ESG risk measures the degree to which material environmental, social, and governance issues, such as climate change and inequalities, could affect valuations. ESG risk differs from impact, which is about driving positive environmental and social outcomes for society’s benefit.

One potential issue for a sustainability-focused investor is that American Funds Global Balanced Fund doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. Currently, the fund has 12.70% involvement in fossil fuels, which is higher than 12.10% for the average peer in its category. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas.

American Funds Global Balanced Fund has an asset-weighted Carbon Risk Score of 10.91. This is situated at the lower end of the medium carbon risk band, suggesting that its current equity and/or bond holdings are moderately positioned to transition to a low-carbon economy. Investors concerned about the transition risks may prefer to consider funds with negligible or low carbon risk. Funds with a lower carbon risk classification may be more favored by investors concerned about transition risks, as such funds often tilt toward companies that operate in sectors less exposed to the transition (for example, healthcare and IT) or companies in more carbon-intensive sectors (for example, materials and utilities) that consider climate change in their business strategy, and therefore are positively aligned with the transition. The fund has a modest level of exposure (7.91%) to companies with high or severe controversies. Companies with high or severe controversies are involved in incidents such as corruption, employee abuses, environmental incidents, and corporate scandals that pose serious business risks to the company.

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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.