May 14, 2019

At what point will you begin to feather in and discuss your ESG business that you own directly within Morningstar via items like ESG indexes, ESG analysis of investment funds etc. as well as what you indirectly own via your 40% ownership of Sustainalytics?

We don’t classify ESG as a separate product line, but rather a set of capabilities that we’re actively working to embed in products throughout the company. As examples, 56 unique Morningstar Indexes use ESG criteria as the primary driver of security selection; Morningstar Investment Management offers ESG Asset Allocation portfolios; Morningstar Data provides direct data feeds based on ESG factors; and ESG analytics, commentary, data, and research appears in our Morningstar Cloud and PitchBook platforms. That said, because our ESG capabilities often appear alongside other functionality within our products, it is difficult to attribute a specific percentage of our fees to ESG versus everything else we offer.

Because client interest in ESG solutions is so strong, we’re committed to enhancing our ESG capabilities.  Recent announcements to that effect are as follows: 

  • Morningstar launched the Morningstar Sustainability Rating™ in 2016 to help investors evaluate funds based on ESG factors as well Morningstar Sustainability Indexes. In 2018, we introduced Morningstar Portfolio Carbon Metrics, fueling a new Morningstar Low Carbon Designation for funds and the Morningstar Portfolio Carbon Risk Score to establish a methodology for investors to evaluate their portfolios’ carbon risk.
  • In January 2019, Morningstar launched Low Carbon Risk Indexes. This new family of indexes empower investors to evaluate and invest in companies that are adapting to the low-carbon economy and managing their businesses strategically for the long term. Whether motivated by environmental concerns, fiduciary obligations or investment outcomes, the new indexes offer more options to lower carbon exposure without compromising returns.
  • Additionally, Morningstar and The Money Management Institute (MMI)/Sustainable Investing Initiative (SII) launched a comprehensive set of programs designed to deepen financial advisor knowledge of Sustainable Investing/ESG strategies. The Initiative provide on-line and in person courses as well as workshops, forums and thought leadership content that will provide advisors with the knowledge and practical applications they need to confidently engage with their clients on sustainable investing. It is available to all advisors, not just MMI members.
  • In the U.S., Morningstar Managed Portfolios are now offering ESG Asset Allocation Portfolios that leverage Morningstar ESG data, research, and insights. The portfolios combine a valuation-driven asset allocation approach with ESG-considerations to create core portfolios for investors who value a more sustainable future. This new offering adds to Morningstar Investment Management Europe Ltd’s launch of Morningstar ESG Portfolios for advisors in the U.K.

Our ownership in Sustainalytics was 44% as of December 31, 2018, which constitutes a minority stake. Since Sustainalytics is a privately-held company, we do not disclose the company’s financials.  Morningstar’s continued investment in and support for Sustainalytics acknowledges that the market needs independent, pure-play ESG research firms to support the development of this emerging area of the investment industry. Our relationship with Sustainalytics allows us to serve clients end-to-end, providing support to all workflows from company level analysis to distributed, investor-facing portfolio level reporting.

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