This fund has relatively low exposure to ESG risk compared with its peers in the Energy Sector Equity category, earning it the second highest Morningstar Sustainability Rating of 4 globes. 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 Global Clean Energy ETF promotes environmental and/or social characteristics within the meaning of Article 8 of the Sustainable Finance Disclosure Regulation. Funds classified by their managers as Article 8 or Article 9 are more likely to deliver positive sustainability outcomes. iShares Global Clean Energy ETF has an asset-weighted Carbon Risk Score of 7.2, 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. The fund's 84.3% involvement in carbon solutions is not only high in absolute terms, but also surpasses the 63.0% average involvement of its peers in the Sector Equity Alternative Energy category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on. 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.
No companies held by iShares Global Clean Energy 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 are incidents that have a negative impact on stakeholders or the environment, which create some degree of financial risk for the company. 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 23.8% involvement in fossil fuels, surpassing 17.7% 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. By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons, tobacco, and and thermal coal. Yet this goal is far from achieved, as the fund exhibits 3.23% exposure to thermal coal. This compares with 2.02% for its average peer in the Energy Sector Equity category.