Q4 2021 Putnam Sustainable Funds Q&A
- U.S. stocks posted gains for the fourth quarter despite market volatility.
- We see many opportunities to find companies that are navigating macroeconomic headwinds and solving key sustainability challenges.
- We see increased focus on diversity, equity, and inclusion both within companies and across customer bases and supply chains.
How were investing conditions in the fourth quarter?
U.S. stocks posted gains for the quarter despite market volatility. Inflation was a top concern for investors, as it was for most of 2021. Investors also focused on the potential for interest-rate hikes and continued supply chain disruptions in the coming year. But perhaps most disruptive to markets was the emergence of Omicron, the new coronavirus variant. Stocks declined sharply late in the quarter as new Covid cases mounted and concerns grew about the potential for widespread economic shutdowns. However, the S&P 500 Index continued to reach new record highs and closed the year with a solid gain.
What are your thoughts on sustainable investing opportunities as we begin a new year?
Looking ahead, we remain attuned to macroeconomic issues such as rising inflation, increasing labor costs, and supply chain disruptions. However, we also see many opportunities to find companies that are navigating these headwinds and solving key sustainability challenges. Examples of issues with rising importance are climate change and worker health and well-being, including physical and mental health. We also see increased focus on diversity, equity, and inclusion, both within companies and across customer bases and supply chains. An increasing number of newly public companies are focusing on sustainability challenges and solutions to address them. We believe customers, employees, investors, and other stakeholders will also continue to place increasing value on these issues over time.
Could you describe the strategy of Putnam Sustainable Leaders Fund?
The Sustainable Leaders portfolio invests in companies that have demonstrated leadership in the sustainability issues that are financially material to their businesses. Our investment thesis is that companies that exhibit this type of commitment also often demonstrate potential for strong long-term financial performance. The stocks of these companies are typically, but not always, considered to be growth stocks, and often are large cap in size.
We characterize leadership in sustainability using four criteria: (1) a focus on material, or relevant, sustainability issues; (2) creativity and proactiveness, or considerations that go beyond compliance or box-checking; (3) transparency demonstrated by specific company goals and clear and consistent progress reporting; and (4) impact, or sustainability characteristics that create benefit beyond a company’s “borders.” Some examples of areas for leadership could include clean and efficient materials use, reductions in environmental intensity, or improvements in workplace equality and diversity.
Could you describe the strategy of Putnam Sustainable Future Fund?
The Sustainable Future portfolio invests in companies whose products and services provide solutions to essential sustainability challenges. Our investment thesis is that solutions-oriented companies with potential to create positive social and environmental impact also demonstrate potential for strong growth and long-term financial performance. The stocks of these companies are typically, but not always, considered to be growth stocks, and are often mid cap or small cap in size. Some examples of areas where a company might offer sustainable solutions include prevention and treatment of chronic disease, access to information and opportunity, growth of the renewable energy supply, or development of the circular economy.
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