This fund has a Morningstar Sustainability Rating of 5 globes, indicating that the ESG risk of holdings in its portfolio is rather low relative to those of its peers in the Morningstar Target Date category. ESG risk measures the degree to which material environmental, social, and governance issues, such as 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.
Based on its latest prospectus, sustainability or ESG factors are a focus in the investment process of BlackRock LifePath ESG Index 2035 Fund. Funds with ESG-focused mandates are more likely to deliver positive sustainability outcomes. BlackRock LifePath ESG Index 2035 Fund has an asset-weighted Carbon Risk Score of 7.3, 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. Its 14.6% involvement in carbon solutions is higher than the 12.4% average involvement of its peers in the Target-date 2035 category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on.
By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons, tobacco, and and small arms. Yet this goal is far from achieved, as the fund exhibits 0.86% and 0.57% exposure to controversial weapons and small arms, respectively. This compares with 1.17% and 0.77% for its average peer in the Target Date category.
Currently, the fund has 7.5% involvement in fossil fuels, which is roughly in line with 9.4% 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 (5.77%) to companies with high or severe controversies. Controversies are incidents that have a negative impact on stakeholders or the environment, which create some degree of financial risk for the company. Examples of types of controversies include bribery and corruption scandals, workplace discrimination and environmental incidents. 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.