This fund has relatively low exposure to ESG risk compared with its peers in the Global Equity Large Cap category, earning it the second highest Morningstar Sustainability Rating of 4 globes. 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 Virtus NFJ Global Sust Fd. Funds with ESG-focused mandates are more likely to deliver positive sustainability outcomes. Virtus NFJ Global Sust Fd has an asset-weighted Carbon Risk Score of 5.4, indicating that its companies have low exposure to carbon-related risks. These are risks associated with the transition to a low-carbon economy such as increased regulation, changing consumer preferences, technological advancements, and stranded assets. The fund has no exposure to 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.
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 2.03% exposure to tobacco. This compares with 0.56% for its average peer in the Global Equity Large Cap category.
Currently, the fund has 9.6% involvement in fossil fuels, which is roughly in line with 9.4% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas. The fund's 10.4% involvement in carbon solutions is roughly in line with the 11.7% average involvement of its peers in the Global Large-stock Blend category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on.