While responsible investing has been around for a long time, in recent years the investing strategy has undergone many changes from available investing options to regulations to definitions of what responsible investing means.

Thrivent Asset Management (TAM) believes active management can produce favorable returns for our clients over the long term. Further, we believe success in active management depends on having skilled investment professionals, supported by rigorous investment processes.

TAM strives to take all relevant information into consideration when making investment decisions. Relevant information may include certain environmental, social and governance (ESG) criteria, which may be utilized and weighted differently by each portfolio manager and may be used to inform investment decisions. While ESG considerations may be applied in varying degrees by our portfolio managers and our non-ESG funds are not required to consider ESG factors, we believe that certain factors, when considered with a range of other financial criteria, have the potential to bolster returns and reduce investment risk.¹

Responsible investing principles

The principles underlying our responsible investment philosophy allow us to focus on creating long-term shareholder value, mitigating risks and investing in quality companies.

1. Financial materiality: Our responsible investment philosophy emphasizes financial impact, adhering to our philosophy of generating long-term shareholder value through meticulous selection of investments. TAM’s investment professionals may take material environmental, social and governance factors into account to the extent that they believe such factors impact long-term shareholder value.

2. Integration over exclusion: TAM does not take an exclusionary approach to responsible investing and does not avoid investing in certain industries solely based on industry classification. Rather, TAM’s investment professionals may choose to evaluate certain qualitative or non-financial factors and weight them based on their judgment as to what is most relevant for each specific company.

3. Investing in quality companies: TAM seeks to invest in enterprises that demonstrate solid financial performance, effective leadership and promising price potential and growth prospects. As long-term investors, we believe the integration of certain factors beyond traditional financial metrics—such as corporate governance—has long been an innate feature of a successful investment strategy, predating the industry’s adoption of the term ESG.

Scope

TAM provides both products that are not ESG-focused—which may consider ESG factors but are not required to do so, and ESG-focused products—which must consider ESG factors with greater prominence than other factors. For example, an ESG-focused product would give ESG factors greater prominence, similar to how growth-oriented products give greater prominence to growth factors and value-oriented products give greater prominence to value factors.

Our responsible investing philosophy statement covers all assets under management and is intended to provide a broad framework for assessing and incorporating various factors beyond traditional financial metrics into our investment analyses and decisions. Portfolio managers of our non-ESG funds are granted a range of discretion in emphasizing environmental, social and governance factors, with each investment evaluated on the significance of these factors to its financial performance.

Our philosophy encompasses a holistic view of the potential risks and opportunities associated with the environmental, social, governance and ethical dimensions of every investment. The specific approach to ESG integration utilized by our portfolio managers depends on multiple factors, including the objectives of the strategy, asset class and investment time horizon as well as the specific research and portfolio construction, philosophy and process utilized by the portfolio managers.

Investment approach

TAM incorporates various factors beyond traditional financial metrics—including ESG factors—to varying degrees across asset classes, including equity, fixed income and private assets. ESG factors may be employed in a variety of ways to target enhanced returns, mitigate risk and meet investment objectives within a portfolio. The approach to integrating these factors is determined by the specific investment process of the investment team within the underlying asset class. Certain portfolio offerings are not solely categorized as thematic or impact-focused; instead, they are curated with an emphasis on integrating comprehensive stakeholder value considerations with ethical and sustainable criteria that resonate with both ESG and faith-based perspectives.

Integration of material financial and non-financial factors into our investment process starts with the initial research as an investment idea is formed and continues through the life of the investment. The process of incorporating various factors beyond traditional financial metrics into our investment analyses and decisions takes place on two levels: first, with our research analysts as they identify investment opportunities and second, with the portfolio managers as they assess risk exposures at the portfolio level. The analysts and portfolio managers leverage in-house expertise as well as third-party data and research.

Responsible investing approaches

At one end of the responsible investing spectrum are screening approaches, which screen out (or in) companies based on specific non-fundamental criteria, including industry, products and ESG ratings. Screening approaches include negative and positive screening, which exclude or include companies based on defined ESG criteria. Screening approaches also include normative or values-based strategies—including biblically responsible investing, which exclude investments in companies that do not meet certain ethical or social criteria.

Next, there is ESG integration, which is a sophisticated strategy where ESG factors are incorporated into the investment decision-making process with the goal of mitigating risk and generating alpha.

After that are thematic approaches, which focus on specific environmental, social or governance themes.

Stewardship strategies are those in which the use of investor influence is used to protect and enhance long-term value for clients and beneficiaries.

Finally, there are impact strategies, in which investments are intended to generate a measurable environmental and/or social impact.