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 Moderate Allocation category. 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.
BlackRock Sustainable Balanced Fund holds itself out to be a sustainable or ESG-focused investment. In other words, ESG concerns are central to the investment process of this strategy. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. BlackRock Sustainable Balanced Fund has an asset-weighted Carbon Risk Score of 6.7, 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 current involvement in fossil fuels rests at 7.8%, which compares favorably with 10.9% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas. Its 14.2% involvement in carbon solutions is higher than the 11.1% average involvement of its peers in the Moderate Allocation category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on.
The fund aims to avoid, or limit exposure to, companies in violation with international norms, such as the UN Global Compact or the Universal Declaration of Human Rights.
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 0.91%, 0.46%, and 0.34% exposure to controversial weapons, tobacco, and small arms, respectively. This compares with 0.86%, 0.55%, and 0.56% for its average peer in the Moderate Allocation category.
The fund has a modest level of exposure (6.87%) 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.