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Morningstar

Invesco S&P 500® Low Volatility ETF SPLV Sustainability

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Sustainability Analysis

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Sustainability Summary

 | Morningstar Manager Research  

Invesco S&P 500 ® Low Volatility ETF may not appeal to sustainability-conscious investors.

Invesco S&P 500® Low Volatility ETF 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 US Equity Large Cap Value category. Investors concerned about ESG risk may be better off with funds in the category that receive 4 or 5 globes, as they tend to invest in securities less exposed to ESG risk. Unlike impact, which measures positive environmental and societal outcomes attributable to an investment, ESG risk reflects the degree to which investments could be affected by material ESG issues like climate change and inequalities.

The fund has an asset-weighted Carbon Risk Score of 9.73, indicating that its current equity and/or bond holdings 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 exhibits negligible exposure (1.28%) to companies with high or severe controversies. From bribery and corruption to workplace discrimination and environmental incidents, controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, controversies can damage the reputation of both companies themselves and their shareholders.

One potential issue for a sustainability-focused investor is that Invesco S&P 500® Low Volatility ETF doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate are more likely to align with the expectations of an investor who cares about sustainability issues. Currently, the fund has 21.90% involvement in fossil fuels, which is higher than 12.92% 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.

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ESG Commitment Level Asset Manager

 | Basic  

Invesco has grown its environmental, social, and governance efforts substantially in recent years, though it is still a work in progress and has evolved further in some areas than others.

Invesco had a modest ESG effort in place for years, but it took an important step toward developing a robust ESG program in 2019 when it named Cathrine de Coninck-Lopez as global head of ESG. Bringing with her more than 12 years of experience in sustainability, De Coninck-Lopez leads a team of 13, while other personnel around the world also have certain ESG responsibilities in their region. The members of the ESG team are well-qualified, but the team’s size is not that substantial, considering that Invesco manages more than $1 trillion in both active and passive strategies. Besides the ESG-specific funds it already offers, Invesco’s goal is to incorporate ESG capability into every strategy in every asset class. It concedes that, while that process has already taken place with some investment teams, in others it will take longer, with 2023 targeted as the date the integration should be fully in place. That said, all fixed-income analysts are already expected to incorporate ESG ideas into their reports.

In evaluating companies, Invesco uses a variety of sources as well as its own internal research, and the result is an internal resource called ESGintel that provides detailed descriptions, analysis, and opinions of the ESG characteristics of all companies in Invesco’s investment universe. Invesco does not have a firmwide list of excluded companies, arguing that allowing a diversity of approaches to that topic among their many teams in different parts of the globe is more appropriate.

On the proxy-voting front, Invesco is moving from a decentralized approach that currently allows each investment team to make their own decisions. The firm is in the process of establishing more global directives, whereby teams that wish to vote differently from Invesco’s global guidance must then present compelling reasons for that decision. The new system should allow the firm’s votes to have more clout with companies.