Sustainability goes beyond reduce, reuse, and recycle. Today more than ever, investors are calling for sustainability opportunities, and markets are answering. But investing isn’t as simple as paper over plastic in the checkout line. For the investor who seeks to hold a portfolio that reflects their commitment to sustainability, Dimensional builds sustainability-focused investment strategies using scientific research and sound investment principles.
One key consideration for investors is whether they can adopt a sustainability focus and still have a good investment experience. For instance, is it possible to reduce a portfolio’s greenhouse gas emissions exposure while maintaining broad diversification and a focus on higher expected returns? Because sustainability issues range widely and vary in terms of importance and impact, investors also need to consider which sustainability criteria should guide their approach. At Dimensional, we incorporate insights from climate science to determine which environmental criteria are foundational in our sustainability strategies. Environmental science leads us to focus on climate change, and climate science identifies greenhouse gas emissions as the most significant driver of climate change. Therefore, the primary goal of Dimensional’s approach to sustainability investing is to reduce exposure to greenhouse gas emissions.
By focusing on climate change and greenhouse gas emissions, we have the opportunity to build a sustainability strategy that achieves measurable environmental sustainability outcomes within a robust investment framework.
START WITH A SOUND INVESTMENT APPROACH
An effective investment solution must be based on sound investment principles. At Dimensional, we start with a broadly diversified, systematic investment strategy that emphasizes securities with higher expected returns, as indicated by research, while also aiming to minimize unnecessary turnover and trading costs. For instance, in our equity strategies, this means a greater focus on securities with smaller market capitalizations, lower relative prices, and higher profitability.1 In our fixed income strategies, we use information observed from yield curves to pursue higher expected returns across bonds of varying duration, credit quality, and currencies of issuance.
By starting with a time-tested, systematic investment approach, we can build diversified, cost-effective sustainability strategies that pursue higher expected returns while thoughtfully integrating the environmental criteria that matter most.
SYSTEMATICALLY INTEGRATE SUSTAINABILITY GOALS
It is important to carefully define the sustainability issues and data that a systematic investment strategy can incorporate. Informed by the work of leading academics and climate scientists, we can prioritize a set of climate change-related exclusion and scoring criteria that can be incorporated into a broadly diversified strategy. To do this, we need to understand not only the science of sustainability and the issues that matter to investors, but the availability, reliability, and usability of sustainability data, too. Our approach prioritizes addressing the primary driver of climate change—greenhouse gas emissions—while also considering related sustainability concerns, such as a company’s land use, toxic waste production, and water management, in a manner that permits company-level sustainability data to be integrated systematically across thousands of holdings. Additionally, emissions data are readily available from multiple sources, allowing for better data validation.
Dimensional evaluates companies using an emissions-focused sustainability scoring system that enables us to compare companies based on targeted environmental issues. This involves looking at companies across the entirety of a portfolio and within individual sectors. For example, if the objective is to reduce a portfolio’s exposure to greenhouse gas emissions and potential emissions from fossil fuel reserves, the worst offenders across all industries may be deemphasized or excluded from the portfolio altogether. An across-industry comparison of this nature provides an efficient way to significantly reduce the aggregate greenhouse gas emissions per unit of revenue produced by portfolio companies. Our approach may also rate portfolio companies on sustainability considerations relative to their sector peers, emphasizing industry leaders with better environmental profiles and underweighting or excluding sustainability laggards.
Dimensional applies our climate change-focused approach to both global fixed income and equity markets. We build sustainability strategies that aim to help clients achieve their investment and sustainability goals concurrently and across asset classes.
A SCIENCE-BASED APPROACH TO SUSTAINABILITY INVESTING
When a sustainability-minded shopper reaches the checkout line at the grocery store, they no longer need to choose between a weak paper bag or single-use plastic—they can get out a reusable bag that carries their groceries effectively and demonstrates their commitment to sustainability.
We believe that’s also the case for sustainability-focused investors—they can pursue a sound investment experience that reflects their sustainability values. Using a patented investment methodology, Dimensional has effectively implemented sustainability strategies with these dual goals in mind for more than 10 years.2 By starting with a robust investment framework, incorporating sustainability considerations guided by climate science, and applying our many decades of experience in data management, we are able to offer a cost-effective approach that provides investors the opportunity to align their investment and sustainability goals.
1. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book equity. 2. Dimensional’s approach to sustainability investing is protected by U.S. Patent Nos. 7,596,525 B1, 7,599,874 B1 and 8,438,092 B2
The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized copying, reproducing, duplicating, or transmitting of this document are strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.
“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.
UNITED STATES: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.
CANADA: These materials have been prepared by Dimensional Fund Advisors Canada ULC. Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Unless otherwise noted, any indicated total rates of return reflect the historical annual compounded total returns, including changes in share or unit value and reinvestment of all dividends or other distributions, and do not take into account sales, redemption, distribution, or optional charges or income taxes payable by any security holder that would have reduced returns. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.
AUSTRALIA and NEW ZEALAND: This material is issued by DFA Australia Limited (AFS License No. 238093, ABN 46 065 937 671). This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person. Accordingly, to the extent this material constitutes general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. Any opinions expressed in this material reflect our judgement at the date of publication and are subject to change.
WHERE ISSUED BY DIMENSIONAL IRELAND LIMITED OR DIMENSIONAL FUND ADVISORS LTD. Neither Dimensional Ireland Limited (DIL) nor Dimensional Fund Advisors Ltd. (DFAL), as applicable (each an “Issuing Entity,” as the context requires), give financial advice. You are responsible for deciding whether an investment is suitable for your personal circumstances, and we recommend that a financial adviser helps you with that decision.
NOTICE TO INVESTORS IN SWITZERLAND: This is an advertising document.
WHERE ISSUED BY DIMENSIONAL IRELAND LIMITED Issued by Dimensional Ireland Limited (DIL), with registered office 10 Earlsfort Terrace, Dublin 2, D02 T380, Ireland. DIL is regulated by the Central Bank of Ireland (Registration No. C185067). Information and opinions presented in this material have been obtained or derived from sources believed by DIL to be reliable, and DIL has reasonable grounds to believe that all factual information herein is true as at the date of this document.
DIL issues information and materials in English and may also issue information and materials in certain other languages. The recipient’s continued acceptance of information and materials from DIL will constitute the recipient’s consent to be provided with such information and materials, where relevant, in more than one language.
WHERE ISSUED BY DIMENSIONAL FUND ADVISORS LTD. Issued by Dimensional Fund Advisors Ltd. (DFAL), 20 Triton Street, Regent’s Place, London, NW1 3BF. DFAL is authorised and regulated by the Financial Conduct Authority (FCA). Information and opinions presented in this material have been obtained or derived from sources believed by DFAL to be reliable, and DFAL has reasonable grounds to believe that all factual information herein is true as at the date of this document.
DFAL issues information and materials in English and may also issue information and materials in certain other languages. The recipient’s continued acceptance of information and materials from DFAL will constitute the recipient’s consent to be provided with such information and materials, where relevant, in more than one language.
RISKS Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.
FOR PROFESSIONAL INVESTORS IN HONG KONG. This material is deemed to be issued by Dimensional Hong Kong Limited (CE No. BJE760) (“Dimensional Hong Kong”), which is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.
This material should only be provided to “professional investors” (as defined in the Securities and Futures Ordinance [Chapter 571 of the Laws of Hong Kong] and its subsidiary legislation) and is not for use with the public. This material is not directed to any person in any jurisdiction where (by reason of that person’s nationality, residence, or otherwise) the publication or availability of this material are prohibited or which would subject Dimensional Hong Kong (including its affiliates) or any of Dimensional Hong Kong’s products or services to any registration, licensing, or other such legal requirements within such jurisdiction or country. When provided to prospective investors, this material forms part of, and must be provided together with, applicable fund offering materials. This material must not be provided to prospective investors on a standalone basis. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if appropriate, seek professional advice.
Unauthorized copying, reproducing, duplicating, or transmitting of this material are prohibited. This material and the distribution of this material are not intended to constitute and do not constitute an offer or an invitation to offer to the Hong Kong public to acquire, dispose of, subscribe for, or underwrite any securities, structured products, or related financial products or instruments nor investment advice thereto. Any opinions and views expressed herein are subject to change. Neither Dimensional Hong Kong nor its affiliates shall be responsible or held responsible for any content prepared by financial advisors. Financial advisors in Hong Kong shall not actively market the services of Dimensional Hong Kong or its affiliates to the Hong Kong public.
SINGAPORE This material is deemed to be issued by Dimensional Fund Advisors Pte. Ltd., which is regulated by the Monetary Authority of Singapore and holds a capital markets services license for fund management.
This advertisement has not been reviewed by the Monetary Authority of Singapore. This information should not be considered investment advice or an offer of any security for sale. All information is given in good faith without any warranty and is not intended to provide professional, investment, or any other type of advice or recommendation and does not take into account the particular investment objectives, financial situation, or needs of individual recipients. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if appropriate, seek professional advice. Dimensional Fund Advisors Pte. Ltd. does not accept any responsibility and cannot be held liable for any person’s use of or reliance on the information and opinions contained herein. Neither Dimensional Fund Advisors Pte. Ltd. nor its affiliates shall be responsible or held responsible for any content prepared by financial advisors.
JAPAN Provided for institutional investors only. This document is deemed to be issued by Dimensional Japan Ltd., which is regulated by the Financial Services Agency of Japan and is registered as a Financial Instruments Firm conducting Investment Management Business and Investment Advisory and Agency Business. This material is solely for informational purposes only and shall not constitute an offer to sell or the solicitation to buy securities or enter into investment advisory contracts. The material in this article and any content contained herein may not be reproduced, copied, modified, transferred, disclosed, or used in any way not expressly permitted by Dimensional Japan Ltd. in writing. All expressions of opinion are subject to change without notice.
Dimensional Japan Ltd. Director of Kanto Local Finance Bureau (FIBO) No. 2683 Membership: Japan Investment Advisers Association
Environmental and social screens may limit investment opportunities for the strategy.
The Sustainability Opportunity
Sustainability goes beyond reduce, reuse, and recycle. Today more than ever, investors are calling for sustainability opportunities, and markets are answering. But investing isn’t as simple as paper over plastic in the checkout line. For the investor who seeks to hold a portfolio that reflects their commitment to sustainability, Dimensional builds sustainability-focused investment strategies using scientific research and sound investment principles.
One key consideration for investors is whether they can adopt a sustainability focus and still have a good investment experience. For instance, is it possible to reduce a portfolio’s greenhouse gas emissions exposure while maintaining broad diversification and a focus on higher expected returns? Because sustainability issues range widely and vary in terms of importance and impact, investors also need to consider which sustainability criteria should guide their approach. At Dimensional, we incorporate insights from climate science to determine which environmental criteria are foundational in our sustainability strategies. Environmental science leads us to focus on climate change, and climate science identifies greenhouse gas emissions as the most significant driver of climate change. Therefore, the primary goal of Dimensional’s approach to sustainability investing is to reduce exposure to greenhouse gas emissions.
By focusing on climate change and greenhouse gas emissions, we have the opportunity to build a sustainability strategy that achieves measurable environmental sustainability outcomes within a robust investment framework.
START WITH A SOUND INVESTMENT APPROACH
An effective investment solution must be based on sound investment principles. At Dimensional, we start with a broadly diversified, systematic investment strategy that emphasizes securities with higher expected returns, as indicated by research, while also aiming to minimize unnecessary turnover and trading costs. For instance, in our equity strategies, this means a greater focus on securities with smaller market capitalizations, lower relative prices, and higher profitability.1 In our fixed income strategies, we use information observed from yield curves to pursue higher expected returns across bonds of varying duration, credit quality, and currencies of issuance.
By starting with a time-tested, systematic investment approach, we can build diversified, cost-effective sustainability strategies that pursue higher expected returns while thoughtfully integrating the environmental criteria that matter most.
SYSTEMATICALLY INTEGRATE SUSTAINABILITY GOALS
It is important to carefully define the sustainability issues and data that a systematic investment strategy can incorporate. Informed by the work of leading academics and climate scientists, we can prioritize a set of climate change-related exclusion and scoring criteria that can be incorporated into a broadly diversified strategy. To do this, we need to understand not only the science of sustainability and the issues that matter to investors, but the availability, reliability, and usability of sustainability data, too. Our approach prioritizes addressing the primary driver of climate change—greenhouse gas emissions—while also considering related sustainability concerns, such as a company’s land use, toxic waste production, and water management, in a manner that permits company-level sustainability data to be integrated systematically across thousands of holdings. Additionally, emissions data are readily available from multiple sources, allowing for better data validation.
Dimensional evaluates companies using an emissions-focused sustainability scoring system that enables us to compare companies based on targeted environmental issues. This involves looking at companies across the entirety of a portfolio and within individual sectors. For example, if the objective is to reduce a portfolio’s exposure to greenhouse gas emissions and potential emissions from fossil fuel reserves, the worst offenders across all industries may be deemphasized or excluded from the portfolio altogether. An across-industry comparison of this nature provides an efficient way to significantly reduce the aggregate greenhouse gas emissions per unit of revenue produced by portfolio companies. Our approach may also rate portfolio companies on sustainability considerations relative to their sector peers, emphasizing industry leaders with better environmental profiles and underweighting or excluding sustainability laggards.
Dimensional applies our climate change-focused approach to both global fixed income and equity markets. We build sustainability strategies that aim to help clients achieve their investment and sustainability goals concurrently and across asset classes.
A SCIENCE-BASED APPROACH TO SUSTAINABILITY INVESTING
When a sustainability-minded shopper reaches the checkout line at the grocery store, they no longer need to choose between a weak paper bag or single-use plastic—they can get out a reusable bag that carries their groceries effectively and demonstrates their commitment to sustainability.
We believe that’s also the case for sustainability-focused investors—they can pursue a sound investment experience that reflects their sustainability values. Using a patented investment methodology, Dimensional has effectively implemented sustainability strategies with these dual goals in mind for more than 10 years.2 By starting with a robust investment framework, incorporating sustainability considerations guided by climate science, and applying our many decades of experience in data management, we are able to offer a cost-effective approach that provides investors the opportunity to align their investment and sustainability goals.
1. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book equity.
2. Dimensional’s approach to sustainability investing is protected by U.S. Patent Nos. 7,596,525 B1, 7,599,874 B1 and 8,438,092 B2
The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized copying, reproducing, duplicating, or transmitting of this document are strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.
“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.
UNITED STATES: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.
CANADA: These materials have been prepared by Dimensional Fund Advisors Canada ULC. Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Unless otherwise noted, any indicated total rates of return reflect the historical annual compounded total returns, including changes in share or unit value and reinvestment of all dividends or other distributions, and do not take into account sales, redemption, distribution, or optional charges or income taxes payable by any security holder that would have reduced returns. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.
AUSTRALIA and NEW ZEALAND: This material is issued by DFA Australia Limited (AFS License No. 238093, ABN 46 065 937 671). This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person. Accordingly, to the extent this material constitutes general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. Any opinions expressed in this material reflect our judgement at the date of publication and are subject to change.
WHERE ISSUED BY DIMENSIONAL IRELAND LIMITED OR DIMENSIONAL FUND ADVISORS LTD.
Neither Dimensional Ireland Limited (DIL) nor Dimensional Fund Advisors Ltd. (DFAL), as applicable (each an “Issuing Entity,” as the context requires), give financial advice. You are responsible for deciding whether an investment is suitable for your personal circumstances, and we recommend that a financial adviser helps you with that decision.
NOTICE TO INVESTORS IN SWITZERLAND: This is an advertising document.
WHERE ISSUED BY DIMENSIONAL IRELAND LIMITED
Issued by Dimensional Ireland Limited (DIL), with registered office 10 Earlsfort Terrace, Dublin 2, D02 T380, Ireland. DIL is regulated by the Central Bank of Ireland (Registration No. C185067). Information and opinions presented in this material have been obtained or derived from sources believed by DIL to be reliable, and DIL has reasonable grounds to believe that all factual information herein is true as at the date of this document.
DIL issues information and materials in English and may also issue information and materials in certain other languages. The recipient’s continued acceptance of information and materials from DIL will constitute the recipient’s consent to be provided with such information and materials, where relevant, in more than one language.
WHERE ISSUED BY DIMENSIONAL FUND ADVISORS LTD.
Issued by Dimensional Fund Advisors Ltd. (DFAL), 20 Triton Street, Regent’s Place, London, NW1 3BF. DFAL is authorised and regulated by the Financial Conduct Authority (FCA). Information and opinions presented in this material have been obtained or derived from sources believed by DFAL to be reliable, and DFAL has reasonable grounds to believe that all factual information herein is true as at the date of this document.
DFAL issues information and materials in English and may also issue information and materials in certain other languages. The recipient’s continued acceptance of information and materials from DFAL will constitute the recipient’s consent to be provided with such information and materials, where relevant, in more than one language.
RISKS
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.
FOR PROFESSIONAL INVESTORS IN HONG KONG.
This material is deemed to be issued by Dimensional Hong Kong Limited (CE No. BJE760) (“Dimensional Hong Kong”), which is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.
This material should only be provided to “professional investors” (as defined in the Securities and Futures Ordinance [Chapter 571 of the Laws of Hong Kong] and its subsidiary legislation) and is not for use with the public. This material is not directed to any person in any jurisdiction where (by reason of that person’s nationality, residence, or otherwise) the publication or availability of this material are prohibited or which would subject Dimensional Hong Kong (including its affiliates) or any of Dimensional Hong Kong’s products or services to any registration, licensing, or other such legal requirements within such jurisdiction or country. When provided to prospective investors, this material forms part of, and must be provided together with, applicable fund offering materials. This material must not be provided to prospective investors on a standalone basis. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if appropriate, seek professional advice.
Unauthorized copying, reproducing, duplicating, or transmitting of this material are prohibited. This material and the distribution of this material are not intended to constitute and do not constitute an offer or an invitation to offer to the Hong Kong public to acquire, dispose of, subscribe for, or underwrite any securities, structured products, or related financial products or instruments nor investment advice thereto. Any opinions and views expressed herein are subject to change. Neither Dimensional Hong Kong nor its affiliates shall be responsible or held responsible for any content prepared by financial advisors. Financial advisors in Hong Kong shall not actively market the services of Dimensional Hong Kong or its affiliates to the Hong Kong public.
SINGAPORE
This material is deemed to be issued by Dimensional Fund Advisors Pte. Ltd., which is regulated by the Monetary Authority of Singapore and holds a capital markets services license for fund management.
This advertisement has not been reviewed by the Monetary Authority of Singapore. This information should not be considered investment advice or an offer of any security for sale. All information is given in good faith without any warranty and is not intended to provide professional, investment, or any other type of advice or recommendation and does not take into account the particular investment objectives, financial situation, or needs of individual recipients. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if appropriate, seek professional advice. Dimensional Fund Advisors Pte. Ltd. does not accept any responsibility and cannot be held liable for any person’s use of or reliance on the information and opinions contained herein. Neither Dimensional Fund Advisors Pte. Ltd. nor its affiliates shall be responsible or held responsible for any content prepared by financial advisors.
JAPAN
Provided for institutional investors only. This document is deemed to be issued by Dimensional Japan Ltd., which is regulated by the Financial Services Agency of Japan and is registered as a Financial Instruments Firm conducting Investment Management Business and Investment Advisory and Agency Business. This material is solely for informational purposes only and shall not constitute an offer to sell or the solicitation to buy securities or enter into investment advisory contracts. The material in this article and any content contained herein may not be reproduced, copied, modified, transferred, disclosed, or used in any way not expressly permitted by Dimensional Japan Ltd. in writing. All expressions of opinion are subject to change without notice.
Dimensional Japan Ltd.
Director of Kanto Local Finance Bureau (FIBO) No. 2683
Membership: Japan Investment Advisers Association
Environmental and social screens may limit investment opportunities for the strategy.
03/23/2021
https://www.mydimensional.com/the-sustainability-opportunity
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