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Fidelity Advisor Total Bond I FEPIX Sustainability

Morningstar Medalist Rating
| Medalist Rating as of | See Fidelity Investment Hub

Sustainability Analysis

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Sustainability Summary

 | Published as of .  Based on data as of

Fidelity Total Bond Fund may not appeal to sustainability-conscious investors.

Fidelity Total Bond Fund's holdings are exposed to average levels of ESG risk relative to those of its peers in the US Fixed Income category, thus earning it an average Morningstar Sustainability Rating of 3 globes. Competing funds in the category with ratings of 4 or 5 globes have less ESG risk in their holdings. Unlike impact, which measures positive environmental and societal outcomes attributable to an investment, ESG risk reflects the degree to which investments could be affected by material ESG issues, including climate change, biodiversity, product safety, community relations, data privacy and security, bribery and corruption, and corporate governance.

Fidelity Total Bond Fund has an asset-weighted Carbon Risk Score of 9.5, 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.

One potential issue for a sustainability-focused investor is that Fidelity Total Bond Fund doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. Currently, the fund has 13.4% involvement in fossil fuels, surpassing 7.7% 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. The fund exhibits relatively high exposure (10.40%) 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.

ESG Commitment Level Asset Manager

 | Low , 

In recent years, Fidelity Investments has contributed heavily to its investment teams’ ability to scrutinize companies’ environmental, social, and governance issues and to offer new products surrounding that research. Its business leaders consider its advancements in this arena to be a strategic priority, and its investment leaders have thoughtfully developed frameworks to inform portfolio managers’ and analysts’ thinking on sustainability issues. But the firm receives an ESG Commitment Level of Low because it has provided little public clarity about its expectations of current or prospective portfolio companies with respect to their ESG priorities and it has not shared ESG metrics on its portfolios with investors. Fidelity formalized its ESG research efforts in 2017, when it signed the UN-supported Principles for Responsible Investment and created a centralized team of sustainability specialists. The firm has significantly bolstered that team since 2019 by recruiting a sizable cohort of analysts (including some with ample sustainable-investing experience) and new leaders to help shepherd their research. By late 2021, it had 10 analysts with sector-specific coverage and ESG heads in charge of specific asset classes, including equity and fixed income. Leveraging sustainability data from third-party vendors and Fidelity’s direct discussions with the executives of its portfolio companies, the ESG analysts collaborate with Fidelity’s sprawling teams of fundamental research analysts to assign proprietary ESG ratings to a large portion of the firm’s investable universe. It is a sophisticated framework and scalable: Fidelity has recently expanded it to encompass noncorporate fixed-income instruments, such as asset-backed securities and municipal bonds, whose greater complexity and scarcer ESG data make them tougher for asset managers to assess through a sustainability lens. Deep quantitative resources help make it feasible for Fidelity. But it is hard for investors to know for sure how the firm’s ESG resources impact its funds or the thinking of its portfolio managers. Fidelity provides no data that might describe its strategies’ ESG profiles, while some peers offer absolute ESG metrics along with peer-relative comparisons. Few of its strategies use well-defined criteria to bar ESG laggards, and those that do have in place basic, timid exclusions. It provides only vague guidelines for how it will vote proxies on key ESG resolutions, and its voting record does not show much support for them. Its inaugural stewardship report, released in 2021, marked a significant step toward revealing more about its ESG philosophy and processes, but it holds back details surrounding its engagement with corporate executives. With greater illumination of how it urges for specific sustainability outcomes, it could show greater commitment to ESG.