This strategy has an above-average Morningstar Sustainability Rating of 4 globes, indicating that the ESG risk of holdings in its portfolio is relatively low compared with those of its peers in the US Fixed Income category. 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.
iShares US Mortg Backed Secs ETF has an asset-weighted Carbon Risk Score of 2.5, 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. Currently, the fund's involvement in fossil fuels is negligible, and compares favorably with 14.7% for its average peer. The fund exhibits negligible exposure (0.07%) 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.
A potential issue for a sustainability-focused investor is that iShares US Mortg Backed Secs ETF is not classified by its manager as Article 8 or Article 9 of the Sustainable Finance Disclosure Regulation. Funds classified by their managers as Article 8 or Article 9 either promote environmental or sustainable characteristics or have a sustainable investment strategy, respectively, and hence are more likely to drive positive ESG outcomes.