Cambria Value and Momentum ETF is likely to concern sustainability-focused investors given certain substandard ESG attributes.
This fund has above-average exposure to ESG risk relative to its peers in the Long/Short Equity category, earning it the second-lowest Morningstar Sustainability Rating of 2 globes. Investors concerned about ESG risk may be better off with funds earning 4 or 5 globes, as they tend to hold securities 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, such as climate change and inequalities, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.
One potential issue for a sustainability-focused investor is that Cambria Value and Momentum ETF doesn’t have an ESG-focused mandate. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. One area to watch is the strategy’s carbon risk exposure. Although Cambria Value and Momentum ETF's asset-weighted Carbon Risk Score of 24.59 is classed as medium, it is situated at the higher end of the medium carbon risk band, indicating that the fund's current equity and/or bond holdings would fare worse than its peers in the transition to a low-carbon economy. Investors concerned about the transition risks may prefer to consider funds with negligible or low carbon risk. Funds with a lower carbon risk classification may be more favored by investors concerned about transition risks, as such funds often tilt toward companies that operate in sectors less exposed to the transition (for example, healthcare and IT) or companies in more carbon-intensive sectors (for example, materials and utilities) that consider climate change in their business strategy, and therefore are positively aligned with the transition. Currently, the fund has 28.05% involvement in fossil fuels, which is high in both absolute and relative terms. The average peer in the same Long-short Equity category has 9.37% 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.
The fund has little exposure (0.40%) to companies with 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.