Fidelity® Equity Income 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 Value 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 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 Fidelity® Equity Income 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 has 15.74% involvement in fossil fuels, which is higher than 14.18% 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 significant exposure (13.86%) to companies with high or severe controversies. Companies with high or severe controversies may be involved in incidents such as corruption, employee abuses, environmental incidents, and corporate scandals that pose serious business risks to the company.
Fidelity® Equity Income Fund's asset-weighted Carbon Risk Score of 10.53 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.