While it is useful to analyze a portfolio’s exposure to a specific environmental, social and governance (ESG) risk or opportunity as measured by the U.N. Sustainable Development Goals (e.g., No. 7, Affordable and Clean Energy or No. 13, Climate Action), investors may underestimate risks if they fail to drill down to the sector and stock levels.
In this paper, we discuss carbon emissions exposure at the sector and industry levels by considering electricity usage by data centers, a large and growing segment of the information technology (IT) sector. We also present two case studies that illustrate how we assess whether sector ESG risks could translate into risks (or opportunities) for a company’s financial condition.
When portfolio managers incorporate Environmental, Social and Governance (ESG) factors into an investment strategy, they consider those issues in conjunction with traditional financial analysis. When selecting investments, portfolio managers incorporate ESG factors into the portfolio's existing asset class, time horizon, and objectives. Therefore, ESG factors may limit the investment opportunities available, and the portfolio may perform differently than those that do not incorporate ESG factors. Portfolio managers have ultimate discretion in how ESG issues may impact a portfolio's holdings, and depending on their analysis, investment decisions may not be affected by ESG factors.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
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.