2020 Impact Report

Emerging Markets Sustainable Impact


I am a true believer that impact investing in emerging markets is becoming very important, but there is still much to be done. We believe this will lead to several opportunities for ESG and impact investing in emerging markets.

Patricia Ribeiro, Senior Portfolio Manager


Letter to Shareholders 

Investing for positive impact continues to evolve. It has quickly become a mainstream way to manage risk and uncover opportunities that traditional financial analysis may fail to capture. Unexpected challenges stemming from the COVID-19 pandemic have presented a critical testing ground for ESG investing.

Not having to choose between impact and returns is a central component of American Century Investments’ approach to investing. Our approach offers an opportunity to invest in companies that fuel change by contributing to the United Nations’ Sustainable Development Goals (U.N. SDGs) and demonstrate solid environmental, social, and governance (ESG) risk management practices. We believe this can be achieved while also generating alpha through our distinct investment philosophy.

Providing investment solutions geared toward the SDGs is a natural extension of the impact our firm creates through its unique business model. By distributing more than 40% of dividends to the Stowers Institute for Medical Research, we enable our clients to directly support lifesaving research and contribute to the global fight against gene-based diseases. This is how we and our clients redefine prosperity and— together—become a powerful force for positive impact.

With decades of investing experience, we have seen firsthand how companies react to stakeholder concerns. Companies committed to listening and responding are often more efficient and more attractive to customers and investors alike. Their management teams consider evolving risks and recognize long-term opportunities. Identifying such companies that align with both our investment and impact criteria lies at the core of our investment process.

In this Impact Report, we will explain how we invest to achieve impact and returns. We will summarize the impact theses of several companies we believe illustrate this process and demonstrate how they contribute to the portfolio’s five main impact themes: health care, sustainable living, technological progress, education and environmental protection. We will also show how these companies’ operations contribute directly to the SDGs and how we measure the impacts they achieve.

We believe ESG investing is crucial to the success of the SDGs—fundamental changes needed to support a more equitable, healthy and sustainable future.* This portfolio offers the opportunity to participate in efforts to achieve the SDGs by investing in firms we believe can both generate a financial return and drive positive societal change.


*Developed by a global team of industry and government leaders and adopted by all 193 U.N. member states, the SDGs include 17 goals and 169 attendant targets aimed at solving some of the world’s most pressing problems by 2030. The goals include eradicating poverty, protecting environmental resources, and achieving gender and income equality.


How We Invest for Impact


Businesses with the resources and expertise to innovate and provide creative solutions to social issues can help bring about positive systemic change. By investing in these companies, we, too, can play a role in societal transformation.


Accepting the Challenge

Transforming society demands committed collaboration among diverse stakeholder groups. The U.N. estimates that we must invest a staggering $5 trillion to $7 trillion annually to attain the 17 SDGs set forth in its Agenda for Sustainable Development by 2030. Achieving these global goals requires the human, technical and financial resources of governments at all levels and those of public and private businesses.

Emerging markets (EM) have more need for investments in infrastructure, technological innovation and educational improvements than developed markets. Accompanied by profound socioeconomic, gender and income inequalities, living standards in some EM nations are among the lowest in the world. EM countries are also more vulnerable to environmental and health-related issues, including access to clean water and rare diseases. These conditions make investing in emerging markets with an SDG focus especially significant.

We believe EM companies could benefit from the growth generated by the positive impact the SDGs intend to achieve. Attaining the SDGs could serve as a fundamental driver of growth in corporate revenues and earnings. In turn, these could drive returns from equities and other assets.

We Believe Change Is Possible

The U.N. SDGs are broad goals that affect businesses, investors, governments, nonprofits and policy makers. It’s our view that investors make the best contribution to these goals by focusing on areas where their investment dollars can add meaningful value.

Each security is mapped to one or more SDGs so investors can see how individual securities are linked to the global effort for a sustainable future.

Using the Sustainable Development Investments taxonomy developed by Dutch pension investors PGGM and APG, we group the SDGs into five specific investment themes that provide pathways to achieving impact.

To link our five impact themes to the SDGs, we use the Sustainable Development Investments (SDI) Taxonomy and Guidance as a foundation.


1
Health Care

Provide access to affordable health care, medical innovation, and more productive and efficient equipment, services and software


2
Sustainable Living

Achieve harmony with ecosystems, accelerating circular economy transition and providing access to a better quality of life, food security, efficient energy and transportation options, and basic services


3
Technological Progress

Develop paradigm-breaking technological innovation that could transform the global economy and improve society


4
Education

Provide access to the affordable transfer of knowledge, which could help lift people out of poverty and strengthen economic conditions and gender quality


5
Environmental Protection

Drive positive environmental impact from biodiversity loss prevention to climate change mitigation to the transition toward a lower-carbon energy system



Impact Generation Framework

The Emerging Markets Sustainable Impact strategy seeks investments in companies striving for positive societal changes without sacrificing attractive return potential.

Our expertise extends back to 1997, when we first applied our differentiated investment philosophy and approach to emerging markets. We seek to invest in companies that demonstrate an accelerating trend in earnings growth. Over time, we believe these ideas represent the best investment opportunities to deliver on client objectives.

Our goal is to invest in companies that not only generate a financial return but also fuel societal change by contributing to the United Nation’s Sustainable Development Goals.


In managing our Emerging Markets Sustainable Impact strategy, we apply our Impact Generation Framework in an effort to ensure every investment we make exhibits both a demonstrable financial business case and a quantifiable impact on society and/or the environment. This framework draws on the Theory of Change and seeks to achieve positive change through two impact mechanisms: 1) enabling growth by investing in companies with current or projected net-positive impact and 2) encouraging improvement through active engagement with companies.

The framework also consists of five impact themes. The SDGs align to one or more themes and enable investors to recognize how an individual company links to sustainability. Investment candidates must exhibit accelerating growth characteristics alongside current or projected revenue stream alignment with one or more SDG goals underpinning the themes. Each company is then evaluated to ensure potential risks to impact are identified and adequately managed, using a proprietary ESG scoring system.

To ensure proper SDG alignment, we reference the Sustainable Development Investments taxonomy developed by Dutch pension investors PGGM and APG. The taxonomy provides our portfolio managers with guidance when determining whether a company addresses one or more of the SDGs. Additionally, our analysts may utilize a variety of resources, including mapping tools and direct company engagement, to further validate SDG alignment.

Our process culminates in an impact thesis for each company that explains current or projected SDG alignment in combination with the company’s fundamental growth profile.


Impact Thesis

Our goal is to ensure every investment exhibits both a demonstrable financial business case and a quantifiable impact on society and/or the environment.


Investment Thesis

• Identify companies exhibiting improving fundamentals, relative strength and valuation
• Assess ESG risks and opportunities
• Validate company’s SDG exposure


Measuring Impact by Applying the Theory of Change*

Input

Identify company resources used to achieve impact

Output

Identify products or services that lead to impact

Outcome

Articulate or quantify impact enablers

Impact

Measure actual or projected contribution to SDGs

Measuring impact continues to be a challenge. This is especially true of emerging markets given that sustainability disclosure is limited. This challenge offers an opportunity for investors to do their own deep-dive impact research and conduct active engagement. As part of our focus on continuous improvement, we will continue to review our impact approach against industry standards and best practices to ensure alignment with our processes. We will also continue to work with our investee companies to improve the availability and quality of our reporting.

*Theory of Change is a methodology for impact evaluation. For more information, please visit: https://iris.thegiin.org/metric/5.0/od6350/

Impact Results


We believe companies can generate a financial return and fuel positive societal change. 




Total Portfolio Impact 

By investing with the intention of helping advance the SDGs, our investors have played a critical role in creating a more inclusive society in emerging markets. Many of the portfolio holdings impact more than one SDG, so numbers will add up to more than 100%.


How the Portfolio Impacts Each Theme

Based on portfolio allocation to each company and its primary impact theme

Data as of 12/31/2020. Source: American Century Investments, FactSet.



Impact in Action

Health Care

Improve the health and well-being of rural and underserved populations by providing 321 million people with access to 24/7 online health care services

Sustainable Living

Improve the possibility of a higher standard of living by opening more than 111 million savings accounts and providing more than 432,000 nano loans to people in underserved markets

Education

Increase the possibility of better-paying employment by providing access to educational services to more than 24 million students


Technological Progress

Increase financial inclusion by offering digital payment capabilities to 1.85 billion people

Environmental Protection

Reduce the number of people suffering from water scarcity by supplying more than 27.5 million households with clean water and wastewater services


Explore More

Download the full 2020 Emerging Markets Sustainble Impact Report for more information on these topics. 



Health Care

Good health is key to leading a happy and productive life. In accordance with U.N. SDG 3—ensuring healthy lives and well-being—we have identified four health care themes that can benefit diverse global populations. 


New or innovative treatments for diseases, including cancer

More productive medical equipment, services and software

Greater access to medicine and health care services

New solutions for lowering health care costs



Health care is a natural area of investment focus for American Century because our firm deploys 40% of its profits to support research into improving health care outcomes.


Critical Challenges

• More than 50% of the world’s population lacks access to essential health services.1

• Medical bills push 100 million people into poverty every year.1

• Mortality rates from four largely preventable diseases—cancer, cardiovascular disease, diabetes and chronic respiratory diseases—are increasing globally.2

• The coronavirus pandemic has sickened nearly 84 million people throughout the world as of December 31, 2020.3




Sustainable Living

We believe the key to sustainable living is attaining growth and development while improving quality of life in a responsible way. This theme seeks to address the future of urban living through financial services and smart cities connected by technology in harmony with the ecosystem.


Electric vehicles, power storing infrastructure and pooling services

Efficiency in industrial processes, wood-based construction materials and fiber-based composites, and smart grids

Local food supply chain management, clean agritech and organic or alternative food production to expand sustainable access to nutritious food

Microfinance focused on expanding access to services and basic needs, including sanitation and affordable housing to previously under-served or remote populations



Critical Challenges

• Nearly 50% of the world’s population lives on less than $5.50 per day.4

• An estimated 815 million people globally suffer from chronic undernourishment.5

• Only 35% of small-scale industries have access to credit in developing countries.6




Technological Progress

We believe technological innovation is the backbone of economic growth and a critical element for achieving many of the U.N. Sustainable Development Goals. While the Technological Progress theme interrelates with other portfolio themes, it focuses on companies involved in impact-driven technology solutions. The ability to commercialize these solutions has the potential to impact society in a meaningful way.



Critical Challenges

• More than 40% of the world’s population lacks regular access to the internet.7

• Approximately 80% of all public energy R&D spending is now directed to low-carbon technologies, but the COVID-19 pandemic has delayed or disrupted scheduled projects.8

• Renewable resources generate only 23% of electricity worldwide.9




Education

Access to education is crucial to improving quality of life through reducing inequality and increasing the possibility of better paying employment. We see three vital outcomes resulting from access to an affordable transfer of knowledge.


Helping end poverty through better employment

Strengthen economic conditions by providing entrance to the knowledge-based economy

Achieve gender equality by helping women and girls achieve fuller integration into society



Critical Challenges

• Incomplete education or poor health leads to a 50% decline in productivity in 56% of the world’s children.10

• Approximately 617 million children and adolescents globally are unable to reach minimum proficiency levels in reading and mathematics.11

• Sixty-nine million new teachers are needed to achieve global universal primary and secondary education.12

• Girls living in areas of conflict are 90% more likely not to attend secondary school.13




Environmental Protection

Climate change and renewable energy sources dominate the topic of environmental protection. While we acknowledge the importance of these two pillars of pro-environmental investing, this theme looks beyond anti-fossil fuel and clean energy solutions.


Addressing biodiversity protection

Reducing environment footprints

Working toward achieving the circular management of resources

Addressing opportunities in environmental control and negative-emissions technology, renewable energy, and bio-based plastics and materials



Critical Challenges

 • Some 29% of the world population lacks access to safe drinking water.14

• While energy companies produce more than 70% of global greenhouse gas (GHG) emissions annually, often overlooked is the significant portion other sectors generate, including agriculture, waste and industrial processes.15

• Rising sea levels threaten to displace 350 million people globally by 2050.16

• In the U.S. alone, extreme weather events causing losses above $1 billion have increased more than 400% since the 1980s.17





Climate Change


While several key issues related to ESG themes are important to investors, climate change remains at the forefront. In addition to having enormous financial consequences, climate change impacts many aspects of ESG investing. We expect asset owners increasingly to take the position that climate change poses risks to the global economy, financial systems and their portfolios. 


A Closer Look at Carbon Emissions

Asset managers will need to demonstrate how they assess and integrate into investment processes the impacts of climate change—both physical risks and those arising from the transition risks of shifting to a low-carbon economy.

While the exploration and development of alternative energy sources may mitigate climate change risk, there continues to be a significant reliance on fossil fuels to meet much of the world’s energy needs. Though many asset owners may employ fossil fuel divestment to reduce climate change-related risk, our approach focuses on decarbonization rather than full-fledged divestment. We will favor energy players working toward carbon neutrality and making solutions-driven investments in clean tech (e.g., negative emissions technologies and bioenergy) to combat climate change.

Per our Active Ownership Policy, climate change is an important topic for engagement and proxy voting, and as such, we dialogue with those players that still have room for improvement. We believe the combination of a cleantech thematic and engagement approach will contribute to more informed investment decisions relating to those companies and the relative attractiveness of the energy sector over time.


Our Affiliations

Carbon Disclosure Project (CDP)
The firm is a member of CDP, a global disclosure system that encourages companies and local, state and regional governments to measure and manage their environmental impacts. Investors and purchasers may use this environmental information in their financial decision-making.

Task Force on Climate-Related Financial Disclosures (TCFD)
American Century is a supporter of TCFD, a global organization that develops voluntary, consistent climate-related financial risk disclosures that companies, banks and investors use to share such information with stakeholders.


Portfolio Carbon Footprint Results

Our portfolio carbon footprint tool measures the portfolio’s carbon exposure in four key dimensions and compares these measures to the index.

The three-year simple average carbon emissions for all the holdings in the portfolio (unweighted).

 

The sum of the portfolio’s share of holdings’ three-year average carbon emissions based on participation rights, divided by the total current market value of the portfolio, per million dollars invested.

Ratio of the portfolio’s weighted-average three-year carbon emissions per $1 million of sales.

 

Compound annual growth rate of portfolio holdings’ three-year average carbon emissions per $1 million of sales, unweighted.
 

Data as of 12/31/2020. Source: FactSet and American Century Investments.

Download the Full Report

Learn more about our unique ownership structure, read Engagement Case Studies, review our Proxy Voting Policies, and meet our investment team.

Health Care

1“World Bank and WHO: Half the world lacks access to essential health services, 100 million still pushed into extreme poverty because of health expenses,” World Health Organization, December 13, 2017.

2“World Health Statistics 2020: A Visual Summary,” World Health Organization, https://www.who.int/data/gho/whs-2020-visual-summary.

3“Our World” https://ourworldindata.org/grapher/cumulative-covid-cases-region?time=2020-01-05..latest

Sustainable Living

4“Nearly Half the World Lives on Less than $5.50 a Day,” The World Bank, October 17, 2018, https://www.worldbank.org/en/news/press-release/2018/10/17/nearly-half-the-world-lives-on-less-than-550-a-day.

5“2018 World Hunger and Poverty Facts and Statistics,” World Hunger Education Service, https://www.worldhunger.org/world-hunger-and-poverty-facts-and-statistics/.

6“U.N. Sustainable Development Goal 9 Infographic,” The Sustainable Development Goals Report 2020, July 2020, https://www.un.org/sustainabledevelopment/wp-content/uploads/2019/07/E_Infographic_09.pdf.

Technological Progress

7“Internet World Stats,” accessed October 20, 2020. https://www.internetworldstats.com/stats.htm.

8“World Energy Investment 2020,” International Energy Agency (IEA), May 2020, https://www.iea.org/reports/world-energy-investment-2020/rd-and-technology-innovation.

9“Renewable electricity output (% of total electricity output),” IEA Statistics, The World Bank, https://data.worldbank.org/indicator/EG.ELC.RNEW.ZS.

Education

10“The Education Crisis: Being in School Is Not the Same as Learning,” The World Bank, January 22, 2019, https://www.worldbank.org/en/news/immersive-story/2019/01/22/pass-or-fail-how-can-the-world-do-its-homework.

11“Education: Every child has the right to learn,” UNICEF, https://www.unicef.org/education.

12“Education is the first step to breaking the cycle of poverty,” WE Charity, https://www.we.org/en-US/our-work/we-schools/we-schools-campaigns-and-curriculum/issuesdetails/global-education.

13Ibid.

Environmental Protection

14“Hannah Ritchie and Max Roser, “Clean Water,” Our World in Data, November 2019, https://ourworldindata.org/water-access#access-to-safe-drinking-water.

15“Historical GHG Emissions,” Climate Watch, https://www.climatewatchdata.org/ghg-emis sions?breakBy=sector&chartType=percentage&end_year=2016&source=CAIT&start_ year=1990.

16“Scott A. Kulp and Benjamin H. Strauss, “New elevation data triple estimates of global vulnerability to sea-level rise and coastal flooding,” Nature Communications 10, 4844 (2019), https://doi.org/10.1038/s41467-019-12808-z.

17“The Special Report on Global Warming of 1.5 Degrees,” The Universal Ecological Fund, https://feu-us.org/sr15/.

A strategy or emphasis on environmental, social and governance factors ("ESG") may limit the investment opportunities available to a portfolio. Therefore, the portfolio may underperform or perform differently than other portfolios that do not have an ESG investment focus. A portfolio's ESG investment focus may also result in the portfolio investing in securities or industry sectors that perform differently or maintain a different risk profile than the market generally or compared to underlying holdings that are not screened for ESG standards.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

No offer of any security is made hereby. This material is provided for informational purposes only and does not constitute a recommendation of any investment strategy or product described herein. This material is directed to professional/institutional clients only and should not be relied upon by retail investors or the public. The content of this document has not been reviewed by any regulatory authority.

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