Morningstar is now formally integrating ESG into its analysis of stocks, funds and asset managers, the research firm said Tuesday.
The announcement marks two key changes. Morningstar's equity research team will now capture ESG considerations more formally for all 1,500 stocks that it covers with a new research methodology, and the manager research team will assign ESG commitment levels to asset managers and strategies. The first assessment of managers and strategies is available on the Morningstar website.
For equity research, Morningstar will use ESG risk ratings from Sustainalytics, a global ESG ratings firm acquired by Morningstar in July, to measure a company's exposure to material ESG risks, the probability of those risks materializing and the associated valuation impact.
For asset managers, Morningstar will analyze the extent to which strategies and asset managers are incorporating ESG factors, through a new Morningstar ESG commitment level evaluation following a four-point scale of leader, advanced, basic and low. The evaluation will consider how clearly firms articulate ESG philosophy and policies, and the degree to which it those policies are incorporated through the culture and investment processes.
"For companies, evaluating ESG risk is a business imperative to both meet diverse stakeholder needs and mitigate potential legal, operational, or reputational risks. Morningstar's equity and manager research teams aim to address these trends and empower investors through long-term, methodological research approaches, bolstered by qualitative analysis and independent thinking," Haywood Kelly, Morningstar's head of research, said in a statement.