This strategy holds securities with low exposure to ESG risk relative to those of its peers in the Morningstar Healthcare Sector Equity 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 and inequalities, could affect valuations. ESG risk differs from impact, which is about driving positive environmental and social outcomes for society’s benefit.
One key area of strength for Health Care Select Sector SPDR® Fund is its low Morningstar Portfolio Carbon Risk Score of 2.46 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. Currently, the fund's involvement in fossil fuels is negligible, and compares favorably with 0.17% for its average peer.
One potential issue for a sustainability-focused investor is that Health Care Select Sector SPDR® Fund 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 a modest level of exposure (8.55%) to companies with high or severe controversies. Companies with high or severe controversies are involved in incidents such as corruption, employee abuses, environmental incidents, and corporate scandals that pose serious business risks to the company.