Morningstar has a new Sustainability Rating to measure how well the companies held by a fund are managing their Environmental, Social, Goveranance (ESG) risks and opportunities when compared with similar funds. They use company ESG data from Sustainalytics, a leading provider of ESG data, to calculate the rating. All funds with at least 50% of their assets in firms that have been rated by Sustainalytics will receive a rating.
This rating will not evaluate how active the mutual fund is in shareholder advocacy (proxy voting, engagement with companies, shareholder resolutions). This is only a rating as to the sustianability of the companies that are held.
The Morningstar Portfolio Sustainability Score is an asset-weighted average of a portfolio’s company-level ESG scores with deductions made for any controversies surrounding the companies owned by each fund. The ratings are normalize to make them comparable across industry peer groups, which is necessary when scoring diversified portfolios.
The funds are then sorted into five groups comparing their sustainability score with that of its Morningstar Category peers.
Investors can use the sustainability score to evaluate how well the companies in a portfolio are managing their ESG risks and opportunities relative to their industry peer groups. Scores above 50 indicate a fund’s holdings place in the top half of their industry peer groups.
Investors can use the rating to evaluate how well the funds they already hold are applying best sustainable investing practices or to evaluate prospective investments. They can also use the rating to assess how well SRI funds are living up to their mandates. It is also another way to evaluate funds. Their may be a correlation between ESG performance and returns.
I appreciate any feedback for our AIO Financial blog. Please contact me if you have any comments, questions, and suggestions.
Get a free Socially Responsible Investment Guide
Learn about making an impact with your investments without sacrificing returns.
AIO Financial, 520-325-0769