This fund has the second-lowest Morningstar Sustainability Rating of 2 globes, indicating it holds securities with relatively high ESG risk compared to that of its peers in the Energy Sector Equity category. Funds with 4 or 5 globes tend to hold securities that are less exposed to ESG risk. ESG risk measures the degree to which material environmental, social, and governance issues, such as climate change, biodiversity, human capital, as well as bribery and corruption, 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 The Energy Select Sector SPDR® 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. An ESG issue worthy of special attention is The Energy Select Sector SPDR® Fund's carbon risk exposure. The fund’s asset-weighted Carbon Risk Score of 36.9 is classed as high. Investee companies of this portfolio are therefore positioned to fare poorly in the transition to a low-carbon economy. Investments with high carbon risk classification will likely be disadvantaged in the transition to net zero, while those with low or negligible carbon risk 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 Equity Energy category has 87.7% 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 The Energy Select Sector SPDR® 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.
United States