Sponsored by
Lori Keith, Director of Research, Portfolio Manager, Parnassus Investments
For ESG investors seeking performance and alignment with their values, implementation can be both complex and challenging. Today, the marketplace offers over 1,600 sustainable investment options. At the same time, news headlines have revealed so-called “green” funds with substantial holdings in carbon polluters.
Can you explain, you know, what greenwashing is?
It's often referred to as green sheen. And what we have found is that many companies see the benefits of being seen in a positive light from a sustainability ESG perspective. Greenwashing can occur when companies, whether it be corporate issuers or asset managers, try to make themselves look more sustainable.
How does Parnassus avoid greenwashing?
That’s a great question, certainly from the asset manager's perspective. Parnassus has been focused on Environmental, Social, and Governance (ESG) investing since the founding of our firm in 1984. And so now we consider ESG really to be in our DNA and how we approach investing. In addition to our exclusionary screens, in our prospectus, we also will exclude companies that have questionable ESG or controversial business practices from our universe.
We really focus on embedded, deeply embedding that ESG into our investment process, and simply put, we not only look at a company's fundamental business prospects, such as the competitive moat, the relevancy of the products and services, the management. But we also evaluate material, ESG, factors, and to make a holistic assessment of the company, we use our internal sector frameworks across each of the ten sectors within the Russell to evaluate how well are companies mitigating their material and reputational ESG risk.
What are some of the biggest ESG risks that investors need to consider before buying an ESG fund?
We look broadly across all major industry sectors and highlight a few key risks that we're seeing. First, I'd point out one of the key risks that we're seeing across many corporate issuers is due to the scarcity of talent. Secondly, I would say climate change, extreme weather events, events are presenting systemic risks across many industries.
What are the most important considerations investors should take into account when evaluating ESG funds?
I would highlight a few areas that I think investors should really consider and scrutinize. First, investors should really understand what is the asset managers approach to ESG and how is ESG integrated and the investment process? Secondly, I would say it's important to look under the hood and really evaluate asset managers investments. Are they aligned with the investment mandate and prospectus? I would say investors should really pay attention to whether their fund managers are using their seat at the table with their holdings to drive positive ESG improvements over time. And finally, does the asset manager have a store to report the impacts of their engagement efforts? And do they publish and are they transparent about their voting record on their website? I'd also point to Morningstar as a great third party resource that investors can use to evaluate each fund managers ESG strategy.
You Can Learn More by Visiting the Website Parnassus.com
The Fund’s share price may change daily based on the value of its security holdings. Stock markets can be volatile, and stock values fluctuate in response to the asset levels of individual companies and in response to the general U.S. and international market and economic conditions. In addition to large cap companies, the Fund may invest in small and/or mid-cap companies, which can be more volatile than large cap firms. Security holdings in the fund can vary significantly from broad market indexes.
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Before investing, an investor should carefully consider the investment objectives, risks, charges and expenses of the fund and should carefully read the prospectus or summary prospectus, which contains this information. A prospectus or summary prospectus can be obtained on the website, www.parnassus.com, or by calling (800) 999-3505.
Environmental, Social, And Governance Guidelines: The Fund evaluates financially material ESG factors as part of the investment decision-making process, considering a range of impacts they may have on future revenues, expenses, assets, liabilities and overall risk. The Fund also utilizes active ownership to encourage more sustainable business policies and practices and greater ESG transparency. Active ownership strategies include proxy voting, dialogue with company management and sponsorship of shareholder resolutions, and public policy advocacy. There is no guarantee that the ESG strategy will be successful.
The term Russell 2000 Index refers to a stock market index that measures the performance of the 2,000 smaller companies included in the Russell 3000 Index.