This fund has the second-lowest Morningstar Sustainability Rating of 2 globes, indicating it holds securities with relatively high ESG risk compared to that of its peers in the US Equity Large Cap Growth category. Investors concerned about ESG risk may be better off with funds in the category that receive 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-100 ex-Tech Sect Fund doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate are more likely to align with the expectations of an investor who cares about sustainability issues. Currently, the fund has 7.98% involvement in fossil fuels, which is higher than 3.42% for the average peer in its category. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas.
First Trust NASDAQ-100 ex-Tech Sect Fund has a Carbon Risk Score of 7.31, indicating portfolio companies face low carbon-related risks in the transition to a low-carbon economy. The fund exhibits negligible exposure (1.61%) to companies with high or severe controversies. 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.