This fund has relatively low exposure to ESG risk compared with its peers in the Utilities Sector Equity category, earning it the second highest Morningstar Sustainability Rating of 4 globes. 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.
Based on its latest prospectus, sustainability or ESG factors are a focus in the investment process of First Trust Global Wind Energy ETF. Funds with ESG-focused mandates are more likely to deliver positive sustainability outcomes. First Trust Global Wind Energy ETF has an asset-weighted Carbon Risk Score of 8.4, 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. First Trust Global Wind Energy Etf shows 85.3% involvement in carbon solutions. This percentage is high in absolute terms and surpasses the 37.7% average involvement of its peers in the Miscellaneous Sector category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on. 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.
Currently, the fund has 51.4% involvement in fossil fuels, which is high in both absolute and relative terms. The average peer in the same Miscellaneous Sector category has 15.8% exposure to fossil fuel-related businesses. Companies are considered involved in fossil fuels if they derive at least 5% of their revenue from thermal coal, oil, and gas.