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Morningstar scores PMs on commitment to ESG, and it's grim reading for some big names

Vanguard and Fidelity have work to do, according to the research firm's new ratings.

Morningstar scores PMs on commitment to ESG, and it's grim reading for some big names

NEW YORK: Morningstar has unveiled a new rating, which scores asset managers and funds on their commitment to ESG.

Under the new measure, firms and funds will be assigned one of four ratings: Leader, Advanced, Basic, and Low.

The new qualitative scores are different to the firm’s existing sustainability ratings, which are quantitative measures based on the level of ESG risk in funds’ holdings. The new ESG Commitment rating is designed to help investors know which firms and funds are serious about ESG.

Methodology

To arrive at its ESG Commitment ratings, Morningstar said its analysts look at a number of factors, including whether asset managers have dedicated ESG teams, how ESG is integrated into funds’ strategies, what ESG data firms use, and asset managers’ track record on proxy voting.

Those firms assigned a Leader rating will have ESG at their core and have shown a long history of ESG investing, Morningstar said. Firms with a Low score might just be starting to factor in ESG considerations into their processes or using ESG data in more limited ways, it added.

The firms’ ESG Commitment rating will be factored into the scores assigned to specific funds, a step that also involves looking at strategies’ processes and resources. 

The new rating will not be applied to all funds, but only those funds that are covered by Morningstar’s analysts, and so have an Analyst rating, which range from Gold to Negative.

Ratings

So far the firm has assigned ESG Commitment ratings to 40 asset managers and 107 funds and ETFs. 

Six asset managers have been assigned a Leader rating, six an Advanced rating, 16 a Basic rating, and 12 a Low rating.

Of the 107 funds and ETFs, 19 were awarded a Leader rating, 37 an Advanced rating, 28 a Basic rating, and 23 a Low rating.

Those firms with a Leader rating are: Australian Ethical, Calvert, Impax, Parnassus, Robeco, and Stewart Investors.

The six with Advanced ratings are: Altius, AXA, Comgest, NN Investment Partners, Nuveen, and Schroders.

Those with a Basic rating include BlackRock, Natixis, Pimco, UBS, and Wellington.

Notable names with a Low rating include Vanguard, Dimensional Fund Advisors, Fidelity, Dodge & Cox, and Loomis Sayles.

For a full list of funds’ ESG Commitment ratings, click here

In a white paper outlining the methodology behind the new rating, a team of Morningstar analysts, including head of sustainability research Jon Hale, wrote:

‘The importance of ESG criteria to investors is growing rapidly around the world. In response, asset managers are increasingly incorporating ESG factors into their investment processes and launching new ESG-focused strategies. Many investors, however, feel confused about the claims they hear and read in sales materials and are unsure about the many different approaches to sustainable investing. It has become harder for investors to separate funds and asset managers that truly focus on sustainable investing from those that incorporate ESG factors but in a limited way.

‘To provide investors with even more analysis and context, Morningstar has developed a new qualitative measure, the Morningstar ESG Commitment Level for funds and asset managers.’

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