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ESG Leaders Survey Provides Invaluable Insights Into Asset Owners’ Views on Sustainable Investing

Institutional asset owners in the Nordics and the Netherlands are widely considered leaders in sustainable investing. American Century Investments recently teamed up with Kirstein A/S, a well-known European consulting firm, to better understand these knowledgeable investors’ thoughts on ESG investing and their preferences about third-party asset management in this space.

Our goal was to gather opinions about ESG investing from large Nordic and Dutch asset owners that invest in listed equities through third-party managers. Primarily large pension funds, these asset owners are deemed leaders in the ESG space not only in Europe but globally.

Kirstein’s market research analysts surveyed a representative sample of institutional asset owners in Norway, Sweden, Finland, Denmark and the Netherlands during the first quarter of 2022. Interviewees included senior representatives of pension funds, sovereign wealth funds and other institutions; 90% were CIOs or investment directors. The participants’ combined assets totaled 1.4 billion euros at the time of the survey, including 329 billion euros (approximately $350 billion) in externally managed equities.

As pension funds, endowments, sovereign wealth funds and other institutional asset owners worldwide implement or expand sustainable investment mandates, we believe our survey’s findings provide important insights. And as an asset manager fully committed to integrating ESG across our strategies, we learned from the results. Survey highlights include:

  • These asset owners are deeply committed to sustainable investing. Seventy-one percent of survey participants, representing almost 80% of the total assets held by the entities they represent, said they would not invest in strategies with no explicit commitment to including ESG considerations. Their responses show this percentage will increase going forward.
  • These investors tend to favor actively managed ESG strategies over passive/enhanced passive funds, but some use both. Among the active approaches, integrating ESG factors into the investment process stands out among all the choices. “Best-in-progress” strategies which select companies that have recently shown substantial improvement in ESG practices relative to their peers were also highlighted by many participants. Passive strategies based on screening/exclusion, which includes positive and negative screening (i.e., choosing stocks of companies that meet specific ESG criteria versus screening out those that violate certain standards or are involved in excluded activities), were also used by many. This may reflect the fact that ESG investing began with these strategies and only recently evolved to include active approaches.
  • Asset owners see active engagement with investee companies as a key component of the potential ESG investing offers. According to the survey participants, the two most important engagement activities their third-party asset managers should pursue as part of ESG investing are (1) meeting regularly with senior management at investee companies and (2) monitoring and reporting on companies’ progress and outcomes. As a Dutch asset owner said, “Active ownership and engagement come through a strong relationship, and you can only have that through regular meetings with senior management and the company.”

ESG investing is expanding rapidly in terms of assets under management as well as approaches, disclosures and metrics. Many asset owners are still getting up the learning curve about the different ways asset managers implement sustainable investing. We believe it is valuable to learn from acknowledged leaders in this arena who recognize the current shortcomings and push for improvements.

American Century has implemented an integrated ESG approach across almost all our offerings. We welcome the opportunity to explain what that means to us, including our ESG research framework, how our portfolio management teams and ESG analysts work together, and how we engage with investee companies as part of our process.

The full report detailing the findings of our ESG Leaders survey will be published in September 2022.

Q3 2022 Investment Outlook Resources

Many of American Century’s investment strategies are subject to the incorporation of ESG factors into the investment process employed by each strategy’s portfolio managers. 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.

ESG Definition:

  • ESG Integrated: An investment strategy that integrates Environmental, Social and Governance ("ESG") factors aims to make investment decisions through the analysis of ESG factors alongside other financial variables in an effort to deliver superior, long-term, risk-adjusted returns. The degree to which ESG integration impacts a portfolio's holdings may vary based on the portfolio manager's materiality assessment. 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.

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.

International investing involves special risk considerations, including economic and political conditions, inflation rates and currency fluctuations.

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.

Diversification does not assure a profit nor does it protect against loss of principal.

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.

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.