This fund has above-average exposure to ESG risk relative to its peers in the Energy Sector Equity category, earning it the second-lowest Morningstar Sustainability Rating of 2 globes. Funds with 4 or 5 globes tend to hold securities that are less exposed to ESG risk. 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.
One potential issue for a sustainability-focused investor is that Fidelity Natural Resources Fund doesn’t have an ESG-focused mandate. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. An ESG issue worthy of special attention is Fidelity Natural Resources Fund's carbon risk exposure. The fund’s asset-weighted Carbon Risk Score of 38.6 is classed as high. Investee companies of this portfolio are therefore positioned to fare poorly in the transition to a low-carbon economy. Investments with high carbon risk classification will likely be disadvantaged in the transition to net zero, while those with low or negligible carbon risk may fare better. Currently, the fund has 82.5% involvement in fossil fuels. It is considered high in absolute terms, albeit comparing favorably with 87.0% 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 relatively high exposure (9.03%) 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.