Things are changing at T Rowe Price. The 83-year-old investment management firm has made increasing commitments to environmental, social and governance (ESG) investment practices, with 2020 seeing the launch of its first ESG-only investment products, in Europe. With the addition of staff resources and ongoing software development, the company continues to build its in-house Responsible Investing Indicator Model (RIIM), a sophisticated data engine it has begun to use to analyze portfolios and rate sovereigns against ESG factors. Last year, it made RIIM available on every trader’s desktop.
From the perspective of an ESG investor, there is much to like about T Rowe Price’s operations: its relatively diverse workforce (made up of 45% women globally, and 29% cultural minorities in the US) and Board of Directors (including 55% women or cultural minorities); its 31% decrease in greenhouse gas emissions per associate since 2008; its high rate of company giving and volunteerism; and its strong overall ratings from organizations like Barron’s (T Rowe Price ranked #83 in its 2020 “Most Sustainable US Companies” list), JUST Capital, and MSCI.
But as a socially responsible investment firm ourselves, we know that sophisticated ESG data is only as good as the investment and engagement decisions it influences–and it is here we feel T Rowe Price must evolve more quickly. This year, the firm’s Board of Directors opposed a shareholder proposal recommending that the company report its fund and portfolio votes on matters related to climate change. And its 2019 proxy voting record reveals votes against well-publicized climate-related shareholder resolutions, including at Chevron, Amazon, and Michael Kors. For a firm that is clearly focused on its own climate impact–not to mention its commitments to diversity, inclusion, corporate giving and other ESG causes–we feel this represents a clear lack of alignment between business vision and product execution.
T Rowe Price is still a relative newcomer to ESG investment practices. While the company began reporting to CDP (the organization that manages global environmental disclosure) relatively early, in 2005, it did not begin incorporating environmental and social data into its own investment strategy until 2014, when the firm started using Sustainalytics. And while the company has had its own governance research practice since 2007, it was just 2017 when T Rowe Price brought its environmental and social research in-house and began developing RIIM. Launching its first ESG-only products in 2020 has essentially made T Rowe Price late to the party.
Ultimately, we think T Rowe Price’s late entry to the ESG field could become an advantage: as a company that has already proven its commitment to its own ESG operations, actualizing its ESG investment and engagement strategy should not be too challenging. That said, we will be watching and, if necessary, engaging with T Rowe Price to see that the company follows through.