This strategy has an above-average Morningstar Sustainability Rating of 4 globes, indicating that the ESG risk of holdings in its portfolio is relatively low compared with those of its peers in the Utilities Sector Equity category. 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.
First Trust Global Wind Energy ETF 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. First Trust Global Wind Energy ETF has an asset-weighted Carbon Risk Score of 8.5, 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's 86.7% involvement in carbon solutions is not only high in absolute terms, but also 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. No companies held by First Trust Global Wind Energy ETF are recognized as being involved in controversies at a high or severe level. From bribery and corruption to workplace discrimination and environmental incidents, controversies are incidents that have a negative impact on stakeholders or the environment, which create some degree of financial risk for the company. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, they can damage the reputation of both companies themselves and their shareholders.
Currently, the fund has 41.0% involvement in fossil fuels, which is high in both absolute and relative terms. The fossil fuel involvement of funds in the same Miscellaneous Sector category averages 16.8%. Companies are considered involved in fossil fuels if they derive at least 5% of their revenue from thermal coal, oil, and gas.