DFA US Large Company I DFUSX Sustainability

DFA US Large Company Portfolio is likely to concern sustainability-focused investors given certain substandard ESG attributes.

DFA US Large Company Portfolio has an average Morningstar Sustainability Rating of 3 globes, indicating that the ESG risk of holdings in its portfolio is similar 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 invest in 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.

DFA US Large Company Portfolio has a Carbon Risk Score of 7.49, indicating portfolio companies face low carbon-related risks in the transition to a low-carbon economy.

One potential issue for a sustainability-focused investor is that DFA US Large Company Portfolio doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. The fund's current involvement in fossil fuels reaches 9.08%, 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. The fund has relatively high exposure (9.78%) 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.

Dimensional has continued to make small improvements to its environmental, social, and governance offerings over the years, but the firm’s investment process leaves little room for ESG considerations. It maintains a Morningstar ESG Commitment Level of Low. Dimensional’s ESG approach is rooted in its broader investment philosophy of market efficiency. The firm believes that financially relevant information should be reflected in stock and bond prices, which drives its investment process and the limited consideration of ESG issues, even within its ESG-focused products. Outside of specific values-based requests from clients, ESG issues are viewed exclusively in the context of financial materiality and have little effect on the firm’s approach to constructing portfolios. This consistent approach to investing overall is a hallmark of its business, but Dimensional lacks conviction that ESG risks will be compensated, so ESG considerations are a lower priority for Dimensional compared with its peers. Through applying exclusions, Dimensional offers sustainability and socially focused mutual funds for clients that want to align their investments with their values. For example, the DFA U.S. Social Core Equity 2 Portfolio limits exposure to companies involved in gambling, tobacco, and pornography. The firm has cautiously integrated ESG factors into some of its non-ESG focused strategies, but the focus is squarely on governance issues such as executive compensation and board composition. Jim Whittington and Lacey Huebel, each of whom counts more than a decade at Dimensional, co-lead the small but adequate team that develops these exclusionary criteria. Dimensional avoids taking a highly public stance on climate-related issues. The firm became a signatory of the United Nations-supported Principles for Responsible Investment in 2012 and the UK Stewardship Code in 2011. However, it has refrained from participating in major climate-related efforts such as the Net Zero Asset Managers Initiative and Climate Action 100+. Dimensional advocates for disclosure of financially material information tied to key environmental and social issues but believes that these decisions should be left to the discretion of company management. However, the firm’s engagements rarely escalate beyond exploratory conversations with management to more severe action like divestment. In addition, its proxy-voting record demonstrates less than 20% support for key ESG resolutions over the last three years. Overall, the firm’s efforts don’t stand out.