May 2023 / INVESTMENT INSIGHTS
Strategy Focus on US Impact Equity
Aiming to have a positive impact while seeking benchmark outperformance
Strategy Summary
- The US Impact Equity Strategy invests sustainably with the aim of having a positive impact on the environment and society while seeking to outperform the S&P 500 Index Net 30% Withholding Tax.
- The strategy invests mainly in the shares of U.S. companies that we believe have the potential to create positive social or environmental impacts, and that appear to offer superior growth prospects and investment characteristics, such as strong earnings and cash flow generation underpinned by a resilient business model.
- Our investment approach is aligned to the United Nations Sustainable Development Goals (UN SDGs). The framework guides how we assess business activities and quantify their alignment to our three proprietary impact pillars—climate and resource impact, social equity and quality of life, and sustainable innovation and productivity—and eight impact sub‑pillars.
- Our fundamental research platform, in collaboration with our dedicated Responsible Investing (RI) team—which is focused on environmental, social, and governance (ESG) issues—provide the resources and diverse perspectives to build a positive impact portfolio.
- We aim to be additional, demonstrated by our commitment to promote and progress the impact agenda. This includes directing fresh capital toward desired outcomes, impact‑oriented company engagement, active proxy voting, and the associated influence feedback loop.
Investment Philosophy
Our investment process is founded on our Impact Charter, which comprises four guiding principles that serve as a framework for how we develop impact portfolios and invest for positive long‑term outcomes as outlined in Exhibit 1:
Exhibit 1: Impact Charter
Source: T. Rowe Price
Identifying Impact Investments Using Our Impact Charter
Our investment process embeds clear principles of materiality and measurability and forms the basis for identifying positive impact for clients. We adopt a forward‑looking perspective on change, while aiming to ensure that all investment decisions are based on a clearly defined positive impact thesis. We also aim to be additional by committing to using our scale and resources to promote and progress the impact agenda. Due to the very complex friction points that exist for our planet and our global community, delivering impact requires patience and an understanding of change. This is why being resilient in applying an impact‑oriented investment approach is imperative.
Our approach aligns with the UN SDGs, a globally recognized framework designed to end poverty, protect the planet, and ensure prosperity. We believe this is the best way to align all stakeholders in the impact journey, encompassing our clients, our investment team, and the businesses our strategy owns.
Durability and Time Horizon Are Key
Stocks have the potential to deliver superior returns when the durability and persistence of earnings and cash flow are underappreciated by the market or where economic return improvement is mispriced. Adopting a long‑term view allows us to identify inefficiencies embedded in equity markets, especially in an era of change, disruption, and shortened time horizons. We also apply a long‑term investment horizon when measuring impact, given the patience and resilience that our environmental and social transition journey necessitates.
Secular Change Matters
Investing in companies that we believe are on the right side of secular change is key to unlocking improving economic returns in business models, especially in an era of shifting consumer, business, and regulatory preferences. While impact investing has traditionally been associated with private investments, the opportunity to own and engage with companies that create a positive impact is broader than ever before in public equity markets.
Research Is Crucial
Based on our fundamental and responsible investing research resources, our approach produces a holistic view of companies and embodies the different perspectives necessary to invest for future impact and pursue better investment outcomes. We integrate our stock perspectives to identify, in our view, underappreciated impact and mispriced economic return improvement on a stock‑by‑stock basis. We apply a forward‑looking, research‑driven, and high‑conviction approach to our stock choices. This is important with respect to prudent risk management, as well as alignment with the UN SDGs, as we seek to engage with the full breadth of impact opportunities that exist in an evolving and complex world.
Download the full strategy here: (PDF)
IMPORTANT INFORMATION
This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.
It is not intended for distribution to retail investors in any jurisdiction.
David Rowlett is the portfolio manager for the US Impact Equity Strategy in the U.S. Equity Division. He is a vice president and member of the Investment Advisory Committees of the US Large-Cap Growth Equity, US Large-Cap Core Equity, Global Industrials Equity, and Global Impact Equity Strategies and a vice president of the International Funds. David is a vice president of T. Rowe Price Group, Inc.
