May 1, 2018

Morningstar Launches Portfolio Carbon Risk Score to Help Investors Evaluate Funds' Carbon-Risk Exposure

The Carbon Risk Score moves beyond carbon footprinting to provide an assessment of the carbon risks and opportunities embedded in a portfolio

CHICAGO and LONDON, May 1, 2018 /PRNewswire/ -- At its 12th annual UK investment conference in London, Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today introduced the Morningstar® Portfolio Carbon Risk Score™, a measure that will help investors evaluate a portfolio's exposure to carbon risk. Portfolios that have low carbon-risk scores and low levels of fossil-fuel exposure will receive the Morningstar® Low Carbon Designation™ to help investors quickly identify low-carbon funds. Companies held within those portfolios tend to have low carbon emissions or are lowering carbon emissions in line with the goals of the Paris agreement in their own operations and by developing carbon solutions.

"Climate change will pose great challenges to investors seeking to balance their desire for high returns with a commitment to achieving a positive environmental impact. Given this, investors will need a means of more precisely analyzing their portfolio exposures to ensure they meet the realities of a carbon-constrained future," said Haywood Kelly, Morningstar's global head of research. "The new Carbon Risk Score and Low Carbon Designation put that power in investors' hands to monitor, manage, and reduce risks stemming from carbon exposure in portfolios."

Morningstar will initially assign the Carbon Risk Score to approximately 30,000 funds globally, and the scores will range from low to high, with a lower score suggesting a lower risk of carbon exposure within a portfolio. Morningstar calculates the Carbon Risk Score based on company-level carbon-risk assessments from Sustainalytics, a leading independent provider of ESG and corporate governance ratings and research. It can be viewed among a larger set of 70 Morningstar® Portfolio Carbon Metrics™ that includes Carbon Intensity, Fossil Fuel Involvement, Stranded Assets Risk, and Green Solutions by holding companies that have low levels of material carbon risk.

"Sustainalytics and Morningstar share the same commitment—to provide investors with the insights to make more informed decisions," said Michael Jantzi, Sustainalytics' chief executive officer. "The Carbon Risk Score and Low Carbon Designation build on Sustainalytics' company-level carbon risk research to help investors better understand the potential carbon-related risks inherent in their portfolios."  

Morningstar analysis finds that, among diversified developed-market equity strategies, Europe ex-UK funds generally have the lowest carbon-risk score, Asia ex-Japan the highest, and the United States lands in the middle while diversified-emerging market equity strategies tend to have higher carbon-risk scores. "Investors are looking for ways to lower carbon risk in their portfolios and they can use the carbon risk score to understand the relative risk that funds have in different regions," said Jon Hale, Morningstar's director of sustainability research. "Our analysis using the carbon-risk metrics finds that investors have low-carbon fund choices across virtually all investment styles and regions." For further details on this analysis, read the white paper, "Measuring Transition Risk in Fund Portfolios", which is available here for download.

As of May 1, 2018, the Portfolio Carbon Metrics are available on Morningstar.com®, Morningstar.co.uk™, in all Morningstar Cloud editions, and data feeds. Throughout 2018, carbon metrics will be added to Morningstar® AdvisorWorkstation, Morningstar Direct, Morningstar® Essentials, and Morningstar's European websites.

Morningstar will host a series of events to provide education on the new carbon-risk metrics including: Haywood Kelly will showcase the Portfolio Carbon Metrics on stage at the annual Morningstar Investment Conference (MIC) UK in London today, May 1, 2018 at 16:05 BST; Steven Smit, Morningstar's head of sustainability, will give a keynote speech on the role of ESG and carbon in delivering better outcomes at the annual MIC Spain in Madrid at 14:30 CET on May 8, 2018; and Jon Hale will give a presentation on the carbon metrics at the annual MIC US in Chicago at 1 p.m. CT on June 11, 2018.

Morningstar will host two webinars to discuss the Portfolio Carbon Metrics and Morningstar's approach to sustainable investing. For the North American audience, the webinar will be at 1 p.m. CT on May 16, 2018. Registration is available here. For the pan-European audience, the company will host a webinar at 15:00 BST on May 17, 2018. Registration is available here.

In 2016, the company launched the Morningstar Sustainability Rating™ to help investors evaluate funds based on ESG factors and continues to publish thought leadership and research on sustainable investing. Learn more about Morningstar's commitment to socially responsible investing here. Follow the conversation on Twitter with the hashtag #MstarESG.

Methodology
Morningstar calculates carbon metrics on a quarterly basis for any fund that has at least 67 percent of its portfolio assets covered by Sustainalytics' company-level carbon-risk research. The Carbon Risk Score is the asset-weighted sum of the carbon risk scores of its holdings, averaged over the trailing 12 months and displayed as a number starting from zero, with a lower score indicating lower carbon risk. The Morningstar® Portfolio Fossil Fuel Involvement percentage is a portfolio's asset-weighted percentage exposure to fossil fuels, averaged over the trailing 12 months. The Low Carbon Designation is based on a fund's Carbon Risk Score and its Fossil Fuel Involvement percentage. To receive the Low Carbon Designation, a fund must have a Carbon Risk Score below 10 and Fossil Fuel Involvement percentage less than seven percent of assets. The full methodology is available here.

About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $201 billion in assets under advisement and management as of March 31, 2018. The company has operations in 27 countries.

Morningstar's Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. This press release is for informational purposes only; references to securities should not be considered an offer or solicitation to buy or sell the securities.

©2018 Morningstar, Inc. All Rights Reserved.

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Sarah Wirth, +1 312 244-7358 or sarah.wirth@morningstar.com

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