Product Quality and Safety, Governance

Large pharmaceutical company became exposed to ongoing cancer litigation as a result of acquiring a specialized chemicals company and its flagship product. While the link to cancer may not be conclusive, the oversight of not weighing this potential litigation materially into the evaluation of the acquisition raised concerns surrounding management and the board's level of due diligence around the deal.

This concern was enough to change an overweight of the name to underweight.

Product Quality and Safety, Chemical Safety

Large industrials conglomerate became exposed to the sudden significant emergence of PFAS Chemical potential liabilities, with a likely long time frame (and cash outlays) needed to settle the PFAS issues, which will further limit their M&A program (and thus restrict acquisition-related earnings opportunities).

While not the only driver, the concern around PFAS chemical liabilities contributed to an underweight in the stock amongst other valuation concerns.

Clean Tech Opportunities

A semi-conductor company is positioned to monetize its clean tech opportunities, including solar, LED, and EV products. This company is a leader in Silicon Carbide technology. Silicon Carbide is absolutely crucial to enabling the mass adoption of Electric Vehicles (EVs) as Silicon Carbide enables much more efficient use of power in the vehicle, thereby enabling manufacturers to produce a car that offers longer hours of use before re-charging is required. Increasing the hours of use before recharge may also help promote greater adoption of EVs among consumers.

While not the only driver, the significant opportunities to monetize on a growing clean tech market and business was one consideration that contributed to an overweight in this name.

Governance

Oil and gas company pursued financing terms for an acquisition that resulted in preclusion of a shareholder vote on the matter. Management moved forward with the deal, wilfully avoiding shareholders a say in the process. The company also experienced a drop in share price through the process as compared to prior to news of the deal. 

The position was sold, prompted by governance concerns related to the merger and financing terms.

Low Carbon and ESG Leadership:

Our ESG ETFs favor companies that demonstrate leadership in managing and mitigating current carbon emissions and potential future emissions resulting from fossil fuel reserves. Companies must also be considered ESG leaders relative to sector and industry peers.

Companies selected for this strategy typically have a lower carbon footprint than companies on the benchmark. Companies that own fossil-fuel reserves are not eligible. Companies must also meet both absolute and relative ESG performance requirements.