This fund has relatively low exposure to ESG risk compared with its peers in the Infrastructure Sector Equity category, earning it the second highest Morningstar Sustainability Rating of 4 globes. ESG risk provides investors with a signal that reflects to what degree their investments are exposed to risks related to material ESG issues, including climate change, biodiversity, product safety, community relations, data privacy and security, bribery and corruption, and corporate governance, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.
SPDR® S&P Global Infrastructure 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. The fund has little exposure (0.37%) to companies with high or severe controversies. 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.
One potential issue for a sustainability-focused investor is that SPDR® S&P Global Infrastructure ETF doesn’t have an ESG-focused mandate. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. Currently, the fund has 62.2% involvement in fossil fuels, which is high in both absolute and relative terms. The average peer in the same Infrastructure category has 49.7% 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.