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Incorporating ESG Into Our Equity Research Process

Morningstar's new approach unpacks the environmental, social and governance risks that companies face.

Mark LaMonica: I'm here with Adam Fleck. And we're talking about a hot topic in investing, ESG. So, Adam, we're integrating ESG into our ratings. Why are we doing this?

Adam Fleck: That's right. ESG, environmental, social, and governance, factors we think are essential for long-term investors to consider when you're thinking about a company's future cash flows, its competitive position, and ultimately, the price they should pay for the underlying stock. In many cases, we would have already been looking at ESG factors, either explicitly, say, the utilities analyst looking at renewable energy, for instance, or implicitly as part of our current ratings. But what we're going to be doing is formally and consistently applying ESG factors into what we're doing in equity research.

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