This fund has above-average exposure to ESG risk relative to its peers in the Equity Miscellaneous category, earning it the second-lowest Morningstar Sustainability Rating of 2 globes. Investors concerned about ESG risk may be better off with funds earning 4 or 5 globes, as they tend to hold securities less exposed to ESG risk. ESG risk measures the degree to which material environmental, social, and governance issues, such as climate change and inequalities, could affect valuations. ESG risk differs from impact, which is about driving positive environmental and social outcomes for society’s benefit.
One potential issue for a sustainability-focused investor is that B.A.D. ETF doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes.
One key area of strength for B.A.D. ETF is its low Morningstar Portfolio Carbon Risk Score of 6.77 and very low fossil fuel exposure over the past 12 months, which earns it the Morningstar Low Carbon Designation. The fund is therefore well positioned to transition to a low-carbon economy. Currently, the fund's involvement in fossil fuels is negligible, and compares favorably with 10.93% for its average peer.
The fund has a modest level of exposure (3.21%) to companies with high or severe controversies. Companies with high or severe controversies are involved in incidents such as corruption, employee abuses, environmental incidents, and corporate scandals that pose serious business risks to the company.