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Xtrackers S&P MidCap 400 ESG ETF MIDE Sustainability

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Sustainability Analysis

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Sustainability Summary

Xtrackers S&P MidCap 400 ESG ETF has a number of positive attributes that a sustainability-focused investor may find appealing.

The ESG risk of Xtrackers S&P MidCap 400 ESG ETF's holdings is comparable to its peers in the US Equity Mid Cap category, thus earning an average Morningstar Sustainability Rating of 3 globes. Funds in the same category rated 4 or 5 globes tend to hold securities less exposed to ESG risk. 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 Xtrackers S&P MidCap 400 ESG ETF. Funds with ESG-focused mandates are more likely to deliver positive sustainability outcomes. By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons, tobacco, thermal coal, and and small arms. The fund fulfills this goal by having negligible investment exposure to each of these activities. 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 little exposure (0.38%) 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.

Xtrackers S&P MidCap 400 ESG ETF has a 12-month asset-weighted Carbon Risk Score of 11.7. This is situated at the lower end of the medium carbon risk band, suggesting that its portfolio holdings are not among the worst-positioned to transition to a low-carbon economy, but they are not among the best-positioned either. Investors concerned about the transition risks may prefer to consider funds with negligible or low carbon risk. Funds with a lower carbon risk classification may be more favored by investors concerned about transition risks, as such funds often tilt toward companies that operate in sectors less exposed to the transition (for example, healthcare and IT) or companies in more carbon-intensive sectors (for example, materials and utilities) that consider climate change in their business strategy, and therefore are positively aligned with the transition. Currently, the fund has 6.8% involvement in fossil fuels, which is roughly in line with 8.7% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas. The fund's 7.5% involvement in carbon solutions is roughly in line with the 7.7% average involvement of its peers in the Mid-cap Blend category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on.

ESG Commitment Level Asset Manager