Timothy Plan Small Cap Value Fund may not appeal to sustainability-conscious investors.
The fund has the lowest Morningstar Sustainability Rating of 1 globe, indicating that the ESG risk of holdings in its portfolio is rather high compared to those of its peers in the US Equity Small Cap category. Investors concerned about ESG risk may be better off with funds earning 4 or 5 globes, as they hold securities less exposed to ESG risk. ESG risk measures the degree to which material environmental, social, and governance issues, such as climate change and inequalities, could affect valuations. ESG risk differs from impact, which is about driving positive environmental and social outcomes for society’s benefit.
One potential issue for a sustainability-focused investor is that Timothy Plan Small Cap Value Fund doesn’t have an 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. The fund's current involvement in fossil fuels reaches 8.97%, surpassing 6.75% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas.
By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with tobacco, and, as expected, the fund has negligible involvement in such companies. The fund has no exposure to high or severe controversies. From bribery and corruption to workplace discrimination and environmental incidents, controversies are incidents that may negatively affect stakeholders, the environment, or the company’s operations.
Timothy Plan Small Cap Value Fund's asset-weighted Carbon Risk Score of 17.97 is at the lower end of the medium carbon risk band. This suggests the fund’s investee companies are adequately positioned to transition to a low-carbon economy. Investors concerned about the transition risks may prefer to consider funds with negligible or low carbon risk. Such funds invest in companies that tend to operate in sectors less exposed to the transition (such as healthcare and IT) and/or companies in more carbon-intensive sectors (such as industrials and utilities) but that consider climate change in their business strategy and products, and therefore are positively aligned with the transition.