The ESG risk of Xtrackers S&P 500 ETF's holdings is comparable to its peers in the US Equity Large Cap Blend 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 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.
Xtrackers S&P 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.
A potential issue for a sustainability-focused investor is that Xtrackers S&P 500 ETF is not classified by its manager as Article 8 or Article 9 of the Sustainable Finance Disclosure Regulation, meaning that the fund doesn't aim to promote ESG characteristics or have a sustainable objective. By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons. However, the fund struggles to fulfill this goal, as it exhibits 1.64% exposure to such companies. This compares with 1.55% for its average peer in the US Equity Large Cap Blend category. The fund exhibits relatively high exposure (10.31%) 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 8.7% involvement in fossil fuels, which is roughly in line with 7.4% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas.