Morningstar announced last week that it launched a new Sustainability Rating to help investors assess funds on an environmental, social, and governance (ESG) basis. The firm has ranked 20,000 funds using the metric. Morningstar explained that it “calculates the rating based on the underlying fund holdings and company-level ESG research and ratings from Sustainalytics, a leading independent provider of ESG and corporate governance ratings and research.” To calculate the rating, Morningstar first generates a fund’s “Portfolio Sustainability Score” based on data from Sustainalytics where the company has scoring for at least half of the fund’s underlying holdings. Morningstar then assigns a one to five “globe” to funds with at least 10 category peers based on a bell curve following a 10 percent, 22.5 percent, 35 percent, 22.5 percent, and 10 percent distribution. The company says that it will update the ratings monthly.
The new ratings also gave Morningstar the opportunity to assess the claims of funds that market themselves as sustainably oriented, which according to Morningstar account for only approximately two percent of funds. According to the release, two-thirds of such funds received a five globe rating. The Forum recently hosted a webinar entitled Sustainable and Responsible Investing Trends and Developments.