This strategy holds securities with low exposure to ESG risk relative to those of its peers in the Morningstar US Equity Large Cap Blend category, earning it the highest Morningstar Sustainability Rating of 5 globes. 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.
iShares ESG MSCI USA Leaders ETF holds itself out to be a sustainable or ESG-focused investment. In other words, ESG concerns are central to the investment process of this strategy. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. One key area of strength for iShares ESG MSCI USA Leaders ETF is its low Morningstar Portfolio Carbon Risk Score of 4.75 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.
Its 15.7% involvement in carbon solutions is higher than the 12.8% 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.
The fund exhibits high exposure (12.28%) to companies with 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.
By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons, tobacco, thermal coal, and and small arms. The fund mostly fulfills this goal; however, it does exhibit 0.18% exposure to companies involved in small arms. This compares with 0.88% for its average peer in the US Equity Large Cap Blend category.