The Big Exchange are pleased to announce two new gold medal funds from T. Rowe Price are now available. Founded in 1937, this asset manager, is well known for its growth style of fund management.
We are pleased to welcome two new gold medal funds, T. Rowe Price Global Impact Equity and T. Rowe Price Global Impact Credit, to The Big Exchange. Founded in 1937, this asset manager, is well known for its growth style of fund management.
T. Rowe Price recognises how ESG (Environmental, Social, and Governance) factors can impact the sustainability and long-term success of businesses and as such have been building their resources in responsible investing since 2007.
They believe that identifying and incorporating information about ESG risks and opportunities helps them make better investment decisions, leading to better outcomes for investors. The firm has joined or led many initiatives which bring investors together for advocacy and engagement activity.
The firm is also committed to making a positive social impact in its global communities, from financial education for children to local volunteering. Since inception in 1981, the T. Rowe Price Foundation has given over US$132m to non-profit organisations.1
Whilst many investors pay close attention to sustainability, impact investing goes further. The managers of these funds believe they can play a key role in helping to deliver the positive outcomes that the world is increasingly demanding.
The specialist team identify companies on the right side of change which are delivering measurable environmental and social impact, as well as aiming for positive financial returns. The search for positive impact is combined with in-depth financial analysis, traditional and responsible investment research, and a strict valuation discipline.
The managers start by using their proprietary screening methodology to identify an investable universe of companies. This checks alignment with the UN Sustainable Development Goals (SDGs), the framework designed to end poverty, protect the planet, and ensure prosperity.
Impact is assessed across 3 main pillars: climate and resource impact; social equity and quality of life; and sustainable innovation and productivity. These are divided into 8 sub pillars which define investment opportunities, including energy efficiency, sustainable agriculture, improving industrial processes, innovative technology, and healthcare solutions. Activities that do not generate positive impact are avoided through a carefully monitored exclusion list.
In-depth analysis is conducted to understand the ESG (Environmental, Social or Governance) issues relating to a company or industry. The Equity team engage regularly with companies on ESG issues and have a committed proxy voting policy. The Bond managers also conduct engagement, which encompasses ESG labelled debt and sustainable finance frameworks.
The investment approach is tailored for the equity and bond strategies, and we outline the key features of each fund below.
The aim is to grow the value of the fund’s investments over the long term (a minimum of 5 years), and to outperform the MSCI All Country World Net Index, whilst creating positive impact for the planet and society. Investments are directed towards companies providing solutions to environmental or societal challenges using a forward-looking, research-driven, and high conviction approach.
The fund invests in a diversified portfolio of equities (shares) of large companies listed on stock markets worldwide, which may include both developed and developing regions. The biggest geographic exposure is to the US (60%), whilst 5% is invested in each of Japan and India. The largest sector weightings are in Healthcare, which accounts for 25% of the portfolio, Industrials at 20% and Information Technology at 20%.2
The manager focuses on companies he believes offer a positive impact today and an underappreciated impact in the future, as well as having sustainable future earnings and cash flow growth. To be included companies must align with at least one of the impact pillars described above, taking into consideration positive future change. To this end, the managers have developed a ‘Theory of Change’ model which describes the efforts of a company and how they lead to specific outcomes. This allows them to measure the progress of a company toward its impact goals over time.
Robust engagement practices are in place which are ‘impact-oriented’ and ‘outcome focused’ and they aim to engage with all holdings. The fund’s annual impact report includes considerable detail about this activity. At a group level, the firm participates in collaborative initiatives with leadership roles in some of these. The fund scores 3 out of 3 for positive influence.
The impact report is very comprehensive and aims to show the relative success of each holding against the stated targets for each of the fund's pillars. It also summarises impact outcomes for the portfolio, highlighting which companies are the major contributors. A carbon emission footprint is provided which compares the portfolio against its financial benchmark. The fund scores 3 out of 3 for impact evidence.
We estimate that a healthy c.75% of the portfolio is invested in companies providing solutions to environmental and social challenges. The fund maps most closely to SDG 3 (Good Health & Well-Being), SDG 9 (Industry, Innovation & Infrastructure) and SDG 12 (Responsible Consumption & Production). These represent 24%, 9% and 14% of the portfolio respectively.3
Overall, we consider a gold medal for this well thought out strategy is deserved though we highlight some exposure to controversial activities, notably harmful chemicals, and fossil fuels.
Linde is a global industrial gases company serving the chemicals & energy, food & beverage, electronics, healthcare, manufacturing, metals, and mining sectors. It is a key enabler of green hydrogen and carbon capture and storage technologies, in addition to providing decarbonization solutions for heavy industries such as cement and transport. The company does have a meaningful carbon footprint but saves its customers two times the carbon emissions that it emits itself. Linde has a clear road map for reducing the carbon intensity of its facilities and holds itself accountable for meeting and exceeding targets. It also co-invests in projects that help make infrastructure more sustainable. Linde tracks environmental metrics each month, and progress toward goals is measured.
The aim of this fund is to generate income and preserve capital, by investing in durable, growing businesses, while providing a meaningful and measurable environmental or social impact, and to outperform the Bloomberg Global Aggregate Credit Index.
To be considered for inclusion, an issuer must have either most of its current or projected revenues, or the use of the bond proceeds, aligned to at least one of the impact sub-pillars described above. An overall score is assigned to each investment and the ESG (Environmental, Social, and Governance) analysis aims to avoid greenwashing and identify high impact projects. They also seek best-in-class impact situations, for example clean energy leadership.
The selection process is not limited to green bonds, and they find a broad impact opportunity set across the corporate debt universe. The manager believes that, outside of the ESG-labelled debt market, they can deploy their resources to advance an issuer’s impact agenda. Engagement helps understand how an issuer is progressing and they will collaborate to accelerate progress and achieve desired outcomes.
The US is the largest geographic exposure, at 50% of the fund, whilst 5% is in the Netherlands and 5% in France.2
We estimate that c.78% of the portfolio is invested in companies that provide solutions to environmental and/or social challenges. The fund is notably aligned with SDG 3 (Good Health & Wellbeing), SDG 11 (Sustainable Cities & Communities) and SDG 1 (No Poverty). These represent 18%, 16% and 6% of the portfolio respectively.3
The manager demonstrates effective engagement activity targeted where there is the highest probability of effecting some change (though outcomes reporting is limited to a single case study). The fund’s annual impact report contains a thorough review of the portfolio and a clear explanation of the ‘theory of change’ (how outcomes are achieved) for each holding. This outlines the relative success of a major holding in each pillar category against the stated KPIs (Key Performance Indicators).
The report also summarises the combined impact outcomes for the whole portfolio and provides carbon emission footprint analysis. The fund scores 2 out of 3 for both positive influence and impact evidence. Furthermore, we note the fund does have some exposure to controversial activities, notably fossil fuel production & generation, military weapons, and nuclear power.
Overall, however, we believe this well thought out and meticulously implemented process is deserving of a gold medal.
The fund holds a bond issued by Hikma Finance whose mission is to ensure healthy lives, in an inclusive and affordable way, through high-quality, generic pharmaceuticals. Hikma’s products treat a wide range of diseases, including cardiovascular, central nervous system, diabetes, oncology and respiratory. The business has always been committed to high standards of ethical conduct and adheres to 3 core values: Innovation, Caring and Collaboration which shape its behaviour and ensure the sustainability of the company. As a responsible business Hikma is committed to supporting patients, improving the communities it operates in, and minimising its environmental impact. The firm also develops programmes which promote health and education and assist people in need. In 2017, it achieved the highest ranking of any pharmaceutical company in the UK’s Institute of Directors' Good Governance Report.4
2 Source: Fund factsheets 28 February 2023
3 Source: TBE assessments September/October 2022.
4 https://www.hikma.com/about/
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