This fund has rather high exposure to ESG risk relative to its peers in the Trading Tools category, earning it the lowest Morningstar Sustainability Rating of 1 globe. Funds with 4 or 5 globes tend to hold securities that are 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, 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.
One area to watch is the fund's high carbon risk exposure, as indicated by its Carbon Risk Score of 41.6, suggesting that the portfolio is positioned to fare poorly in the transition to a low-carbon economy. This score represents the asset-weighted carbon risk score of the portfolio holdings, averaged over the trailing 12 months. Companies with high risk classification will likely be disadvantaged in the transition to net zero, while those that are less exposed to climate risks and enable the transition by offering carbon solutions may fare better. Currently, the fund has 100.0% involvement in fossil fuels, which is high in both absolute and relative terms. The average peer in the same Trading--inverse Equity category has 13.8% 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.
No companies held by MicroSectors™ Energy -3X Invrs Lvrgd ETN 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.
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