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We're Making Changes to the Morningstar Sustainability Rating

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ESG investing is a trend that Morningstar believes is here to stay. While it may not be on the forefront of all investors’ minds, Jon Hale, Head of Sustainability Research for Morningstar, recently wrote an article about how some ESG investors have recently divested from Facebook (FB) due to potential privacy breaches and current controversy.

Jon Hale stated that as clients, “demand better corporate behavior on issues and controversies that in the past might have not garnered this much attention, the potential for ESG-related issues to have a material impact on companies is greater than ever. That’s why more asset managers are now incorporating ESG analysis into their investment processes." Using Morningstar’s ESG data within Direct can help you make these informed decisions.

In order to continue improving our ESG data, Morningstar will be adjusting the current methodology for our Sustainability Rating at the end of October 2018. The new methodology will apply starting with the September 30 Sustainability Ratings calculated on November 8, and Morningstar will not be adjusting previously calculated Sustainability Ratings.

Since the launch of the Sustainability Rating in 2016, we have been looking at ways to further stabilize the ratings period over period by applying the same rigor to our ESG methodology as we do our other methodologies. These changes include:

  • Incorporate Historical Sustainability Scores
  • Increase rating threshold to 67% of portfolio assets covered
  • Expand peer groups to use the Morningstar Global Category
  • Increase peer group size threshold to 30 scored portfolios to receive Sustainability Ratings 

For more details, see our updated methodology document. If you have any further questions, please reach out to your dedicated Customer Success Manager.