Reviewing the letter grade assignments
The Invest Your Values fund screeners rate portfolios on seven different environmental and social issues. These seven ratings are expressed as letter grades, and are assigned based on a fund’s level of exposure to various company screens - for example, fossil fuel companies.
Periodically, we review these rating methodologies and adjust how we’re assigning the A, B, C, D, and F letter grades. As the market changes, the distribution of exposure to companies changes, and the distribution of funds across grade groups can get skewed. By regularly measuring the distribution of results and adjusting the grade assignments, we aim to keep everything up to date.
As of January 2021, we’ve made some updates to how the fossil fuel, deforestation, civilian firearm, military weapon, and tobacco grades are assigned. Read on to get all the details about how the methodologies have been changed.
Fossil fuel grade
Funds are graded on their fossil fuel exposure, measured as the percent of fund assets invested in holdings flagged by any of the five fossil fuel company screens (top 200 carbon reserve owners, coal industry, oil/gas industry, top 30 coal-fired utilities, fossil-fired utilities), where the funds with more exposure earn lower grades.
- A grade - Fossil fuel exposure of 0%
If a fund has fossil fuel exposure in the form of direct stock holdings of companies on the five fossil fuel company screens, a letter grade is assigned based on the level of exposure.
As of this update, the thresholds for the fossil fuel letter grades have been reset to:
- B grade - Fossil fuel exposure between 0% and 3%
- C grade - Fossil fuel exposure between 3% and 5.5%
- D grade - Fossil fuel exposure between 5.5% and 9%
- F grade - Fossil fuel exposure between 9% and 100%
These thresholds reflect the distribution of results across funds, placing an approximately equal number of funds from the analysis universe in the B, C, D, and F grade ranges.
The fossil fuel grade methodology can be found here.
Deforestation grade
Funds are graded on their deforestation-risk exposure, measured as the percent of fund assets invested in holdings flagged by the three deforestation-risk company screens (agricultural commodity producer/traders, banks and lenders, major consumer brands), where the funds with more exposure earn lower grades.
- A grade - Deforestation-risk exposure of 0%
If a fund has deforestation-risk exposure in the form of direct stock holdings of companies on the three deforestation-risk company screens, a letter grade is assigned based on the level of exposure, and the types of companies.
- B grade - Deforestation-risk banks and lenders and/or major consumer brands exposure between 0% and 100%; deforestation-risk agricultural commodity producer/traders exposure of 0%
If a fund is invested in deforestation-risk agricultural commodity producer/traders, it is assigned either a C, D, or F, based on the level of exposure.
As of this update, the thresholds for the deforestation letter grades have been reset to:
- C grade - Deforestation-risk agricultural commodity producer/traders exposure between 0% and 0.5%
- D grade - Deforestation-risk agricultural commodity producer/traders exposure between 0.5% and 1.5%
- F grade - Deforestation-risk agricultural commodity producer/traders exposure between 1.5% and 100%
These thresholds reflect the distribution of results across funds, placing an approximately equal number of funds from the analysis universe in the C, D, and F grade ranges.
If a fund owns some of the companies we screen for, but has a proven track record of engaging the companies it owns by taking actions such as filing shareholder resolutions on deforestation or similar environmental issues, it is assigned a special acknowledgement as a “known sustainability engager”, instead of a letter grade.
- Engagement grade - “Known sustainability engager” grade. Fund has investments in deforestation-risk companies, but is offered by an asset manager that frequently engages companies it invests in to push for better behavior using the shareholder resolution process.
The deforestation grade methodology can be found here.
Civilian firearm grade
Funds are graded on their civilian firearm exposure, measured as the percent of fund assets invested in holdings flagged by the two civilian firearm company screens (civilian firearm manufacturers, and civilian firearm retailers), where the funds with more exposure earn lower grades.
- A grade - Civilian firearm exposure of 0%
If a fund has civilian firearm exposure in the form of direct stock holdings of companies on the two civilian firearm company screens, a letter grade is assigned based on the level of exposure, and the types of companies.
- B grade - Civilian firearm retailers exposure between 0% and 100%; civilian firearm manufacturers exposure of 0%
If a fund is invested in civilian firearm manufacturers, it is assigned either a C, D, or F, based on the level of exposure.
As of this update, the thresholds for the civilian firearm letter grades have been reset to:
- C grade - Civilian firearm manufacturers exposure between 0% and 0.1%
- D grade - Civilian firearm manufacturers exposure between 0.1% and 0.4%
- F grade - Civilian firearm manufacturers exposure between 0.4% and 100%
These thresholds reflect the distribution of results across funds, placing an approximately equal number of funds from the analysis universe in the C, D, and F grade ranges.
The civilian firearm grade methodology can be found here.
Military weapon grade
Funds are graded on their military weapon exposure, measured as the percent of fund assets invested in holdings flagged by any of the three military weapon company screens (major military contractors, nuclear weapons, cluster munitions/landmines), where the funds with more exposure earn lower grades.
- A grade - Military weapon exposure of 0%
If a fund has military weapon exposure in the form of direct stock holdings of companies on the three military weapon company screens, a letter grade is assigned based on the level of exposure.
As of this update, the thresholds for the military weapon letter grades have been reset to:
- B grade - Military weapon exposure between 0% and 1%
- C grade - Military weapon exposure between 1% and 2%
- D grade - Military weapon exposure between 2% and 3%
- F grade - Military weapon exposure between 3% and 100%; or, cluster munitions/landmines exposure between 0% and 100%
These thresholds reflect the distribution of exposure across funds, placing an approximately equal number of funds from the analysis universe in the B, C, D, and F grade ranges. Funds investing in companies on the cluster munitions/landmines screen earn automatic F grades, regardless of the amount of exposure.
Weapon Free Funds also offers the ability to screen funds by a combination of the military weapon and civilian firearm screens. If both are selected, the grade displayed will be whichever is the lower grade of the fund’s military weapon and civilian firearm grades.
The military weapon grade methodology can be found here.
Tobacco grade
Funds are graded on their tobacco exposure, measured as the percent of fund assets invested in holdings flagged by the two tobacco company screens (tobacco producers, and tobacco-promoting entertainment companies), where the funds with more exposure earn lower grades.
- A grade - Tobacco exposure of 0%
If a fund has tobacco exposure in the form of direct stock holdings of companies on the two tobacco company screens, a letter grade is assigned based on the level of exposure, and the types of companies.
- B grade - Tobacco-promoting entertainment companies exposure between 0% and 100%; tobacco producers exposure of 0%
If a fund is invested in tobacco producers, it is assigned either a C, D, or F, based on the level of exposure.
As of this update, the thresholds for the tobacco letter grades have been reset to:
- C grade - Tobacco producers exposure between 0% and 0.5%
- D grade - Tobacco producers exposure between 0.5% and 1.2%
- F grade - Tobacco producers exposure between 1.2% and 100%
These thresholds reflect the distribution of results across funds, placing an approximately equal number of funds from the analysis universe in the C, D, and F grade ranges.
If a fund owns some of the companies we screen for, but has a proven track record of engaging the companies it owns by taking actions such as signing our investment letter to entertainment companies, it is assigned a special acknowledgement as a “known sustainability engager”, instead of a letter grade.
- Engagement grade - “Known sustainability engager” grade. Fund has investments in tobacco companies, but is offered by an asset manager that frequently engages companies it invests in to push for better behavior using the shareholder engagement process.
The tobacco grade methodology can be found here.
Gender equality grade and prison industrial complex grade
The methodologies for the gender equality grade and the prison industrial complex grade have not changed with this update. You can read the methodology for each site here:
Updates to holding weights
For each set of company screens, we calculate the total number of flagged holdings in each fund, and the total amount and percentage of each fund’s assets that are invested in those companies. These exposure percentages are then used to assign grades.
When calculating a fund’s exposure to a screen list, we now only consider the portfolio’s long investments, ignoring any shorts or liabilities. The formula for holding weight is holding market value divided by the sum of the market value for all long holdings in the portfolio. The formula for exposure to a screen list is sum of holding weights for all holdings in the portfolio flagged by that screen.
Previously, we calculated holding weight by dividing by the sum of the absolute value of market value for all holdings in the portfolio. This was intended to account for funds with short positions. But it lead to some odd results when funds held large cash liabilities in their portfolios. The updated holding weight formula is a more accurate representation of the fund manager’s investment decisions.
This change only affects a small number of funds with large cash liabilities or significant short positions in their portfolios. Most funds in our database are invested only in long position stocks and bonds, meaning there are no changes to the calculated exposures for those funds.
To search the list of funds in our database, and the grades they earn from the Invest Your Values tools, click here.
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