ESG fuelled by the power of 3

Our three-part process enhances our research by integrating material environmental, social and governance (ESG) issues.

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Identify

Our monitoring process uses third-party data* (where available) to identify external views of ESG risks for our corporate and sovereign holdings.

Flag

A subset of issuers with potentially higher ESG risk is flagged automatically in Ethos** for further review by the relevant investment analysts.

Evaluate

For flagged issuers, investment analysts share perspectives on potentially material ESG risks and evaluate whether those affect their investment thesis.

Action

Where action is needed, ongoing monitoring and additional engagement are the most frequent outcomes.^

*For corporate holdings, we use two data providers (MSCI and Institutional Shareholder Services Inc. (ISS)) and five different indicators to monitor and flag holdings. These indicators capture materially lower ESG performance relative to peers and potential violations of international norms via the UN Global Compact (UNGC) and Organisation for Economic Co-operation and Development (OECD) Guidelines. For sovereign (government) holdings, our proprietary ESG score for an issuer is a weighted average of its raw scores from three data sources: Notre Dame Global Adaptation Initiative Climate Vulnerability Index, United Nations Human Development Index and World Bank Worldwide Governance Indicators. Historically, our methodology has most heavily weighted governance metrics. We have viewed “G” as typically more material for sovereigns (government) because governance indicators can provide important signals about a country’s ability to meet its financial obligations. In the future, the relative importance of “E” and related “S” risks may increase.

**Capital Group's in-house tool, Ethos, helps enable investment analysts to identify areas of ESG risk and conduct rigorous security-level analysis and peer comparison.

^While monitoring and further engagement are the most frequent outcomes, divestment is a possibility. 

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.

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.