The ESG risk of SPDR® S&P 500 Fossil Fuel Rsrv Free ETF's holdings is comparable to its peers in the US Equity Large Cap Blend category, thus earning an average Morningstar Sustainability Rating of 3 globes. Funds in the same category rated 4 or 5 globes tend to hold securities less exposed to ESG risk. ESG risk provides investors with a signal that reflects to what degree their investments are exposed to risks related to material ESG issues, including climate change, biodiversity, product safety, community relations, data privacy and security, bribery and corruption, and corporate governance, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.
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 6.04 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 18.6% involvement in carbon solutions is higher than the 13.1% 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 1.1% exposure to such companies. This compares with 0.93% for its average peer in the US Equity Large Cap Blend category. The fund exhibits relatively high exposure (10.05%) to companies with high or severe controversies. Companies with controversies may be involved in incidents such as corruption, employee abuses, and environmental incidents that have a negative impact on stakeholders or the environment. 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.