The ESG risk of iShares $ Corp Bond ESG ETF's holdings is comparable to its peers in the US Fixed Income category, thus earning an average Morningstar Sustainability Rating of 3 globes. Funds in the same category rated 4 or 5 globes tend to hold securities less exposed to ESG risk. ESG risk provides investors with a signal that reflects to what degree their investments are exposed to risks related to material ESG issues, including climate change, biodiversity, product safety, community relations, data privacy and security, bribery and corruption, and corporate governance, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.
iShares $ Corp Bond ESG ETF promotes ESG criteria within the meaning of Article 8 of the Sustainable Finance Disclosure Regulation. Funds in accordance with Article 8 or Article 9 are more likely to align with the expectations of an investor who cares about sustainability issues. One key area of strength for iShares $ Corp Bond ESG ETF is its low Morningstar Portfolio Carbon Risk Score of 7.07 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's 7.5% involvement in carbon solutions is roughly in line with the 7.7% average involvement of its peers in the Other Bond category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on. By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons, tobacco, and and thermal coal. The fund mostly fulfills this goal; however, it does exhibit 0.22% exposure to companies involved in thermal coal. This compares with 1.67% for its average peer in the US Fixed Income category. The fund exhibits moderate exposure (5.90%) 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.