American Funds Growth Fund of Amer may not appeal to sustainability-conscious investors.
This fund has rather high exposure to ESG risk relative to its peers in the US Equity Large Cap Growth category, earning it the lowest Morningstar Sustainability Rating of 1 globe. Investors concerned about ESG risk may be better off with funds in the category that receive 4 or 5 globes, as they tend to hold securities less exposed to ESG risk. ESG risk measures the degree to which material environmental, social, and governance issues, such as climate change and inequalities, could affect valuations. ESG risk differs from impact, which is about driving positive environmental and social outcomes for society’s benefit.
One potential issue for a sustainability-focused investor is that American Funds Growth Fund of Amer doesn’t have an ESG-focused mandate. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. The fund has significant exposure (12.87%) to companies with high or severe controversies. Companies with high or severe controversies may be involved in incidents such as corruption, employee abuses, environmental incidents, and corporate scandals that pose serious business risks to the company.
One key area of strength for American Funds Growth Fund of Amer is its low Morningstar Portfolio Carbon Risk Score of 7.36 and low fossil fuel exposure of 4.64% over the past 12 months, which earns it the Morningstar Low Carbon Designation. The fund is therefore well positioned to transition to a low-carbon economy.