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Morningstar

T. Rowe Price Health Sciences I THISX Sustainability

Morningstar Medalist Rating
| Medalist Rating as of | See T. Rowe Price Investment Hub

Sustainability Analysis

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Sustainability Summary

 | Morningstar Manager Research  

T. Rowe Price Health Sciences Fund has several promising attributes that may appeal to sustainability-focused investors.

T. Rowe Price Health Sciences Fund has an average Morningstar Sustainability Rating of 3 globes, indicating that the ESG risk of holdings in its portfolio is similar to that of its peers in the Healthcare Sector Equity 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 invest in 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 key area of strength for T. Rowe Price Health Sciences Fund is its low Morningstar Portfolio Carbon Risk Score of 2.84 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. Currently, the fund's involvement in fossil fuels is negligible, and compares favorably with 0.17% for its average peer. The fund has no exposure to 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.

One potential issue for a sustainability-focused investor is that T. Rowe Price Health Sciences Fund doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes.

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ESG Commitment Level Asset Manager

 | Basic , 

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.