TCW Transform 500 ETF's holdings are exposed to average levels of ESG risk relative to those of its peers in the US Equity Large Cap Blend category, thus earning it an average Morningstar Sustainability Rating of 3 globes. Competing funds in the category with ratings of 4 or 5 globes have less ESG risk in their holdings. Unlike impact, which measures positive environmental and societal outcomes attributable to an investment, ESG risk reflects the degree to which investments could be affected by material ESG issues, including climate change, biodiversity, product safety, community relations, data privacy and security, bribery and corruption, and corporate governance.
Based on its latest prospectus, sustainability or ESG factors are a focus in the investment process of TCW Transform 500 ETF. Funds with ESG-focused mandates are more likely to deliver positive sustainability outcomes. TCW Transform 500 ETF has an asset-weighted Carbon Risk Score of 7.0, indicating that its companies have low exposure to carbon-related risks. These are risks associated with the transition to a low-carbon economy such as increased regulation, changing consumer preferences, technological advancements, and stranded assets. Its 17.7% involvement in carbon solutions is higher than the 13.1% 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.
The fund exhibits relatively high exposure (9.92%) to companies with high or severe controversies. Companies with controversies may be involved in incidents such as corruption, employee abuses, and environmental incidents that have a negative impact on stakeholders or the environment. 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.
Currently, the fund has 8.5% involvement in fossil fuels, which is roughly in line with 8.5% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas.