The ESG risk of Schwab US Large-Cap ETF™'s holdings is comparable to its peers in the US Equity Large Cap Blend 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 provides investors with a signal that reflects to what degree their investments are exposed to risks related to material ESG issues, such as climate change and inequalities, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.
Schwab US Large-Cap ETF™ has a Carbon Risk Score of 7.82, indicating portfolio companies face low carbon-related risks in the transition to a low-carbon economy. The fund's current involvement in fossil fuels rests at 7.32%, which compares favorably with 7.41% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas.
One potential issue for a sustainability-focused investor is that Schwab US Large-Cap ETF™ doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. The fund has relatively high exposure (9.10%) to companies with high or severe controversies. From bribery and corruption to workplace discrimination and environmental incidents, controversies are incidents that may negatively affect stakeholders, the environment, or the company’s operations.