Strive U.S. Energy ETF DRLL Sustainability

This fund lands in the 10% of strategies with the highest ESG risk in the Energy Sector Equity category, earning it the lowest Morningstar Sustainability Rating of 1 globe. Funds with 4 or 5 globes tend to hold securities that are less exposed to ESG risk. Unlike impact, which focuses on generating positive environmental and societal outcomes, ESG risk measures the degree to which investments could be affected by material ESG issues, including climate change, biodiversity, product safety, community relations, data privacy and security, bribery and corruption, and corporate governance.

One area to watch is the fund's high carbon risk exposure, as indicated by its Carbon Risk Score of 41.7, suggesting that the portfolio is positioned to fare poorly in the transition to a low-carbon economy. This score represents the asset-weighted carbon risk score of the portfolio holdings, averaged over the trailing 12 months. Companies with high risk classification will likely be disadvantaged in the transition to net zero, while those that are less exposed to climate risks and enable the transition by offering carbon solutions may fare better. Currently, the fund has 99.1% involvement in fossil fuels, which is high in both absolute and relative terms. The average peer in the same Equity Energy category has 87.7% 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 no exposure to high or severe controversies. Controversies are incidents that have a negative impact on stakeholders or the environment, which create some degree of financial risk for the company. Examples of types of controversies include bribery and corruption scandals, workplace discrimination and environmental incidents. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. Such controversies can also damage the reputation of both companies themselves and their shareholders.