ESG in MFS Investment Management
Updated: Oct 7, 2022
The company MFS Investment Management is most widely recognized as having created the mutual fund. Beyond that, they are one of the leading investment management companies in the world, based in Boston Massachusetts. MFS has made ESG one of its core focuses. They have created 3 “pillars” of ESG strategic approach in investment, client, and corporate.
For the investment approach, MFS focuses on investing in firms they believe to yield long term growth and return instead of focusing on the short term. Additionally, MFS does not believe in the concept of exclusion. Exclusion, also known as negative screening, is where companies that are involved in certain industries such as oil are filtered out when creating an ESG portfolio.
MFS believes that exclusion will not prevent the firm from acquiring capital, as they can simply seek other investors who are likely less environmentally conscious. Instead, MFS integrates ESG factors into the investment process, evaluating ESG alongside other fundamental business performance indicators. When MFS invests in a firm with harmful practices, they can engage with company management to influence positive impact. One example of this ESG integration is their holdings in utility, heating, ventilation, and air conditioning companies. According to the MFS ESG report, utility companies make up “40% of annual emissions” and are “responsible for more emissions than any other sector”. MFS believes that as decarbonization becomes a greater priority, utility companies must shift into more sustainable practices. Investments in heating, ventilation, and air conditioning companies are to fund innovations that will increase the sustainability of buildings.
The second pillar to the ESG approach is the client. The goal of MFS is to allocate the resources of the client responsibly. For example, MFS adheres to the UK Stewardship Code. This code represents the high stewardship standards for asset owners and asset managers, as well as the service providers that support them in the UK. By following this code, MFS ensures that the client’s interests and needs are all met, and that their rights are protected.
Lastly is the corporate pillar of MFS’ ESG strategy. There are many corporate groups that make up the governance structure of MFS. The Sustainability Executive Group (SEG) provides general leadership concerning MFS’ core sustainability strategy focused on investment, client, and corporate. This group involves the CEO of MFS, president, CIO, CSO, general counsel, and other senior leaders. The Sustainable Investment and Stewardship Committee (SISC) is accountable for ensuring the investment team is properly integrating ESG factors into its research and engagement activities. Their responsibilities include the implementation of ESG investment strategy, and adherence to stewardship codes. Finally, there is the Client and Corporate Sustainability Committee (CCSC), which is in charge of coordinating corporate sustainability efforts, and implementing client and corporate strategies and policies.
To fully carry out these 3 “pillars”, MFS has 4 ESG working groups to help with evaluation of ESG topics, ESG research, and frameworks. These include the Climate, Governance, Societal Impact, and Sovereign working groups. The Climate Working Group develops the supporting framework of climate-related investment decision-making. The Governance Working Group establishes a set of principles that a board should possess to effectively lead the company. The Societal Impact Working Group identifies societal issues with the aim of addressing these issues using the power of engagement. The Sovereign Working Group developed a proprietary ESG sovereign risk dashboard that provides a quantitative view of the various Environmental, Social, and Governance indicators chosen by the team. The dashboard helps the broader investment team to better study risk through an ESG lens.
The 3 “pillar” approach of MFS incorporates elements that address the Environmental, Social, and Governance aspects of ESG. They are involved in initiatives that contribute to all the positive impacts many people associate with ESG and engage in practices that yield more sustainable growth and return that investors look for. In conclusion, MFS is a prime example of a company that is executing the values of ESG correctly.