Morningstar puts ESG at its heart

Morningstar has unveiled its ESG Commitment Level with assessments of 107 individual strategies and 40 asset manager groups. Morningstar’s analysts will eventually produce these commitment levels for other funds and asset managers included in our coverage.

In addition to weighing a strategy’s ESG process and resources, these levels will include a distinct assessment of the investment houses most closely tied to a fund’s ESG imprint — in the Morningstar ESG Commitment Level for Asset Managers. This level commands a 20 per cent weighting in the overall vehicle assessment.

In evaluating a firm’s ESG commitment, Morningstar will address three main components at the firm level: Philosophy and Process (40 pe cent of the ESG Commitment Level for Asset Managers), Resources (30r per cent), and Active Ownership (30 per cent). A firm’s overall score will then help analysts place asset managers in one of four tiers: Leader, Advanced, Basic, and Low.

For Leader firms, ESG is often core to a firm’s identity. They have long histories committed to ESG investing, and ESG considerations are engrained and pervasive across the firm—in their investment processes, strategies, voting records, and in their own operations. These firms are transparent and educative about their ESG efforts and thinking.

Advanced firms are deliberate in integrating ESG into their investment processes using robust resources and formal monitoring. They articulate their approaches toward ESG but may demonstrate a more-limited application across the firm than Leader firms do. Still, Advanced firms are among the industry’s better ESG proponents.

Firms that earn a Basic commitment level incorporate ESG at a lesser level than Leader and Advanced firms, or they may be earlier in their ESG development. These firms tend to be lacking in one or more aspects central to a stronger ESG effort.

A Low commitment level can indicate a few different things: A firm simply may not be determined in its ESG incorporation, and thus not use ESG criteria at all or may consider ESG in a limited or more-variable way; or, it may be doing a poor job incorporating ESG into its investment programmes or in otherwise advancing ESG initiatives.

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