This fund has above-average exposure to ESG risk relative to its peers in the Technology Sector Equity category, earning it the second-lowest Morningstar Sustainability Rating of 2 globes. Investors concerned about ESG risk may be better off with funds earning 4 or 5 globes, as they 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, such as climate change and inequalities, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.
One potential issue for a sustainability-focused investor is that First Trust Nasdaq Semiconductor ETF doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes.
One key area of strength for First Trust Nasdaq Semiconductor ETF is its low Morningstar Portfolio Carbon Risk Score of 6.89 and very low fossil fuel exposure over the past 12 months, which earns it the Morningstar Low Carbon Designation. The fund is therefore well positioned to transition to a low-carbon economy. Currently, the fund's involvement in fossil fuels is negligible, and compares favorably with 0.17% for its average peer. No companies held by First Trust Nasdaq Semiconductor ETF are recognized as being involved in controversies at a high or severe level. From bribery and corruption to workplace discrimination and environmental incidents, controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, controversies can damage the reputation of both companies themselves and their shareholders.