Funds Group: Fidelity Investments
Management Company: Fidelity SelectCo, LLC (an affiliate of Fidelity Management & Research Company (FMR). Sub-adviser: FMR Co., Inc. (FMRC) and other investment advisers
Funds Affected: (1) Fidelity Select Environmental and Alternative Energy Portfolio, (2) Fidelity Sustainability Bond Index Fund
Principal Sustainable Investment Strategy: (1) Thematic Investing, (2) ESG integration, Exclusions
(1) Investing primarily in companies engaged in business activities related to alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies, or other environmental support services.
(2) Based on environmental, social and governance (ESG) rating inputs provided by MSCI ESG Research LLC, the portfolio consists of bonds from issuers generally evaluated for favorable ESG practices that are combined in the portfolio in a way that maximizes exposure to securities of entities with higher MSCI ESG Research ratings while at the same time maintaining the risk and return characteristics of the index that the fund seeks to replicate. Also, excluded from the portfolio are securities of entities involved in the business of tobacco, entities involved with controversial weapons, producers and retailers of civilian firearms, as well as entities involved in very severe business controversies (in each case as determined by MSCI ESG Research).
For each industry, MSCI ESG Research identifies key ESG issues that can lead to substantial costs or opportunities for entities (e.g., climate change, resource scarcity, demographic shifts). MSCI ESG Research then rates each entity’s exposure to each key issue based on the entity’s business segment and geographic risk and analyzes the extent to which entities have developed robust strategies and programs to manage ESG risks and opportunities. MSCI ESG Research scores entities based on both their risk exposure and risk management. To score well on a key issue, MSCI ESG Research assesses management practices, management performance (through demonstrated track record and other quantitative performance indicators), governance structures, and/or implications in controversies, which all may be taken as a proxy for overall management quality. Controversies, including, among other things, issues involving anti-competitive practices, toxic emissions and waste, and health and safety, occurring within the last three years lead to a deduction from the overall management score on each issue. Using a sector-specific key issue weighting model, entities are rated and ranked in comparison to their industry peers. Key issues and weights are reviewed at the end of each calendar year. Corporate governance is always weighted and analyzed for all entities.
In addition to corporate and government bonds subject to ESG ratings as described above, the portfolio also consists of U.S. fixed-rate agency MBS securities issued by entities such as the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac) and are backed by pools of mortgages. As of September 4, 2018, about 28% of the bonds fell into this category. These U.S. fixed-rate agency MBS exposure does not receive any MSCI ESG Research rating in line with the belief that U.S. fixed-rate agency MBS exposure is neither additive nor decremental to the portfolio’s ESG rating profile and as such is considered ESG neutral and not inconsistent with an ESG focused exposure.