Fund Complex: Pax World Funds
Management Company: (1-11) Pax World Management LLC; (12) Pax Ellevate Management LLC; (13-14) Morningstar Investment Management, LLC serves as portfolio construction adviser to allocate the fund’s assets to underlying Pax funds.
Funds Affected: (1) Pax Balanced Fund, (2) Pax Core Bond Fund, (3) Pax ESG Beta Dividend Fund, (4) Pax ESG Beta Quality Fund, (5) Pax Global Environmental Markets Fund, (6) Pax High Yield Fund, (7) Pax High Yield Bond Fund, (8) Pax Large Cap Fund, (9) Pax Mid Cap Fund, (10) Pax MSCI International ESG Index Fund, (11) Pax Small Cap Fund, (12) Pax Ellevate Global Women’s Index Fund (13) Pax Sustainable Managers Capital Appreciation Fund, (14) Pax Sustainable Managers Total Return Fund
Sustainable Investing Strategy: ESG Integration, Exclusions, Impact, Thematic Investing, Shareholder Engagement, Proxy Voting.
Summary:
(1-14) Pax World Funds pursue a sustainable investing approach—investing in forward thinking companies with more sustainable business models. The adviser identifies those companies by combining rigorous financial analysis with equally rigorous sustainability or environmental, social and governance (ESG) analysis. The result, the adviser believes, is an increased level of scrutiny that helps construct investment portfolios made up of better-managed companies that are leaders in their industries, meet positive standards of corporate responsibility and are more focused on the long term.
Each of the funds avoids investing in issuers that are significantly involved in the manufacture of weapons or weapons-related products, manufacture tobacco products or engage in business practices that the adviser determines to be substandard from an ESG or sustainability perspective in relation to their industry, sector, asset class or universe peers. Overall, the adviser’s objective is to construct investment portfolios with stronger sustainability or ESG profiles than their benchmark indices, so that the funds’ shareholders may benefit from what the adviser believes will be the stronger risk-adjusted performance of these portfolios over the long term.
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Depending on the particular fund, asset class or type of security involved, the investment adviser may give less relative weight to certain sustainability or ESG criteria, apply slightly different criteria or apply such criteria differently.
For example: the Core Bond Fund and the High Yield Bond Fund and the fixed-income portion of the Balanced Fund take a slightly different approach from Pax equity funds. For these funds, Pax World seeks to avoid companies that fail its exclusionary criteria on weapons and tobacco, that it determines are the subject of significant ESG controversy or that it determines significantly underperform their peers on key (but not necessarily all) ESG or sustainability criteria.
(3-4) With respect to the ESG Beta Quality and ESG Beta Dividend Funds, the adviser determines an ESG score for each company, based on the adviser’s assessment of key ESG issues by industry, and calculating ESG scores based on companies’ performance on these key issues. The scores emphasize management of ESG related risks, incorporate ESG trends (taking into account progress or regression in a company’s ESG profile) and adjust for involvement in significant ESG-related controversies. The ESG scores are used principally for identifying securities for purchase or sale by ESG Beta Quality Fund or the ESG Beta Dividend Fund, although the scores and the ESG indicators comprising those scores may be reviewed in connection with consideration of securities for other Pax World Funds.
(5) The Global Environmental Markets Fund, in addition to applying Pax World’s customary sustainability or ESG criteria, has a particular focus on environmental markets—investing in companies whose businesses and technologies focus on environmental markets, including alternative energy and energy efficiency; water infrastructure technologies and pollution control; environmental support services and waste management technologies, and sustainable food, agriculture and forestry. The fund also strives to be fossil fuel-free.
(10) The Pax International Index Fund invests in companies included in the MSCI EAFE ESG Leaders Index, the constituents of which are determined by MSCI ESG Research, although any issuers significantly involved in the manufacture of weapons, weapons-related products or tobacco products not excluded by MSCI will be excluded by Pax World.
(12) The Pax Ellevate Global Women’s Index Fund invests in companies included in the Pax Global Women’s Leadership Index. Although the fund does include some key ESG standards as rated by MSCI ESG Research, and avoids investing in issuers that the adviser determines are significantly involved in the manufacture of weapons or weapons-related products or manufacture tobacco products, the fund and the index focus on investing in companies that are leaders in advancing gender equality, and therefore do not include all of the ESG criteria or exclusions included in Pax World’s actively managed funds.
Pax World also believes that engaged shareowners can play an important role in improving the financial, environmental, social and corporate governance performance of companies by:
- Voting shareholder proxies in accordance with ESG criteria
- Engaging management in dialogue on issues of concern
- Initiating or supporting shareholder resolutions at annual stockholders meetings aimed at persuading companies to adopt higher standards of corporate responsibility
- Supporting public policy initiatives that promote greater corporate sustainability, transparency and accountability
The adviser’s primary goal is to produce competitive returns for investors. By integrating ESG criteria—what the adviser calls “sustainability” criteria—into its investment approach, Pax World also seeks to promote peace, to protect the environment, to advance global equity and to foster sustainable development.
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