T. Rowe Price Financial Services Fund has a number of attributes that may meet the expectations of sustainability-focused investors, despite some issues worthy of attention.
The ESG risk of T. Rowe Price Financial Services Fund's holdings is comparable to its peers in the Financials Sector Equity category, thus earning an average Morningstar Sustainability Rating of 3 globes. Funds in the same category rated 4 or 5 globes tend to hold securities less exposed to ESG risk. ESG risk provides investors with a signal that reflects to what degree their investments are exposed to risks related to material ESG issues, such as climate change and inequalities, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.
One key area of strength for T. Rowe Price Financial Services Fund is its low Morningstar Portfolio Carbon Risk Score of 8.8 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.
One potential issue for a sustainability-focused investor is that T. Rowe Price Financial Services Fund doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. The fund has significant exposure (12.21%) to companies with high or severe controversies. Companies with high or severe controversies may be involved in incidents such as corruption, employee abuses, environmental incidents, and corporate scandals that pose serious business risks to the company.