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 Global Equity Large Cap category. 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.
Currently, the fund has 11.3% involvement in fossil fuels, surpassing 9.2% for the average peer in its category. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas. The fund has relatively high exposure (9.23%) 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.
Based on its latest prospectus, sustainability or ESG factors are a focus in the investment process of FlexShares STOXX Glbl ESG Select Fund. Funds with ESG-focused mandates are more likely to deliver positive sustainability outcomes. FlexShares STOXX Glbl ESG Select Fund has an asset-weighted Carbon Risk Score of 7.8, indicating that its companies have low exposure to carbon-related risks. These are risks associated with the transition to a low-carbon economy such as increased regulation, changing consumer preferences, technological advancements, and stranded assets.
The fund's 12.9% involvement in carbon solutions is roughly in line with the 12.8% average involvement of its peers in the Global Large-stock Blend category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on. By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons and thermal coal. The fund mostly fulfills this goal; however, it does exhibit 0.27% exposure to companies involved in thermal coal. This compares with 0.76% for its average peer in the Global Equity Large Cap category.
United States