Direxion Dl Glbl Clean Ey Bull 2X Shrs 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 Trading Tools category. Funds with 4 or 5 globes tend to hold securities that are less exposed to ESG risk. 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.
Direxion Dl Glbl Clean Ey Bull 2X Shrs has an asset-weighted Carbon Risk Score of 7.2, 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 aims to avoid, or limit exposure to, companies in violation with international norms, such as the UN Global Compact or the Universal Declaration of Human Rights. 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.
One potential issue for a sustainability-focused investor is that Direxion Dl Glbl Clean Ey Bull 2X Shrs 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 23.8% involvement in fossil fuels, surpassing 11.1% for the average peer in its category. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas. By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons, tobacco, thermal coal, and and small arms. Yet this goal is far from achieved, as the fund exhibits 3.23% exposure to thermal coal. This compares with 0.72% for its average peer in the Trading Tools category.