This fund has relatively low exposure to ESG risk compared with its peers in the Global Emerging Markets Equity category, earning it the second highest Morningstar Sustainability Rating of 4 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.
Goldman Sachs ESG Emerging Mkts Eq Fd has a sustainability or ESG-focused mandate. Funds with an ESG-focused mandate are more likely to align with the expectations of an investor who cares about sustainability issues. One key area of strength for Goldman Sachs ESG Emerging Mkts Eq Fd is its low Morningstar Portfolio Carbon Risk Score of 7.25 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.
Goldman Sachs Esg Emerging Mkts Eq Fd shows 16.4% involvement in carbon solutions. This percentage surpasses the 9.5% average involvement of its peers in the Diversified Emerging Mkts category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on. The fund has little exposure (1.85%) to companies with high or severe controversies. From bribery and corruption to workplace discrimination and environmental incidents, controversies are incidents that have a negative impact on stakeholders or the environment, which create some degree of financial risk for the company. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, they can 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. Yet this goal is far from achieved, as the fund exhibits 1.28% exposure to tobacco. This compares with 0.6% for its average peer in the Global Emerging Markets Equity category.
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