The ESG risk of SPDR® MSCI EAFE Fssl Ful Free RsrvETF's holdings is comparable to its peers in the Global Equity Large Cap 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 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.
SPDR® MSCI EAFE Fssl Ful Free RsrvETF 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 SPDR® MSCI EAFE Fssl Ful Free RsrvETF is its low Morningstar Portfolio Carbon Risk Score of 6.82 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.
The fund's 9.7% involvement in carbon solutions is roughly in line with the 8.8% average involvement of its peers in the Foreign 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. The fund mostly fulfills this goal; however, it does exhibit 0.24% exposure to such companies. This compares with 0.63% for its average peer in the Global Equity Large Cap category. The fund has a modest level of exposure (3.79%) to companies with high or severe controversies. Companies with controversies are involved in incidents such as corruption, employee abuses, and that pose some degree of business risks to the company. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, they controversies can damage the reputation of both companies themselves and their shareholders.