This strategy has an above-average Morningstar Sustainability Rating of 4 globes, indicating that the ESG risk of holdings in its portfolio is relatively low compared with those of its peers in the Emerging Markets Fixed Income category. 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.
One potential issue for a sustainability-focused investor is that Goldman Sachs Emerging Markets Credit Fd doesn’t have an ESG-focused mandate. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. Special attention should be paid to is its extremely high carbon risk exposure. Goldman Sachs Emerging Markets Credit Fd's Carbon Risk Score of 72.3 is classed as Severe. The score represented the asset-weighted Carbon Risk Score of the portfolio holdings, averaged over the trailing 12 months. Companies under the Severe carbon risk classification will likely be disadvantaged in the transition to net zero, while those that are less exposed to climate risks enable the transition by offering carbon solutions may fare better.Currently, the fund has 100.0% involvement in fossil fuels, which is high in both absolute and relative terms. The average peer in the same Emerging-markets Local-currency Bond category has 20.8% exposure to fossil fuel-related businesses. Companies are considered involved in fossil fuels if they derive at least 5% of their revenue from thermal coal, oil, and gas. The fund exhibits extremely high exposure (100.00%) to companies with high or severe controversies. Companies with controversies are involved in incidents such as corruption, employee abuses, environmental incidents, and corporate scandals that pose serious business risks to the company. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. Such controversies can also damage the reputation of both companies themselves and their shareholders.