This fund has relatively low exposure to ESG risk compared with its peers in the US Equity Large Cap Growth category, earning it the second highest Morningstar Sustainability Rating of 4 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.
One key area of strength for Ishares ESG Aware MSCI USA Growth ETF is its low Morningstar Portfolio Carbon Risk Score of 3.73 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. The fund aims to avoid or minimize holdings in companies breaching international norms, including the UN Global Compact or the Universal Declaration of Human Rights.
The fund has significant exposure (12.48%) 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, thermal coal, and and small arms. The fund mostly fulfills this goal; however, it does exhibit 0.44% exposure to companies involved in small arms. This compares with 0.44% for its average peer in the US Equity Large Cap Growth category.