SPDR® S&P 500 Fossil Fuel Rsrv Free ETF's holdings are exposed to average levels of ESG risk relative to those of its peers in the US Equity Large Cap Blend category, thus earning it an average Morningstar Sustainability Rating of 3 globes. Competing funds in the category with ratings of 4 or 5 globes have less ESG risk in their holdings. ESG risk measures the degree to which material environmental, social, and governance issues, such as climate change, biodiversity, human capital, as well as bribery and corruption, could affect valuations. ESG risk differs from impact, which is about driving positive environmental and social outcomes for society’s benefit.
Based on its latest prospectus, sustainability or ESG factors are a focus in the investment process of SPDR® S&P 500 Fossil Fuel Rsrv Free ETF. Funds with ESG-focused mandates are more likely to deliver positive sustainability outcomes. One key area of strength for SPDR® S&P 500 Fossil Fuel Rsrv Free ETF is its low Morningstar Portfolio Carbon Risk Score of 5.98 and very low fossil fuel exposure over the past 12 months, which earns it the Morningstar Low Carbon Designation. Thus, the companies held in the portfolio are in general alignment with the transition to a low-carbon economy.
The fund's 21.1% involvement in carbon solutions is not only high in absolute terms, but also surpasses the 14.3% average involvement of its peers in the Large Blend category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on.
By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with thermal coal. However, the fund struggles to fulfill this goal, as it exhibits 1.09% exposure to such companies. This compares with 0.96% for its average peer in the US Equity Large Cap Blend category. The fund has relatively high exposure (11.22%) to companies with high or severe controversies. Controversies are incidents that have a negative impact on stakeholders or the environment, which create some degree of financial risk for the company. Examples of types of controversies include bribery and corruption scandals, workplace discrimination and environmental incidents. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. Such controversies can also damage the reputation of both companies themselves and their shareholders.
United States