Meaningful stewards must look beyond the ‘A-plus student’: American Century

Investment managers are too often tempted by the very best ESG firms, looking past the other companies where engagement could really make a difference, according to American Century Investments. 

Speaking to Money Management, Chris Chen, vice president and senior investment director, Asia Pacific, believed a “starting point” for engagement could be derived from the general lack of impact outcomes data available.

“When we talk about impact, ideally we’re talking about impact outcomes, and I’m ashamed to say that by and large, it can be really difficult to find [this data],” he said. 

“Most companies tell you how much money was spent on R&D or their efforts in that area. That’s input. But to get an output figure, it’s very difficult. If I give you a number, say $3.2 million, it’s abstract. The more important thing is, how do we get to that number? What does that mean in relation to competitors?”

Drawing on the Impact Management Project (IMP) framework used by the firm, which Chen considered a “great due diligence tool” that measured five dimensions of the impact of a firm’s activities, stewardship could begin by working to fill in the blanks with companies in transition. 

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He explained: “At the beginning, when we started doing this, not having [numbers] in those data cells really bothered us. Nothing’s ever empty. But then it dawned on us that that’s a starting point for engagement.

“There’s an attempt or temptation to only invest in the very best ESG or impact companies, but if it’s already an A-plus student, there’s nothing we can do to make it better.”

While the next phase of the Australian sustainable finance taxonomy project would commence in July with a $1.6 million commitment in the 2023 Budget, he noted that it might not be enough to cover the specific impact metrics of all companies.

“Whenever we have these big sets of regulatory or industry-body-driven taxonomy, they tend to be very broad-brushed, and I was talking about individual companies having very company-specific or product-specific metrics. They will never be covered,” Chen said.  

“So we still need the desire from the companies to disclose more than they need to, which is a challenging thing to ask. I think that the taxonomy is going to be helpful, but if we truly want impact data that can be helpful to me as an investor, most likely it won’t come from that front. It will have to come from engaging with companies who are willing to engage back.”

Chen echoed the sentiments of the Minister for Financial Services, Stephen Jones, who recently spoke at the 2023 Australian Council of Superannuation Investors Annual Conference (ACSI), arguing that sustainable businesses had to “start in the boardrooms, not in the marketing department”. 

“One of the things when we think about engagement is, it cannot be done [only] by your ESG and sustainability teams. They’re valuable teammates, but as we think about access to management and boards, you really need to have a multi-layer relationship,” Chen added.

“Engagement is really difficult, and it’s also difficult to measure the efficacy of your engagement, but what we can really do now is measure our efforts and track the progress”.