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Fidelity brings several sustainable funds and ETFs into the market. Despite the large number of Fidelity sustainable funds and relatively recent additions, the investment strategies do not make a compelling sustainability case. Both Fidelity Investments and Fidelity International focus on an exclusionary approach, as a consequence their funds follow generic ESG indexes.

Intro to Fidelity

Fidelity Investments is one of the largest financial services companies in the world with USD 4.8 trillion assets under management. The American multinational funded in 1946 has a large family of mutual funds, mainly available for US-based investors.

For non-US investors, the alternative is Fidelity International – a former investment subsidiary of Fidelity Investments which was established in 1969 and became independent in 1980. Fidelity International invests USD 623.6 billion globally on behalf of clients in the Asia Pacific, Europe, the Middle East, and South America.

For this article we will evaluate both companies’ ESG portfolio of sustainable ETFs, targeting Fidelity Investments for US-based investors and Fidelity International for investors outside of US.

How does Fidelity Investments Approach Sustainable Investing

When it comes to sustainable investing, Fidelity Investments takes a very simple approach following ESG factors combined with the company’s four pillars:

• Research and integration: ESG framework addresses systemic risks that investors may not consider when evaluating quantitative earnings models
• Product development: is committed to deep analysis and developing a wide range of sustainable products
• Knowledge and education: uses tools like proprietary ESG data sets and bottom-up analysis to assess a company’s sustainability profile
• Active stewardship: measures company opportunities and risks by engaging in management team meetings and proxy voting

Fidelity Investments has historically focused more on issuing mutual funds than ETFs. This is reflected in their sustainable funds as well. Out of their 16 sustainable funds, 4 are ETFs and 12 are mutual funds. Those 16 funds can also be split between Thematic Sustainable Funds, those with a specific focus on environmental, social or governance, and Broad Sustainable Funds, those with focus on all ESG themes.

Name	Ticker	Theme	AUM (mUSD)	TER	Inception	MSCI ESG Rating
Fidelity Climate Action Fund	FCAEX	Sustainable, mutual	20	1.90%	Jun 2021	AAA
Fidelity Environmental Bond Fund	FFEBX	Sustainable, mutual fund	101	0.45%	Jun 2021	AA
Fidelity Women’s Leadership Fund	FWOMX	Sustainable, mutual fund	140	1.10%	May 2019	AAA
Fidelity Water Sustainability Fund	FLOWX	Sustainable, mutual fund	102	1.44%	Apr 2020	AAA
Fidelity Environment & Alternative Energy	FSLEX	Sustainable, mutual fund	756	0.85%	Jun 1989	AA
Fidelity Clean Energy ETF	FRNW	Sustainable, ETF	5	0.39%	May 2021	AA
Fidelity Women Leadership ETF	FDWM	Sustainable, ETF	3	0.59%	Jun 2021	AAA
Fidelity Sustainable International Equity Fund	FSYRX	Broad, mutual fund	2	1.05%	Feb 2022	–
Fidelity Sustainable Emerging Markets Equity Fund	FSYJX	Broad, mutual fund	2	4.00%	Feb 2022	–
Fidelity Sustainable Multi-Asset Fund	FYMRX	Broad, mutual fund	1	0.47%	Feb 2022	–
Fidelity Sustainable U.S. Equity Fund	FSEBX	Broad, mutual fund	15	1.88%	Jun 2021	AA
Fidelity U.S. Sustainable Index Fund	FITLX	Broad, mutual fund	2,405	0.11%	May 2017	AA
Fidelity Sustinability Bond Index Fund	FNDSX	Broad, mutual fund	269	0.10%	Jun 2018	A
Fidelity International Sustainability Index	FNIDX	Broad, mutual fund	418	0.20%	May 2017	AAA
Fidelity Sustainable High Yield ETF	FSYD	Broad, ETF	10	0.55%	Feb 2022	–
Fidelity Sustainable U.S. Equity ETF	FSST	Brad, ETF	6	0.59%	Jun 2021	AA

At the table above we can notice that 11 out of the 16 funds are relatively new, having been created after 2020. And 7 of the funds have very low AUM, less than USD 10 million. This indicates that Fidelity Investments has significantly boosted its offering of sustainable funds in recent years.

One outlier is Fidelity Environment & Alternative Energy (FSLEX), which was created in 1989!

How does Fidelity International Approach Sustainable Investing

Fidelity International has developed its proprietary framework for ESG analysis, which is integrated into the fundamental analysis. Through the sustainability rating framework, they assess the exposure of financial securities to sustainability risks and Principal Adverse Impacts, including to what extent the issuers of these securities deliver on their expectations for best practices.

The framework divides the investment universe into 99 subsectors, each with industry-specific criteria against which the issuer is assessed relative to its peers, using an A to E rating scale (A being the top rating). The sustainability ratings draw upon the assessments of more than 180 equities and fixed income analysts who take part in more than 15,000 company meetings a year. 

These are updated at least annually or on the occurrence of a significant ESG event. The ratings have been fully integrated into Fidelity’s investment process and are available to all members of the investment team on their internal research platform. They serve as an additional source of insight and as a tool to support investment decisions.

Fidelity International’s ESG analysis leverages Fidelity’s extensive research capabilities and ongoing engagement with companies, supported by the expertise of the Sustainable Investing team, to provide a forward-looking evaluation of a company’s performance and trajectory on sustainability issues. As a result, ESG integration at Fidelity is an investment analysis input and not an overlay.

The table below provides an overview of material sustainability factors and exposures observed across different sectors as assessed by Fidelity’s fundamental research team through the lens of financial materiality.

As active managers, portfolio managers within Fidelity International generally have the discretion to manage the investments for their funds within a set of pre-defined investment guidelines. Portfolio managers may consider research notes, including their proprietary sustainability ratings, when making an investment decision.

In addition to implementing a proprietary ESG rating in the entire investment process, across all asset classes, Fidelity has also launched a Sustainable Family range of funds, which features two investment modes: best-in-class investment, where the managers seek to actively select companies with higher sustainability performance than their competitors, and the sustainable thematic one, which follows an approach aimed at helping to address the challenges of sustainability or create positive value for society and the environment.

These funds invest in a universe of securities – equities and bonds – characterized by high attention to ESG criteria and aim to satisfy the demand for investment solutions that aim to obtain better results concerning questions related to sustainability.

The investment approach of these funds is based on an improved sustainable investment framework, based on these main pillars:

• ESG integration: Sustainable investment factors are integrated into the analysis, decision making and entire investment process by the fund’s managers
• Engagement with companies: Based on a reference framework to gain a better understanding of the companies in which the ETFs invest and mitigate risks by promoting positive change, with continuous monitoring of results
• Collaboration: Between portfolio managers, industry research analysts, ESG analysts and companies to drive improvements against agreed milestones and deadlines. They also work with industry associations and other external groups. The system allows analysts and portfolio managers to explore a proprietary sustainability database that is expected to contain information on over 3,000 issuers. The investment universe has been segmented into 99 distinct sub-sectors, each with sector-specific criteria based on which each issuer is evaluated concerning its competitors.
• Exclusions: At the company level, producers of cluster munitions and land mines and products such as tobacco, controversial weapons, semi-automatic weapons or weapons in violation of the UN Global Compact are excluded.

Overview of Sustainable ETFs and funds from Fidelity International

Fidelity offers a large variety of sustainable ETFs that allow investors to expose themselves to both equities and fixed income. Specifically, these are “active smart beta” ETFs, instruments that arise from the combination of the active investment experience with the systematic aspects of passive investing.

“The products include both a range of sustainable ETFs, which leverage our analysts’ active fundamental insights and Fidelity’s proprietary sustainability ratings, as well as strategies that offer exposure to high-quality companies that aim to pay attractive dividends.”

Fidelity International

As of today, the total number of Fidelity’s quoted ETFs that follows ESG criteria amounts to 10, six of which are geographically distinguished equities ETFs and the remaining four are bond ETFs.

Regarding the “equity” side of Fidelity International’s offer, we find a Fidelity Sustainable Research Enhanced Equity fund that is diversified into six macro areas:

An US (FUSR), Pacific Ex-Japan (FPXR), Emerging Markets (FEMR) quoted in USD, Europe (FEUR) (quoted in EUR), Japan (FJPR) (quoted in YEN) and finally a Global (FGLR) quoted in USD. All of these ETFs follow an accumulating policy use of income.

On the fixed-income sphere instead, we have a Sustainable Global Corporate Bond Multifactor ETF (FSMF), an USD fund that invests in investment-grade corporate debt securities of issuers globally and distributes the income quarterly and a GBP twin brother (FSMP) that accumulates and automatically reinvest the dividends internally. 

Furthermore, always on the bonds side, Fidelity offers a Sustainable USD EM Bond UCITS ETF (FSEM), a portfolio primarily made up of debt securities denominated in USD, issued by governments and government agencies of emerging market countries with a quarterly distribution of proceeds and once again its GBP accumulating ETF (FEMP).

In addition to the 10 sustainable ETFs, Fidelity International also has 20 sustainable mutual funds.

Below we list more details for those sustainable ETFs and funds with AUM above GBP 100 million.

Name	Ticker	Theme	AUM (mGBP)	TER	Inception	MSCI ESG Rating
Fidelity Sustainable Global Corporate Bond Multifactor UCITS ETF GBP Hedged	FSMP	Sustainable, bond ETF	439	0.30%	Mar 2021	AAA
Fidelity Sustainable Global Corporate Bond Multifactor UCITS ETF USD Inc GBP	FSMG	Sustainable, bond ETF	449	0.25%	Mar 2021	–
Fidelity Sustainable Research Enhanced Emerging Markets Equity UCITS ETF USD Acc GBP	FEMS	Sustainable, equity ETF	130	0.50%	Nov 2020	–
Fidelity Sustainable Research Enhanced Europe Equity UCITS ETF EUR Acc GBP	FEUR	Sustainable, equity ETF	241	0.30%	May 2020	AAA
Fidelity Sustainable Research Enhanced US Equity UCITS ETF USD Acc GBP	FUSS	Sustainable, equity ETF	733	0.30%	May 2020	AA
Fidelity Funds – Sustainable Asia Equity Fund W-Acc-GBP	WSAFA	Sustainable, equity fund	2,750	1.07%	Mar 2014	AA
Fidelity Funds – Sustainable Consumer Brands Fund W-Acc-GBP	WGCIF	Sustainable, equity fund	1,040	1.05%	Mar 2014	AA
Fidelity Funds – Sustainable Water & Waste Fund W Acc. GBP	WSWWG	Sustainable, equity fund	1,720	1.04%	Nov 2018	AAA
Fidelity Sustainable Global Equity Fund W-Acc.	WGLFA	Sustainable, equity fund	523	0.85%	Oct 2021	–
Fidelity Funds – Sustainable Eurozone Equity Fund W-Acc-GBP	WSEGA	Sustainable, equity fund	346	1.07%	Jul 2020	AAA
Fidelity Funds – Sustainable Future Connectivity Fund W-ACC-GBP	WGCAS	Sustainable, equity fund	208	1.09%	Feb 2019	AAA
Fidelity Funds – Sustainable Global Equity W-Acc-GBP	WSGEA	Sustainable, equity fund	394	1.07%	Jul 2020	AAA
Fidelity Funds – Sustainable Japan Equity Fund W-Acc-GBP	WSJAG	Sustainable, equity fund	296	1.09%	Apr 2021	AA
Fidelity Funds – Sustainable Strategic Bond Fund W-QDIST-GBP (hedged)	WSSBI	Sustainable, bond fund	493	0.77%	Dec 2020	A
Fidelity Sustainable European Equity Fund W-Accumulation	WEOPA	Sustainable, equity fund	310	0.85%	Oct 2012	AAA

In the table, we can notice that 10 out of 15 funds from Fidelity International were created after 2020. Different than Fidelity Investments, the funds from Fidelity International have a higher AUM average, with at least 5 funds with AUM above GBP 500 million. Again, we can see a trend, where Fidelity International has boosted its offering of sustainable funds in recent years.

ESG comparison of Top 3 Sustainable Funds from Fidelity Investments (US)

When ranked by AUM, the top 3 sustainable funds from Fidelity Investments are: 

• Fidelity Environment & Alternative Energy (FSLEX)
• Fidelity U.S. Sustainable Index Fund (FITLX)
• Fidelity International Sustainability Index (FNIDX)

Below we evaluate the ESG risk rating of the top 10 holdings of each fund:

FSLEX		FITLX		FNIDX
Holdings	ESG risk rating	Holdings	ESG risk rating	Holdings	ESG risk rating
Microsoft	13.8	Microsoft	13.8	Taiwan Semiconductor	38.0
Tesla	28.5	Tesla	28.5	Tencent holdings	22.9
Danaher	17.7	Alphabet Inc CL A	24.3	ASML Holding	12.0
Linde	9.9	Alphabet Inc CL C	24.3	Roche Holdings (genusscheine)	21.8
Nextera Energy	27.2	Nvidia	12.8	Alibaba Group Holding	28.2
Prologis	8.5	Johnson & Johnson	27.5	Novo-Nordisk CL B	24.1
Analog Devices	23.8	Home Depot	11.4	Astrazeneca (UK)	23.2
Eaton Corp	17.8	Procter & Gamble	27.0	Sony Group	13.9
Trane Technologies	16.1	Visa Inc CL A	16.1	Shopify CL A	23.4
Johnson Controls International	13.9	Mastercard Inc CL A	17.2	SAP	9.7

Most of the holdings of the selected funds are classified within low to medium ESG risk. Two stocks that call our attention are Tesla (medium ESG risk of 28.5) and Taiwan Semiconductors (high ESG risk of 38.0). 

We have previously made a full ESG review about Tesla, highlighting their sustainability risks. Regarding Taiwan Semiconductors, it is well known that the booming demand for silicon chips leads to a huge carbon footprint, large consumption of water and creates hazardous waste. Taiwan Semiconductors (TSMC) is responsible for more than 5% of all electricity consumption in Taiwan.

ESG comparison of Top3 Sustainable Funds from Fidelity International (non-US)

When ranked by AUM, the top 3 sustainable funds from Fidelity Investments are:

• Fidelity Funds – Sustainable Asia Equity Fund W-Acc-GBP (WSAFA)
• Fidelity Funds – Sustainable Consumer Brands Fund W-Acc-GBP (WGCIF)
• Fidelity Funds – Sustainable Water & Waste Fund W Acc. GBP (WSWWG)

Below we evaluate the ESG risk rating of the top 10 holdings of each fund:

Sustainable Asia		Sustainable Consumer Brands		Sustainable Water & Waste
Holdings	ESG risk rating	Holdings	ESG risk rating	Holdings	ESG risk rating
Taiwan Semiconductor Manufacturing Co Ltd	38.0	Amazon.com Inc	30.2	Service Corp International	17.0
Samsung Electronics Co Ltd	19.9	Nestle SA	24.3	Evoqua Water Technologies Corp	27.6
AIA Group Ltd	12.9	LVMH Moet Hennessy Louis Vuitton SE	12.4	American Water Works Co Inc	27.5
Tencent Holdings Ltd	22.9	Microsoft Corp	13.8	Fidelity ILF – USD A Acc	26.3
Axis Bank Ltd	28.7	Alphabet Inc Class A	24.3	Severn Trent PLC	15.1
Meituan Class B	26.4	L’Oreal SA	17.1	Advanced Drainage Systems Inc	30.7
JD.com Inc Ordinary Shares – Class A	27.7	Apple Inc	16.4	Siemens AG	27.7
Fidelity ILF – USD A Acc	26.5	Pernod Ricard SA	15.3	Ebara Corp	26.7
HDFC Bank Ltd	31.4	Compagnie Financiere Richemont SA	NA	Veolia Environnement SA	21.1
United Overseas Bank Ltd	19.8	Essilorluxottica	19.6	Arcadis NV	12.9

When analysing the Top 3 sustainable funds from Fidelity International, we find three companies with high ESG risk ratings: Taiwan Semiconductors (38.0 risk points), Amazon (30.2 risk points) and Advanced Drainage Systems (30.7 risk points).

We briefly discussed above the ESG issues from Taiwan Semiconductors. Amazon’s ESG issues are mainly related to Social and Governance, including problems with workers’ rights and unions, vastly covered in the media.

Advanced Drainage Systems is a provider of innovative water management solutions in the stormwater and on-site septic wastewater industries. According to Ethos ESG, the company’s main material issues are related to “Decent, safe work opportunities”, “Renewable energy growth” and “Sustainable use of natural resources”. 

Are Fidelity Sustainable Funds a good investment?

Both Fidelity Investments and Fidelity International bring several options of mutual funds and ETFs for investors looking for sustainable options. While Fidelity International has a clearer approach to ESG investing, applying its framework for sustainable funds, Fidelity Investments takes a more generic approach when issuing sustainable funds. 

For example, Fidelity U.S. Sustainable Index Fund (FITLX), is the most popular fund from Fidelity Investments and has a very attractive TER of 0.11%. However, since it follows the MSCI USA ESG Index, it ends up being a very generic ESG fund, with a composition not too far from the S&P 500 index.

When selecting a sustainable fund from Fidelity, be sure to verify the underlying index and the ESG performance of the top holdings. Fidelity offers too many sustainable fund options and most of them overlap each other. Despite focusing on actively managed funds, Fidelity does not have strong ESG criteria.

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