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Parnassus Value Equity Investor PARWX Sustainability

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Sustainability Analysis

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Sustainability Summary

 | Published as of .  Based on data as of

Parnassus Value Equity Fund has a number of positive attributes that a sustainability-focused investor may find appealing.

This strategy holds securities with low exposure to ESG risk relative to those of its peers in the Morningstar US Equity Large Cap Blend category, earning it the highest Morningstar Sustainability Rating of 5 globes. 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.

Parnassus Value Equity Fund has a sustainability or 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 Parnassus Value Equity Fund is its low Morningstar Portfolio Carbon Risk Score of 5.54 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.

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

The fund's 9.8% involvement in carbon solutions is roughly in line with the 7.9% average involvement of its peers in the Large Value category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on. The fund exhibits moderate exposure (7.18%) 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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Driven by sustainable principles.

Parnassus boasts a time-tested sustainable-investment process that accounts for fluctuating availability, quality, and expectations regarding environmental, social, and governance data. Jerome L. Dodson founded the firm in 1984 on principles of socially responsible investing, and all its strategies are sustainability-focused using both ESG-driven exclusionary screens alongside the firm’s proprietary ESG scoring system. Often, an investment process relying exclusively on avoiding select industries or companies runs the risk of growing stale in the face of evolving norms. However, Parnassus’ exclusion list works as one part of the broader fundamental investment process, and the investment team routinely re-examines it. For example, portfolio managers have re-evaluated the nature of the firm’s nuclear energy exclusion and proposed eliminating it altogether. In this regard, the analyst teams’ focused coverage lists and in-depth fundamental research help them thoroughly but nimbly assess the idiosyncratic ESG concerns associated with its roughly 100 companies held in Parnassus portfolios. The firm also publishes benchmark-relative ESG metrics for most of its funds, providing investors with easy access to each fund’s greenhouse gas emissions, employee engagement, board diversity, and more relative to appropriate benchmarks. Engagement takes a front seat at Parnassus as a tool for facilitating change and improvement in sustainable practices at the portfolio company level. Marian Macindoe assumed the newly formed role of head of ESG stewardship in April 2022 to build a formidable team and drive a more targeted engagement strategy. The team doesn’t shy away from using all the tools at its disposal to escalate failed engagements when necessary. For instance, Parnassus filed two shareholder resolutions in 2022: one at Republic Services related to environmental justice and one at Cerner on the potential for discrimination in artificial intelligence and machine learning. On climate, although Parnassus has not signed on to the Net Zero Asset Managers initiative because of concerns regarding autonomy within the initiative, the firm set its own goal of attaining net-zero carbon emissions in its portfolios by 2050 through company engagement. Despite being a leader, Parnassus still has space for improvement. The firm publishes proxy-voting records in a timely manner, and its proxy-voting policy clearly outlines guidelines for a wide variety of environmental, social, and governance issues. Voting support for ESG-related shareholder proposals is extremely high, with 100% support for key ESG resolutions over the past three years. However, transparency into stewardship activities is lacking. Parnassus does not publish voting rationales for individual votes, nor does it produce substantial thought leadership on sustainable investing, which are useful resources for investors and the broader industry. Nevertheless, the firm’s clear dedication to sustainable investing and ability to dynamically navigate an ever-shifting ESG landscape place Parnassus as a Leader among sustainability-oriented firms.