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Xtrackers MSCI USA ESG Leaders Eq ETF USSG Sustainability

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Sustainability Analysis

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Sustainability Summary

Xtrackers MSCI USA ESG Leaders Eq ETF has several promising attributes that may appeal to sustainability-focused investors.

This strategy holds securities with low exposure to ESG risk relative to those of its peers in the Morningstar US Equity Large Cap Blend category, earning it the highest Morningstar Sustainability Rating of 5 globes. 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 MSCI USA ESG Leaders Eq ETF. Funds with ESG-focused mandates are more likely to deliver positive sustainability outcomes. One key area of strength for Xtrackers MSCI USA ESG Leaders Eq ETF is its low Morningstar Portfolio Carbon Risk Score of 4.90 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.

By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons, tobacco, thermal coal, and and small arms. Yet this goal is far from achieved, as the fund exhibits 0.19% and 0.35% exposure to controversial weapons and small arms, respectively. This compares with 1.61% and 0.85% for its average peer in the US Equity Large Cap Blend category. The fund has relatively high exposure (11.73%) to companies with high or severe controversies. Controversies are incidents that have a negative impact on stakeholders or the environment, which create some degree of financial risk for the company. Examples of types of controversies include bribery and corruption scandals, workplace discrimination and environmental incidents. 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.

The fund's 13.7% involvement in carbon solutions is roughly in line with the 12.8% average involvement of its peers in the Large Blend category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on.

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ESG Commitment Level Asset Manager

 | Basic