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 Global Equity Mid/Small Cap 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.
Based on its latest prospectus, sustainability or ESG factors are a focus in the investment process of New Alternatives Fund. Funds with ESG-focused mandates are more likely to deliver positive sustainability outcomes. New Alternatives 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. The fund's 70.7% involvement in carbon solutions is not only high in absolute terms, but also surpasses the 12.0% average involvement of its peers in the Global Small/mid Stock category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on. No companies held by New Alternatives Fund are recognized as being involved in controversies at a high or severe level. From bribery and corruption to workplace discrimination and environmental incidents, controversies are incidents that have a negative impact on stakeholders or the environment, which create some degree of financial risk for the company. 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.
Currently, the fund has 55.6% involvement in fossil fuels, which is high in both absolute and relative terms. The average peer in the same Global Small/mid Stock category has 8.3% 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.