This fund lands in the 10% of strategies with the lowest ESG risk in the Industrials Sector Equity category, earning it the highest Morningstar Sustainability Rating of 5 globes. ESG risk provides investors with a signal that reflects to what degree their investments are exposed to risks related to material ESG issues, including climate change, biodiversity, product safety, community relations, data privacy and security, bribery and corruption, and corporate governance, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.
Based on its latest prospectus, sustainability or ESG factors are a focus in the investment process of Fidelity Envir and Alt Engy Fund. Funds with ESG-focused mandates are more likely to deliver positive sustainability outcomes. Fidelity Envir and Alt Engy Fund has an asset-weighted Carbon Risk Score of 7.7, 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 26.8% involvement in carbon solutions is not only high in absolute terms, but also surpasses the 12.6% average involvement of its peers in the Industrials category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on.
Currently, the fund has 15.0% involvement in fossil fuels, surpassing 9.7% 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, thermal coal, and and small arms. Yet this goal is far from achieved, as the fund exhibits 0.29% and 4.48% exposure to controversial weapons and thermal coal, respectively. This compares with 12.35% and 0.64% for its average peer in the Industrials Sector Equity category.
The fund has a modest level of exposure (2.70%) to companies with high or severe controversies. Companies with controversies are involved in incidents such as corruption, employee abuses, and that pose some degree of business risks to the company. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, they controversies can damage the reputation of both companies themselves and their shareholders.