This fund has above-average exposure to ESG risk relative to its peers in the Target Date 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 American Funds 2065 Target Date Ret Fd 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.
American Funds 2065 Target Date Ret Fd has a Carbon Risk Score of 8.50, indicating portfolio companies face low carbon-related risks in the transition to a low-carbon economy. The fund's current involvement in fossil fuels rests at 6.96%, which compares favorably with 7.91% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas.
The fund exhibits moderate exposure (7.47%) to companies with high or severe controversies. From bribery and corruption to workplace discrimination and environmental incidents, controversies are incidents that may negatively affect stakeholders, the environment, or the company’s operations.