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For more than 60 years, American Century Investments® has focused on delivering superior risk-adjusted performance through active management and serving the best interests of clients worldwide. The firm manages a broad range of global investment solutions. All investment disciplines follow distinct philosophies and processes designed for the markets in which they invest.
The ownership structure of American Century Investments is unique in the asset management industry. By investing with us, you also invest in the future of others and potentially impact the lives of millions. That's possible because of the distinct relationship with our primary owner, the Stowers Institute for Medical Research. Our dividend payments support the Institute's work of uncovering the causes, treatments and prevention of life-threatening diseases, like cancer, Alzheimer's and diabetes. Since 2000, those payments have totaled $1.6 billion.
With responsible investing firmly rooted in our culture, American Century’s views on environmental, social and governance (ESG) factors is integral to our corporate citizenship and business model. Accordingly, American Century is a signatory of the Principles for Responsible Investment (PRI) and supports its missions to promote the incorporation of ESG issues into investment processes, ownership policies and practices.
American Century’s ESG program is investment led. Oversight and accountability for ESG investing activities fall under the responsibility of the Office of the Chief Investment Officer (CIO). The CIO is responsible for ensuring investment teams implement sustainable investing within their investment processes. The Investment Leadership Team (ILT), composed of senior leaders across the investment organization, serves as the governing body for ESG-investment initiatives, including integration approaches, process enhancements, product development and engagement activities.
The execution of our ESG policy and management of our ESG investing platform falls under the purview of the Head of ESG and Investment Stewardship, who reports directly to the CIO. Dedicated ESG analysts report to the Head of ESG and facilitate the integration of financially material ESG factors into investment processes. The ESG and Investment Stewardship team’s research augments the fundamentally driven research created by the firm's investment teams. Additionally, the ESG Proxy team, involving senior legal and compliance professionals, in addition to the Head of ESG, assesses the financial materiality of ESG issues underpinning proposals and makes appropriate voting recommendations to portfolio managers.
At American Century, we believe good active management naturally incorporates ESG issues. We view ESG issues as important inputs into fundamental analysis that can help mitigate downside risk or increase upside potential associated with ESG factors otherwise not captured by traditional financial analysis.
Our ESG integration process is guided by a three-layer analytical framework (Figure 1) that is aligned with our fundamental analysis process and fiduciary duty. The framework is applied to equity and fixed income strategies and seeks to 1) identify macro-level ESG issues impacting market dynamics, 2) determine which of these issues are relevant at the sector level, and 3) evaluate ESG materiality at the issuer level.
Figure 1: American Century ESG Integration Framework
IDENTIFY ESG ISSUES AFFECTING SECTORS AND COMPANIES
Leverage third-party research and in-house macro assessments from ESG and Investment Stewardship team.
Identify ESG issues that could potentially affect long-term, market-specific dynamics and regulatory developments.
DETERMINE ESG RISK EXPOSURES AT SECTOR LEVEL
ESG and Investment Stewardship team partners with in-house sector analysts to isolate issues that could potentially alter sector-specific competitive forces.
ASSESS ESG MATERIALITY AT ISSUER LEVEL
Level of materiality depends on company's management practices to mitigate risks.
Utilize a proprietary tool to measure and rank issuers' relative risk management performance against quantitative environmental and social indicators.
Use a complementary tool to assess relative performance on governance that applies to all sectors.
Calculate Proprietary American Century Investments' ESG Score
Consider relative ESG assessments in context of analysis/fundamental research process
Portfolio manager consider analysis when evaluating investment decisions
Investment team addresses with company management any ESG issues and controversies deemed material to an issuer's long-term financial condition.
Source: American Century Investments
To assess whether sector ESG issues could result in risks or opportunities to a security's valuation or cause a downgrade of its fundamental profile, we utilize a combination of third-party data and proprietary ESG assessment tools. We believe it is crucial to maintain the independence of our fundamental analysts and the integrity of the investment process. That is why the ESG views generated by our ESG scoring system are considered in the context of our analysts' fundamental research process, with a focus on investment performance implications. Our analysts work closely with the ESG and Investment Stewardship team (ESG team) in an effort to ensure that any ESG risk identified by the ESG integration process is not financially material to the investment thesis.
Our proprietary ESG scoring system is based on various quantitative and qualitative ESG indicators that are sector specific and derived from reported and third-party data.
We believe there are multiple approaches to integrating ESG factors within a common ESG investment framework. We also believe that effective ESG integration must be aligned with the particulars of a given investment philosophy. Therefore, American Century’s ESG team has created three, non-mutually exclusive ESG integration approaches (Figure 2). Each investment team determines the integration approach or combination of approaches best suited to incorporate material ESG factors into their investment processes. This flexible strategy allows investment teams to tailor the ESG integration process according to their asset class, style, time horizon, opportunity set and client objectives.
Figure 2: American Century's ESG Intergration Approaches
Engaging with company management is an important part of the research process and includes in-person meetings, written communications and industry forums. Engagement is focused on material ESG-related issues that we believe could potentially impact the value of the company.
Primary objectives for engaging are to:
Engagement contributes to an investment team’s ESG risk views, resulting in more informed investment decisions and allows for a dialogue with management on best ESG practices. Our engagement process is managed by the ESG team in partnership with investment teams. For engagement outcomes, our practice includes an escalation mechanism whereby portfolio managers are advised to react by means of a decreased weight or divestment of a given security.
Our ESG integration process extends to our proxy voting practices. As per American Century Investments' proxy voting policy, our ESG Proxy team reviews, on a weekly basis, each proposal affecting our positions across the entire equity complex. With various inputs, including the Institutional Shareholder Services Socially Responsible Investment (ISS SRI) proxy recommendations, the ESG Proxy team assesses the financial materiality of ESG issues underpinning the proposals and makes appropriate voting recommendations to portfolio managers. The investment teams review and approve the recommendations. The ESG Proxy team is composed of senior legal and compliance professionals, in addition to the Head of ESG and Investment Stewardship.
Details on our proxy voting polices, including how conflicts of interest are addressed, are available here.
While American Century Investments emphasizes ESG integration as we believe it leads to better diversification and a more robust opportunity set within the investable universe, we position our ESG program as client focused.
We are capable of, and have been, providing ESG solutions—ranging from negative screening and best-in-class tilting, to thematic and impact investing—in relation to all our investment disciplines, subject to client requests. Additionally, we have extensive experience managing portfolios in accordance with client-mandated investment restrictions, such as SRI guidelines, faith-based values and pre-selected security exclusions.
For clients who have specific ESG and / or engagement objectives, we partner with them to develop custom portfolios and reporting designed to meet their needs.
Updated August 2020