At Capital Group, ESG is part of our investment process, not a separate product. ESG issues are deeply woven into The Capital SystemSM and are always a factor in our fundamental research, due diligence and engagement. We believe our approach can help investors achieve better long- term outcomes.
Approach in action: See our highly integrated three-step process for incorporating ESG into our investment decision-making.
How it works
Our deliberate and consistent approach to integrating ESG is designed to identify the material issues that can matter most to investors. It is built on three tightly woven components: proprietary ESG investment frameworks, multilayered monitoring process and engagement and proxy voting. Each element continuously reinforces the others, making the system smarter over time.
Engagement & proxy voting
Investment frameworks Proprietary ESG frameworks identify material issues by sector.
Years of tenure
Annual data as of 31 December 2021.
Our investment analysts average 14 years of experience and understand the specific challenges of the industries they cover. So they know the right questions to ask and go beyond third-party sources. Capital Group has developed more than 30 proprietary, sector-specific frameworks that distill our perspective on material ESG issues and inform our evaluation and engagement processes.
Monitoring process Securities and issuers are carefully screened for material ESG issues.
We gather data from widely accepted third-party data providers, news reports and company statements, but overly our own proprietary investment frameworks to determine which holdings raise flags. Low-rated holdings are flagged for review, and analysts provide detailed insights on the particular issues.
Our perspectives are built on long-term view, engagement and detailed analysis - never on screening results alone. We dig deeper and don't always agree with conventional ratings.
Our monitoring process has four steps.
ESG data aggregation
Our single ESG data repository integrates our own research and third-party ratings, e.g., MSCI, Sustainalytics and UN Global Compact assessments.
Identifying and flagging risks
Key ESG issues are flagged based on our proprietary, sector-specific ESG investment frameworks, as well as third- party data and standards.
Evaluation and documentation
Flagged holdings require enhanced research and review. Insights and engagement are documented.
Assessment and review
If there are outstanding concerns, the Issuer Oversight Committee provides an additional layer of review.
New Perspective Fund (LUX)
Portfolio holdings are subjected to ESG screens using multiple leading data providers and risk methodologies. Click the chart below to see the percentages of flagged and non-flagged holdings.
Data as of 31 December 2021
Source: Capital Group. Figures may not total 100 due to rounding. Donut chart reflects the total of all covered holdings at the issuer level. In other words, multiple issues by a company have been rolled up into that single entity and are aggregated at the asset level. Monitoring process comprises equity securities and corporate bonds. Certain holdings are currently not covered by third-party monitoring providers. Rank in overall portfolio is based on weight. Our process for equities and corporate bonds draws on six indicators from MSCI and Sustainalytics and flags issuers that present potentially higher ESG risk. These indicators capture materially lower ESG performance relative to peers, heightened governance risk and potential violations of international norms via the UN Global Compact.
Engagement & proxy voting We gather more information with each new engagement.
We believe ongoing dialogue and engagement with companies and issuers are stronger tools then exclusion when seeking long-term, sustainable results. Based on learnings from our monitoring process, our investment professionals engage with management teams to understand their goals. Building long-standing relations gives us an opportunity to positively shape and lead industry standards. And as a large, active asset manager, we can adjust our investment decisions based on our findings.
Proxy voting is integral to our role as investment stewards. Our investment professionals are central to determining votes, supported by a specialist Global Stewardship & Engagement (GSE) team. Read our proxy voting policies and procedures to learn more.
Our approach to investment stewardship applies to our own business practices and is implemented globally. Beyond our direct engagement with individual companies, we join international agreements and industry initiatives that address ESG themes and focus on improving our communities and environment.