Commonwealth Real Estate Securities Fund may not appeal to sustainability-conscious investors.
This fund lands in the 10% of strategies with the highest ESG risk in the Real Estate Sector Equity category, earning it the lowest Morningstar Sustainability Rating of 1 globe. 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 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 Commonwealth Real Estate Securities 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.
Currently, the fund's involvement in fossil fuels is negligible, and compares favorably with 0.21% for its average peer. No companies held by Commonwealth Real Estate Securities 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 can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, controversies can damage the reputation of both companies themselves and their shareholders.
Commonwealth Real Estate Securities Fund's asset-weighted Carbon Risk Score of 11.79 is at the lower end of the medium carbon risk band. This suggests the fund’s investee companies are adequately positioned to 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.