AllianceBernstein Sustainable Global Thematic Fund (ATEYX)

overall Rating:

1.75

planets

Catherine Sang
6/25/2021
No items found.

I found the AllianceBernstein Sustainable Global Thematic Fund on a Forbes list of best ESG funds for high returns, and it piqued my interest because I had actually met a university alumnus who worked at AB in ESG Research during a Social Impact Speed Networking event hosted by NYU’s Net Impact Chapter and the Center for Sustainable Business. Even though she just happened upon her previous role as an ESG Analyst (she is now in a corporate governance leadership position), our conversation did influence me to believe that AllianceBernstein was sincere in its efforts toward sustainable investing. Therefore, I was excited for this opportunity to explore AB’s half-US, half-international sustainable-themed mutual fund.

AllianceBernstein (AB) is a global investment firm with three main services: Asset Management, Bernstein Research, and Bernstein Private Wealth Management. They have nearly $700 billion assets under management (as of March 31, 2021). When it comes to sustainability initiatives, it appears that AB has been taking greater action compared to its competitors. Paired with their pre-existing proactive investment strategy designed to stay ahead of future trends through their global research branch, AB’s approach to corporate social responsibility shows a high level of commitment to action in both their internal organization and their client services. $515 billion in assets are managed using ESG integration (which will be discussed further in the How it’s Made section), $16 billion are in Portfolios with Purpose, 250+ analysts have completed Columbia University’s Earth Institute climate science training, and AB has received an A+ Principles for Responsible Investment (PRI) rating for 5 consecutive years.

Overall, the $2,214 million mutual fund (as of June 18, 2021) is an innovative and honorable approach to ESG investing that differs in a positive way from previously Voiz-reviewed funds. 

what it's made of:

1.25

Formerly known as the AB Global Thematic Growth Fund, ATEYX is currently (as of May 31, 2021) made up of 61 holdings where 57.15% are US stocks, 40.9% in stocks from countries like the Netherlands, Denmark, India, Switzerland, Japan, France, Germany, etc., and about 2% in cash. The top ten holdings each make up around 2-3% of the fund, totaling about 24.01% of the portfolio. Investments are fairly diversified including both newer and well-known companies of all market caps, and it’s categorized as US Fund World Large-Stock Growth by Morningstar. Additionally, the fund mostly consists of holdings from the information technology sector (29.66%), the industrials sector (20.25%), and the healthcare industry (18.45%). Unlike other sustainability funds which usually have a more straightforward approach, such as an emphasis on clean energy companies or elimination of sin industries, ATEYX focuses on three general themes of health, climate, and empowerment. As a result, it’s beneficial to at least briefly analyze the overarching sustainability practices of the top holdings to truly assess the overall sustainability of the fund.

Morningstar Sustainalytics currently (as of April 30, 2021) rates the fund 20.77 out of 50 for overall sustainability risk (lower score is less risk). The ESG breakdown score ATEYX is 3.04 for Environmental, 8.34 for Social, and 6.43 for Governance. From my analysis, the portfolio of company holdings deserves 1.25 planets because the majority of the holdings are making some attempt to be sustainable. Some are doing really well, while others still have room for improvement. On average, there are substantial sustainability initiatives within this portfolio of companies especially when it comes to environmental factors, but there is definitely room for improvement, most notably in diversity and inclusion.

Top Five Holdings, Percent of Portfolio, Industry, Sustainability Reporting Analysis (as of May 31, 2021):

LabCorp (LH) 2.94%, Healthcare - Solid 2019-2020 sustainability report with focuses on overall health mission especially during COVID-19, employee safety, energy usage, supplier sustainability, GHG emissions, hazardous and medical waste, animal welfare in medical testing, information security, and diversity and inclusion. Transparency of current and past sustainability actions was good-- I enjoyed seeing ESG factors especially related to the healthcare industry, but I would've preferred to see stronger future goals and steps.

SVB Financial Group (SIVB) 2.80%, Financials - Corporate Responsibility Report 2020 covers topics of innovation, inclusion, employee empowerment, community involvement, affordable housing, sustainability, and responsible corporate governance. It's great that their service/business model allows them to support different causes through partnerships, and it's notable that there was such a strong emphasis on combatting the housing crisis specifically in the Bay Area. However, some of the other areas could've been stronger or more in-depth. For example, only 8% of board members identify as a racial minority, which may be normal in the industry but should definitely be improved.

Waste Management (WM) 2.45%, Industrials - One of the strongest sustainability reports I have ever seen (almost 100 pages)! Incredibly transparent about metrics, reporting, methodology, and uses SASB, GRI, UN SDGs, and materiality assessments. Business model fundamentally attempts to solve the problem of waste. Covers topics from plastic, fashion, organic waste, climate action, energy usage, DEI, and more.

Erste Group Bank (EBS) 2.43%, Financials - Strong materiality analysis using UN SDGs as key issue identifiers. Covers Erste Group's multi-stakeholder approach in its commitment to society, customers, suppliers, employees, the environment, and anti-corruption. Also includes a GRI content index. Interesting section on responsible finance and social banking including topics like green bonds and social impact bonds.

Koninklijke Philips (PHG) 2.42%, Healthcare - Latest annual sustainability report at least on the US website is from 2018. As another European company, sustainability statements are structured very similarly to Erste Group Bank with a materiality analysis, stakeholder approach, GRI index. There is a greater emphasis on health, innovation, and technology given the industry as well as a focus on SDG 3: good health and wellbeing. 

how it's made:

2

There are three main components when it comes to AB’s responsible investing strategy:

1.  ESG and Financial Materiality Matrix

Taken from a white paper entitled, “Sustainability Materiality Matrices Explained,” published by NYU Stern Center for Sustainable Business, here are some important definitions of materiality:

Financial Reporting Materiality - “Infomation is deemed material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.”

Sustainability Materiality (ESG) - “The term materiality refers to issues that can have significant repercussions on the company (both positive and negative).”

AB has developed a flexible materiality framework that accounts for 40+ ESG issues and covers almost 70 subsectors to comprehensively manage risk, return, and responsibility with financial measures and goals when making investing decisions. About $500 billion in assets are managed using this framework helping to balance shareholder and stakeholder interests by comparing the materiality of the issue from both a financial lens and an ESG lens. The matrix is also used to determine research and engagement priorities within the AB global analyst team. For example, issues with high financial materiality but low ESG materiality are traditionally what financial researchers focus on, but a challenge with low financial materiality and high ESG materiality needs increased engagement according to AB’s ESG framework. It’s impressive to see that AB has taken the initiative to develop its own materiality framework and actively uses it for around 70% of its total managed assets. However, compared to other materiality assessments I’ve seen, AB’s doesn’t show the actual detailed materiality issues. Also, it is important to note that AB never explicitly states that the ATEYX fund is analyzed using this specific materiality framework. Nevertheless, I think it’s logical to assume that it is given that the fund has been analyzed for ESG factors, and the materiality matrix is a part of AB’s ESG integration approach.

2. UN Sustainable Development Goals

Another remarkable aspect of AB’s responsible investing is its strong consideration of the UN SDGs as a “road map for investors.” By analyzing the 17 goals and 169 specific targets for 2030, AB identified 106 of the targets to be addressable through the private sector. From these 106 targets, AB created three main areas of focus where they determined a number of product relationships that contribute to achieving the goals: Health, Climate, and Empowerment.


ATEYX’s equity holdings each fit into at least one of these broader themes. For instance, Vesta Wind Systems and TOMRA fit into the climate theme, Kerry Group and LabCorp fit into the health theme, and SVB Financial and NXP Semiconductors are part of the empowerment theme. What’s admirable about aligning investment decisions directly with the specific targets of the SDGs is that there’s a stronger level of reliability, accountability, and dedication associated with AB’s ESG or sustainable labeling in comparison to other “sustainable” funds. In addition, I like how the fund mimics the global approach of the SDGs. Hence, it appears that AB’s intentions towards sustainability are more evidently genuine. At the same time, the details of this themed investing strategy are not made widely available to the public, likely for Bernstein Research competitive advantage purposes, so some of the holdings are not as obvious which theme they fit into, such as Apple or Nike. It also raises questions regarding contradictions of goals, like supporting a company in the health theme may also be detrimental to the climate theme. 

3. Digitization of ESG research (ESIGHT and Prism)

Lastly, AB has created digital tools for employees to easily access and integrate ESG research across asset classes. Prism is AB’s fixed-income credit rating and scoring system which now allows analysts to evaluate issuers on ESG criteria. All ESG information can be accessed at any time through ESIGHT, a research and collaboration platform that compiles ESG issuer assessments, engagements, and third-part research from MSCI and Sustainalytics. This digitization shows how AB is making efforts to make ESG a part of its fundamental investing mission.

All in all, I believe AB is taking some respectable steps towards sustainable investing.

who makes it:

0.5

The AllianceBernstein Sustainable Global Thematic fund is currently managed by Daniel C. Roarty, the Chief Investment Officer of the Sustainable Thematic Equities team. He has over 28 years of experience with 10 at AB, and he plays an active role in the sustainable investing community, most notably speaking at the 2018 UN Sustainable Investing Conference. He and his team of seven analysts also manage the AB Sustainable International Thematic AWPAX and AB FlexFee US Thematic FFTYX.

In general, AB also has made some efforts towards becoming a more diverse firm with 31% of 2019 hires being ethically diverse, and female vice preside promotions rose from 37% to 45% in 2020. However, there are definitely improvements to be made in the area of diversity and inclusion.