The investment research firm said the scores will be based on the environmental, social and governance ratings produced by Sustainalytics, from which it will create asset-weighted composite ESG fund scores.
According to the firm, Sustainalytics provides ESG ratings on more than 4,500 issuerers, many of which have multiple securities, which it will then use to create the scores by examining each fund’s underlying holdings against the Sustainalytics ratings.
The scores, it said, will allow users to compare funds using ESG criteria.
Sustainalytics ratings focus on “the relevant ESG issues within industries and across markets, assigning each company under coverage approximately 70 indicator-level scores related to environmental impact, social practices, and governance policies and procedures,” Morningstar said. .
Users will also be able to drill down to see scores for each of the three pillars individually.
By way of explanation for the move, Morningstar pointed to the growing importance investors are placing on ESG policies and practices.
“In a study released in February, the Morgan Stanley Institute for Sustainable Investing found that 71% of individual investors are interested in sustainable investing,” it said.
Adding: “In addition, just in the past year, there was a 29% increase in the number of financial institutions that signed the United Nations-supported Principles for Responsible Investment (PRI) Initiative.”
This data is supported by the latest edition of the RBC Wealth Report that showed an increasing focus on ESG factors by young ultra high net worth individuals.
Morningstar expects to launch the fund-level ESG scores in the fourth quarter of 2015 and through Morningstar Data feeds and its major software platforms in 2016, it said.
