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Capital IdeasTM

Investment insights from Capital Group

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ESG
Rob Lovelace on Capital Group’s ESG philosophy
February 22, 2023
KEY TAKEAWAYS
  • ESG risks and opportunities are important considerations when seeking superior long-term investment results for our clients.
  • Our investment teams have developed frameworks that reflect material environmental, social and governance (ESG) considerations in more than 30 sectors.
  • Our commitment to ESG is demonstrated by both its integration into The Capital System™ and how it is reflected in our own business operations.

Our mission at Capital Group is unwavering: to improve people’s lives through successful investing. Deep, fundamental research has always been at the heart of our investment approach, and we believe that considering material ESG issues as part of our research can help us understand long-term risks and opportunities for investors.


ESG is an important consideration for long-term investors


Capital Group was founded in 1931 on the belief that a deep understanding of the organisations in which we seek to invest will result in better outcomes for investors. This belief is part of our DNA and continues to shape the structure and operation of our investment effort. The hallmark of that effort is engagement. We visit companies, build relationships with their management teams and develop investment perspectives focused on long-term outcomes. Our process* rewards investment professionals for their long-term results.


We’ve always believed that knowing how organisations interact with and impact their communities, customers, suppliers and employees is important in understanding their potential as investments. We’ve sought to invest in firms that we believe are well-positioned for the future and can sustainably grow their businesses, because that should eventually be positively reflected in a company’s share price and growth trajectory.


In addition to supporting our stewardship of investor assets, ESG principles are an organisational priority and guide our own operations and corporate citizenship. We manage our business for the long term, continually investing in our people, communities and environment.


ESG is woven into our investment approach


Our research effort has always aimed to create a deep and nuanced understanding of companies and issuers. We integrate ESG into our investment approach, The Capital SystemTM, through three interrelated elements:


Research & Investment Frameworks
First and foremost, we have grounded our ESG framework in the deep fundamental research that has always been the cornerstone of our investing approach. More than 200 of Capital’s investment analysts helped create over 30 sector-specific investment frameworks to help understand ESG risks and opportunities within each sector.
Our investment professionals focus on ESG issues that can be material for specific sectors. For example, they look at privacy and data security for banks, human capital management for media and entertainment organisations, and greenhouse gas emissions for metals and mining companies. ESG integration helps refine and deepen our understanding of the companies in which we invest.


Monitoring process
We complement our in-house analysis with third-party ESG data, which can help round out our assessment of policies, practices and outlooks for our corporate and sovereign holdings. This external information has value but also limitations. Our investment decisions are built on detailed research and consider the long-term view − they are never based on monitoring results alone.


Engagement & Proxy Voting
Engagement and proxy voting are essential to what we do as active managers. We have been building relationships with companies over decades and these firms recognise our serious commitment, depth of knowledge and keen desire to learn from these interactions.
Our investment analysts and portfolio managers partner with our ESG team to engage with companies on ESG issues, to better understand how material ESG risks and opportunities are being managed.


Commitment to transparency


Robust processes and thoughtful frameworks are crucial, but we know that clients want more than pledges and opaque internal processes. They want a clearly articulated ESG approach and a straightforward methodology.


Building an in-house ESG capability supports these important objectives. We are committed to reporting on our ESG process to clients and disclose quarterly fund-level monitoring outcomes for our corporate and sovereign holdings − where data is available − to show which companies have been flagged for more in-depth review. This is just one example of the reporting datasets we are creating and distributing and we’re continuously evaluating future enhancements to our process.


Investing for the future


Capital Group is deeply committed to the integration of material ESG issues in our investment approach. It’s a firmwide effort that involves associates from nearly every part of our organisation. Since we hold Capital Group to the same high standards as the companies in which we invest, we are backing up our commitment with significant investments in our capabilities.


As we learn, we’ll continue to refine and innovate, just as we have done for more than 90 years in our business. There is much work ahead of us and we’re excited about the future. We believe that focusing on material ESG issues plays to our strength as responsible stewards of our clients’ assets.


Learn more about
ESG

*Compensation paid to our investment professionals is heavily influenced by results over one-, three-, five- and eight-year periods, with increasing weight placed on each succeeding measurement period to encourage a long-term investment approach.

 

The Capital Group companies manage equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organisation; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.

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Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.