June 17, 2022

Is Sustainalytics your primary, “targeted” ESG focused product – is there a roadmap to add more? What is unique and distinctive about this product? What are you doing to improve the value proposition of this product? Where are you having the most success by customer type? What is the growth rate among buy side investors—lower or higher than average? What is the opportunity for this product over five years? What data sources are you using to collect ESG information?

Almost all of our current ESG revenue is included within Morningstar Sustainalytics, which offers multiple products across data, research, and ratings. We believe that one of our key differentiators and an important part of our value proposition is our ability to inform investors throughout the investment lifecycle from pre-investment analysis and screens, through the investment decision itself, to the postinvestment stage, when our data helps clients vote on shareholder resolutions and engage with companies in their portfolios. At the individual product level, we’re proud of the differentiated research methodology that underpins our flagship ESG Risk Rating, which stands out for its focus on absolute rather than relative risk and captures both managed and unmanaged risk exposure. Asset managers increasingly rely on our EU Action Plan solution set for compliance and reporting. Finally, we believe in the value of our large and responsive customer service organization.

We continue to invest in new data and analytics to meet investor needs in this space and improve our value proposition, with a recent focus on climate and impact data. In late 2022, we will debut new ratings that help investors more directly understand how the changing climate could affect a company (physical risk) and how a company is adapting to the shift toward a low-carbon economy (transition risk).

As we noted in our first quarter 2022 results, Sustainalytics generated organic growth of 47.7% in the quarter. Asset managers and asset owners account for the largest share of Sustainalytics’ revenue and we see strong prospects for continued growth in this segment. Growth drivers include the evolving global regulatory environment as well as the opportunity to expand our penetration within large asset managers and to reach more middle market clients, especially in the United States. Within the corporate sector, we are investing to meet demand for licensed corporate ratings and the second-party opinions for green and sustainability bonds, a rapidly growing market in which we enjoy a strong competitive position. In June 2022, the Climate Bonds Initiative (CBI) named Morningstar Sustainalytics the Largest Verifier for Certified Climate Bonds for a fifth consecutive year, while noting that in 2021 the market for green bonds nearly doubled in volume to more than USD 1.1 trillion compared to 2020.

More broadly, our overall objective is to establish leading ESG positions across Morningstar. We are leveraging Sustainalytics data, research, and ratings to meet that goal. For example, our direct indexing solution for advisors will feature Sustainalytics data, while ESG Risk Ratings for public companies are available across our software lineup, including in Direct which recently added a Sustainability hub to curate our ESG data and research for investors. We are investing heavily in ESG and remain confident in our long-term prospects for growth. For more detail on the integration of Sustainalytics ESG research and data into other areas of the business, refer to our March 2022 Investor Q&A.

We draw our data from a number of public sources, including regulatory filings, company communications, and media.

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