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 US Equity Large Cap Growth 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.
Putnam Sustainable Leaders Fund has a sustainability or ESG-focused mandate. Funds with an ESG-focused mandate are more likely to align with the expectations of an investor who cares about sustainability issues. One key area of strength for Putnam Sustainable Leaders Fund is its low Morningstar Portfolio Carbon Risk Score of 4.54 and very low fossil fuel exposure over the past 12 months, which earns it the Morningstar Low Carbon Designation. Thus, the companies held in the portfolio are in general alignment with the transition to a low-carbon economy.
Putnam Sustainable Leaders Fund shows 17.4% involvement in carbon solutions. This percentage surpasses the 15.0% average involvement of its peers in the Large Growth category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on.
The fund exhibits moderate exposure (2.16%) 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.