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Morningstar

Invesco Main Street C MIGCX Sustainability

Morningstar Medalist Rating
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Sustainability Analysis

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Sustainability Summary

 | Published as of .  Based on data as of

Invesco Main Street Fund may not appeal to sustainability-conscious investors.

This fund has above-average exposure to ESG risk relative to its peers in the US Equity Large Cap Blend category, earning it the second-lowest Morningstar Sustainability Rating of 2 globes. Funds with 4 or 5 globes tend to hold securities that are less exposed to ESG risk. ESG risk measures the degree to which material environmental, social, and governance issues, 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.

One potential issue for a sustainability-focused investor is that Invesco Main Street Fund 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 exhibits relatively high exposure (10.74%) to companies with high or severe controversies. Companies with controversies may be involved in incidents such as corruption, employee abuses, and environmental incidents that have a negative impact on stakeholders or the environment. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, they can damage the reputation of both companies themselves and their shareholders.

One key area of strength for Invesco Main Street Fund is its low Morningstar Portfolio Carbon Risk Score of 6.93 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.

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ESG Commitment Level Asset Manager

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Staying the course through turnover.

Recent disruption in Invesco’s ESG team ranks detracts from the considerable investment the firm has made in its ESG resources over the past few years. Most members of the original ESG team joined Invesco within the past five years, and turnover among senior staff has been higher than that of U.S. asset managers of a similar size. The 30-person team is mostly well-staffed, but certain verticals within the broader team are stretched thin considering Invesco manages more than USD 1 trillion in both active and passive strategies. Specifically, the governance and proxy-voting team lost its sole senior governance analyst in late 2022. While the firm was quick to backfill the role with a junior governance analyst, concerns remain about the team’s capacity.

More hands on deck could help the firm keep up with industry best practices on transparency and disclosure. The newly hired junior analyst is responsible for providing investment teams with voting recommendations, but investment professionals lead engagements with the help of Vataj. The firm’s record of support for key ESG shareholder resolutions is high, but it does not outline environmental or social guidelines in its proxy-voting policy, nor does it disclose the rationales behind voting decisions. To its credit, the firm has expanded its thought leadership on climate issues, which increases its clients' and the industry's understanding of sustainable investing.

Finally, Invesco’s collection of investment teams each maintain autonomy over their approaches to ESG integration. This aligns with the firm’s decentralized model, which lets each team pursue its own investment style. The firm does not have a considerable amount of assets under management in ESG-focused strategies, but its efforts seem thorough. In 2021, Invesco committed to integrating ESG criteria across 100% of its AUM by 2023. However, it recently renounced that goal to avoid trouble at the hands of regulatory bodies, and instead shifted its focus to specific and rigorous internal guidelines for strategies marketed as ESG-integrated or sustainability-focused. ESG focused compliance members under newly hired implementation manager audit adherence to these guidelines, establishing an additional layer of checks and balances.

The firm continues to use its size to participate in industry advocacy through SEC comment letters and different investor coalitions. Specifically, the firm signed onto major initiatives including the Net Zero Asset Managers initiative and Climate Action 100+.Those positive attributes aside, instability in the teams creates some concern and ESG integration among Invesco’s disparate teams warrants long-term monitoring.