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Morningstar

SPDR® S&P International Dividend ETF DWX Sustainability

Morningstar Medalist Rating
| Medalist Rating as of | See State Street Investment Hub

Sustainability Analysis

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Sustainability Summary

 | Morningstar Manager Research  

SPDR ® S&P International Dividend ETF may not appeal to sustainability-conscious investors.

SPDR® S&P International Dividend ETF has an average Morningstar Sustainability Rating of 3 globes, indicating that the ESG risk of holdings in its portfolio is similar to that of its peers in the Global Equity Large Cap category. Investors concerned about ESG risk may be better off with funds in the category that receive 4 or 5 globes, as they tend to invest in securities less exposed to ESG risk. Unlike impact, which measures positive environmental and societal outcomes attributable to an investment, ESG risk reflects the degree to which investments could be affected by material ESG issues like climate change and inequalities.

The fund has an asset-weighted Carbon Risk Score of 9.56, indicating that its current equity and/or bond holdings 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.

One potential issue for a sustainability-focused investor is that SPDR® S&P International Dividend ETF doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. The fund's current involvement in fossil fuels reaches 21.09%, surpassing 12.19% 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 has a modest level of exposure (2.53%) 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.

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ESG Commitment Level Asset Manager

 | Basic  

Small but positive improvements.

SSGA’s support for key ESG shareholder resolutions increased to more than 70% in 2021, compared with roughly 50% support in 2020. Board diversity and climate risk disclosures rank among the major initiatives driving SSGA’s proxy-voting strategy across all portfolio companies. It also signed on to the Net Zero Asset Managers Initiative and has undertaken efforts to improve its own climate footprint and the diversity of its workforce.

The firm’s stewardship team uses its in-house R-factor tool to evaluate ESG risks unique to each portfolio company. This is a distinct and solid approach that helps the team prioritize certain engagements over others to make the most efficient use of its effort.

The stewardship team is integrated across multiple business units and continues to grow. It favors dialogue with companies to drive positive change, but it largely limits its effort to engagements and proxy voting. It does not take a more activist stance—such as initiating shareholder proposals — to push for change, which limits the strength of SSGA’s ESG agenda.

Most of the assets SSGA oversees track indexes that do not have an ESG focus, making it a permanent source of capital to many publicly traded companies that don’t have strong ESG profiles, such as those in the oil and gas industry. That means it often cannot take certain actions, such as divesting, when portfolio companies don't comply with its requests.

While most of the index-tracking strategies that SSGA offers do not have an ESG focus, it has started to offer more in the major markets that it serves, including the United States and Europe. Additionally, the firm has made efforts to integrate financially material ESG analysis across its actively managed strategies, but these represent about 15% of the firm's assets under management, so the impact likely won't be big compared with the AUM opportunity set that it oversees. Despite efforts to strengthen its ESG credentials, SSGA’s mix of assets adds some enduring challenges to its ESG program.