WisdomTree US Earnings 500 Fund is likely to concern sustainability-focused investors given certain substandard ESG attributes.
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 US Equity Large Cap Blend category. Investors concerned about ESG risk may be better off with funds in the category that receive 4 or 5 globes as they tend to 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 WisdomTree US Earnings 500 Fund doesn’t have an ESG-focused mandate. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. The fund's current involvement in fossil fuels reaches 9.12%, surpassing 7.77% 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 controversial weapons, tobacco, and thermal coal. Yet this goal is far from achieved, as the fund exhibits 2.11%, 1.12%, and 1.29% exposure to controversial weapons, tobacco, and thermal coal, respectively. This compares with 1.86%, 0.5%, and 1.17% for its average peer in the US Equity Large Cap Blend category. The fund exhibits high exposure (12.86%) to companies with 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.
WisdomTree US Earnings 500 Fund has a Carbon Risk Score of 7.97, indicating portfolio companies face low carbon-related risks in the transition to a low-carbon economy.