Morningstar to Launch First Environmental, Social, and Governance (ESG) Scores for Funds Globally

Morningstar, Inc., a leading provider of independent investment research, today announced plans to launch the industry’s first environmental, social, and governance (ESG) scores for global mutual and exchange-traded funds later this year. Morningstar will base the scores on ESG company ratings from Sustainalytics, a leading provider of ESG and corporate governance ratings and research. Swiss private banking group Julius Baer will be the first Morningstar client to license the ESG scores for its fund research team.

Jon Hale, Morningstar’s director of manager research, North America, said: “One of Morningstar’s core values is ‘investors first.’ As part of our mission of helping investors reach their financial goals, we have a long tradition of innovative research centred on good stewardship, lower costs, and more transparency for investors. Providing fund scores on environmental, social, and governance factors is a natural extension of our work. We want to bring even greater transparency and accountability to the investment industry with ESG research, data, and tools, while helping investors to put their money to work in ways that are meaningful to them.”

Investors and the financial services industry are placing increasing importance on ESG policies and practices. In a study released in February, the Morgan Stanley Institute for Sustainable Investing found that 71 percent of individual investors are interested in sustainable investing. In addition, just in the past year, there was a 29 percent increase in the number of financial institutions that signed the United Nations-supported Principles for Responsible Investment (PRI) Initiative. Today, more than 1,300 firms, managing in excess of $59 trillion, have joined this global network of investors working to promote responsible investment.

Sustainalytics has provided ESG research and analysis for more than 20 years. The company has a global reach with 230 employees, including 120 analysts who have geographic and sector expertise. The analysts focus on the relevant ESG issues within industries and across markets, assigning each company under coverage approximately 70 indicator-level scores related to environmental impact, social practices, and governance policies and procedures.

Morningstar tracks the holdings of more than 200,000 global managed products, and Sustainalytics provides ESG ratings on more than 4,500 companies. Using its comprehensive portfolio holdings data, Morningstar will create asset-weighted composite ESG fund scores based on company-level Sustainalytics ESG ratings. For the first time, investors will be able to compare funds across categories, relative to benchmarks, and over time using ESG factors. They will also be able to drill down to see scores for each of the three—Environmental, Social, and Governance—pillars. Morningstar expects to launch the fund-level ESG scores in the fourth quarter of 2015 and through Morningstar Data feeds and its major software platforms in 2016.

Michael Jantzi, chief executive officer of Sustainalytics, said: “ESG considerations, once viewed from the sidelines, are increasingly front and centre for fund investors. We applaud Morningstar for its innovation and look forward to working together to create a new standard for fund benchmarking.”