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MFS Research International R3 MRSHX Sustainability

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Sustainability Analysis

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Sustainable Summary

MFS Research International Fund has a number of attributes that may meet the expectations of sustainability-focused investors, despite some issues worthy of attention.

The ESG risk of MFS Research International Fund's holdings is comparable to its peers in the Global Equity Large Cap category, thus earning an average Morningstar Sustainability Rating of 3 globes. Funds in the same category rated 4 or 5 globes 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.

The fund has an asset-weighted Carbon Risk Score of 8.09, indicating that its current equity and/or bond holdings have low exposure to carbon-related risks. These are risks associated with the transition to a low-carbon economy such as increased regulation, changing consumer preferences, technological advancements, and stranded assets. The fund's current involvement in fossil fuels rests at 9.11%, which compares favorably with 10.50% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas.

One potential issue for a sustainability-focused investor is that MFS Research International 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 has a modest level of exposure (4.74%) 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.

ESG Commitment Level Asset Manager

 | Basic

MFS’ generally long investment horizon is a natural ally to its ESG incorporation efforts. The firm’s talented central research team, which includes more than 100 fundamental research analysts, integrates ESG data into its broader analyses of companies. ESG is not considered in a top-down fashion, and the portfolio managers do not screen out or otherwise exclude any stock purely on the merits of an ESG ranking or score. Rather, the research analysts adjust model inputs based on the materiality of any ESG risks that a company may be facing. These assumptions impact analysts’ buy and sell recommendations, which flow into portfolio decisions. This long-term-focused, bottom-up effort tends to push its funds away from poor-ESG stocks and into companies with more-sustainable business models. MFS does not offer ESG-mandated products, though its current lineup generally scores well against its category peers in terms of Portfolio Sustainability Scores.

The firm also has dedicated central ESG resources, though they are not deeply experienced in the space. Barnaby Weiner, MFS’ first ever chief sustainability officer, took over the role in 2018 after spending years as a traditional portfolio manager. He is joined by three dedicated ESG research specialists, each of whom began their careers as fundamental analysts, but two of whom began their ESG roles within the past three years. The central team plays more of a support role and pushes out data and research to the fundamental analysts.

MFS still has plenty of room to grow. Its portfolio managers are not as actively engaged with company management on ESG issues as some peers. Proxy voting is largely done by a central team, and its formal voting guidelines are not as robust as other firms’. Additionally, MFS generally lags higher-ranked peers in terms of disclosures around fund- and company-level ESG metrics.