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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.
ESG Trends
Explore Our investment Outlook
Digital Acceleration: Fasten Your Cybersecurity Seat Belt
As the situation with the pandemic continues to improve, businesses exposed to the stay-at-home digital economy remain attractive. We expect software, data centers, cloud-based and 5G networking companies to continue to thrive despite a pickup in demand in previously hard-hit sectors, notably consumer and cyclicals. However, pandemic-led “digitized” companies will likely face heightened data privacy and security risks. This would accelerate the shift in focus from “know your customer” (data collection and mining) to “protect your customer” (data security) that we identified last year.1
Cybersecurity and associated privacy issues should continue growing in importance for investors, from both consumers’ and regulators’ perspectives, as they grow wary of “Big Tech Watching.”
Resource Intensity of the Clean Transition: Balancing Clean Energy and ESG Risks
We believe global asset owners should strike a balance between accelerating the clean energy transition and managing increasing risks. Risks include human rights/labor violations and negative environmental consequences of using lower carbon enabling metals (e.g., copper, lithium, cobalt and nickel).
Economic decarbonization is spurring growth in electric vehicles (EVs) and renewable energy. The production of minerals such as graphite, lithium and cobalt could increase by nearly 500% by 2050.2 Yet, concerns have surfaced about the negative impact of acquiring these materials that enable the low-carbon technologies we need to decarbonize.
Simply put, a green technology future is materially intensive and, if not properly managed, could bely the efforts and policies of supplying countries to meet their objectives of meeting climate and related Sustainable Development Goals.
Daniele La Porta Arrobas, et al.,
World Bank3
Lithium, a key component in the lithium-ion battery, is water intensive. Cobalt has been associated with child labor and human rights issues in the Democratic Republic of Congo. Efforts to use less cobalt have led to using more nickel, which has been associated with negative environmental issues, including toxic byproducts. In this context, we believe investors will focus on alternative supply sources for the minerals critical to building renewable infrastructure without dialing back ESG risks.
New research shows polymetallic rocks found on the deep-ocean floor can supply the clean energy value chain for EVs and power storage with far less impact on the climate than mining the same metals from the land.4
1 “ESG Outlook: Five Key Trends Are Driving Momentum in 2020,” American Century Investments, March 2020.
https://institutional.americancentury.com/content/institutional/en/insights/topic/esg-sustainable/esg-outlook.html.
2 Kirsten Hund, et al., “Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition,” World Bank, 2020.
http://pubdocs.worldbank.org/en/961711588875536384/Minerals-for-Climate-Action-The-Mineral-Intensity-of-the-Clean-Energy-Transition.pdf.
3 Daniele La Porta Arrobas, et al., “The Growing Role of Minerals and Metals for a Low Carbon Future,” World Bank, June 30, 2017.
https://documents.worldbank.org/en/publication/documents-reports/documentdetail/207371500386458722/the-growing-role-of-minerals-and-metals-for-a-low-carbon-future.
4 Daina Paulikas, et al., “Life cycle climate change impacts of producing battery metals from land ores versus deep-sea polymetallic nodules,” Journal of Cleaner Production 275 (December 2020): 123822.
https://doi.org/10.1016/j.jclepro.2020.123822
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References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.
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International investing involves special risk considerations, including economic and political conditions, inflation rates and currency fluctuations.
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Alternative mutual funds that hold a variety of non-traditional investments also often employ more complex trading strategies than traditional mutual funds. Each of these different alternative asset classes and investment strategies have unique risks making them more suitable for investors with an above average tolerance for risk.
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Diversification does not assure a profit nor does it protect against loss of principal.
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Past performance is no guarantee of future results. Investment returns will fluctuate and it is possible to lose money.
Mutual fund investing involves market risk. Investment return and fund share value will fluctuate. It is possible to lose money by investing in mutual funds.
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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.
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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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