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SP Funds Dow Jones Global Sukuk ETF SPSK Sustainability

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Sustainability Analysis

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Sustainability Summary

SP Funds Dow Jones Global Sukuk ETF may not appeal to sustainability-conscious investors.

This fund lands in the 10% of strategies with the highest ESG risk in the Global Fixed Income category, earning it the lowest Morningstar Sustainability Rating of 1 globe. Funds with 4 or 5 globes tend to hold securities that are 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.

One potential issue for a sustainability-focused investor is that SP Funds Dow Jones Global Sukuk 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 25.7% involvement in fossil fuels, which is high in both absolute and relative terms. The fossil fuel involvement of funds in the same Global Bond category averages 10.2%. Companies are considered involved in fossil fuels if they derive at least 5% of their 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, and and small arms. The fund fulfills this goal as its investment exposure to each of these activities is negligible. No companies held by SP Funds Dow Jones Global Sukuk ETF are recognized as being involved in controversies at a high or severe level. 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.

SP Funds Dow Jones Global Sukuk ETF has a 12-month asset-weighted Carbon Risk Score of 15.0. 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. Such funds invest in companies that tend to operate in sectors less exposed to the transition (such as healthcare and IT) and/or companies in more carbon-intensive sectors (such as industrials and utilities) but that consider climate change in their business strategy and products, and therefore are positively aligned with the transition.

ESG Commitment Level Asset Manager