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T. Rowe Price Global Growth Stock Adv PAGLX Sustainability

Morningstar Medalist Rating
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Sustainability Analysis

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Sustainability Summary

 | Published as of .  Based on data as of

T. Rowe Price Global Growth Stock Fund has a number of attributes that may meet the expectations of sustainability-focused investors, despite some issues worthy of attention.

This fund has above-average exposure to ESG risk relative to its peers in the Global Equity Large Cap 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 provides investors with a signal that reflects to what degree their investments are exposed to risks related to material ESG issues, including climate change, biodiversity, product safety, community relations, data privacy and security, bribery and corruption, and corporate governance, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.

One potential issue for a sustainability-focused investor is that T. Rowe Price Global Growth Stock Fund doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate are more likely to align with the expectations of an investor who cares about sustainability issues.

One key area of strength for T. Rowe Price Global Growth Stock Fund is its low Morningstar Portfolio Carbon Risk Score of 7.33 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.

The fund exhibits moderate exposure (8.22%) to companies with high or severe controversies. Controversies are incidents that have a negative impact on stakeholders or the environment, which create some degree of financial risk for the company. Examples of types of controversies include bribery and corruption scandals, workplace discrimination and environmental incidents. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. Such controversies can also damage the reputation of both companies themselves and their shareholders.

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ESG Commitment Level Asset Manager

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A genuine effort despite some shortcomings.

T. Rowe Price incorporates environmental, social, and governance criteria into its fundamental research process because it believes they impact an investment’s risk/return profile. The firm has long focused on matters of corporate governance but has paid more attention to social and environmental issues over the past decade. It signed the United Nations-supported Principles for Responsible Investment in 2010, incorporated third-party ESG data into the research process in 2014, and developed in-house ESG research capabilities in 2017. The firm has grown its responsible investing and governance teams to support the broadening of its effort, which now total more than 20 members combined.

In 2018, the firm developed a proprietary ratings system to underpin its sustainable-investing effort. The model supplements third-party ESG data from numerous vendors with its own data sets, culminating in a multitiered ESG rating for a given company. While portfolio managers aren’t compelled to avoid companies with potential ESG concerns, they must consider them and meet with the firm’s responsible-investing team quarterly to review their portfolios. Directors of research and a central ESG committee oversee ESG implementation. The firm could be more transparent by making ESG data for its numerous mutual funds easily accessible for investors. T. Rowe Price has the resources and scope to be an influential advocate of sustainability, but its reluctance to vote in favor of key ESG issues and vague proxy-voting and engagement policies are key drawbacks. In each of the last three proxy seasons, the firm voted for less than half of key ESG resolutions as defined by Morningstar. T. Rowe Price prefers to engage companies through board letters and private meetings rather than through public-facing methods. The firm’s engagement guidelines stop short of clear directives on topics such as decarbonization targets and instead let company management address issues as it sees fit. Aside from advocating more detailed and standardized ESG disclosures from companies, T. Rowe Price lacks meaningful sustainability goals in its proxy-voting policy.