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American Funds New Perspective R5 RNPFX Sustainability

| Analyst rating as of | See American Funds Investment Hub

Sustainability Analysis

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Sustainable Summary

American Funds New Perspective Fund has a number of attributes that may meet the expectations of sustainability-focused investors, despite some issues worthy of attention.

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 Global Equity Large Cap 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 New Perspective 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.

One key area of strength for American Funds New Perspective Fund is its low Morningstar Portfolio Carbon Risk Score of 7.23 and low fossil fuel exposure of 4.95% over the past 12 months, which earns it the Morningstar Low Carbon Designation. The fund is therefore well positioned to transition to a low-carbon economy.

The fund exhibits moderate exposure (8.67%) to companies with high or severe controversies. From bribery and corruption to workplace discrimination and environmental incidents, controversies are incidents that may negatively affect stakeholders, the environment, or the company’s operations.

ESG Commitment Level Asset Manager

 | Basic

Capital Group is making a concerted effort to improve its scattered approach to ESG incorporation, warranting a Basic Morningstar ESG Commitment Level.

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.