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SP Funds S&P 500 Sharia Industry Ex ETF SPUS Sustainability

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Sustainability Analysis

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Sustainability Summary

SP Funds S&P 500 Sharia Industry Ex ETF has a number of attributes that may meet the expectations of sustainability-focused investors, despite some issues worthy of attention.

The ESG risk of SP Funds S&P 500 Sharia Industry Ex ETF's holdings is comparable to its peers in the US Equity Large Cap Growth 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, including climate change, biodiversity, product safety, community relations, data privacy and security, bribery and corruption, and corporate governance, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.

One key area of strength for SP Funds S&P 500 Sharia Industry Ex ETF is its low Morningstar Portfolio Carbon Risk Score of 5.10 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.

One potential issue for a sustainability-focused investor is that SP Funds S&P 500 Sharia Industry Ex ETF doesn’t have an ESG-focused mandate. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. The fund has significant exposure (12.72%) to companies with high or severe controversies. Companies with controversies may be involved in incidents such as corruption, employee abuses, environmental incidents, and corporate scandals that pose some degree of business risks to the company. 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.

By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons, tobacco, and and small arms. The fund mostly fulfills this goal; however, it does exhibit 0.17% exposure to companies involved in small arms. This compares with 0.43% for its average peer in the US Equity Large Cap Growth category.

ESG Commitment Level Asset Manager