This fund has relatively low exposure to ESG risk compared with its peers in the Greater China 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.
One key area of strength for KraneShares CSI China Internet ETF is its low Morningstar Portfolio Carbon Risk Score of 4.58 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.
Based on its prospectus, sustainability or ESG factors are not a focus in the investment process. In comparison, funds with an ESG-focused mandate are more likely to align with the expectations of an investor who cares about sustainability issues. The fund has relatively high exposure (10.14%) to companies with 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.