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Fund Times

Mainstreaming Sustainable Investing

Morningstar’s sustainable investing initiative will have several important implications for the field of sustainable investing, writes Jon Hale.

In March, Morningstar launched our Sustainability Rating for funds, along with additional ESG metrics, giving mainstream investors for the first time tools they can use to evaluate funds based on the overall sustainability performance of the companies in their portfolios. Our sustainable investing initiative has several important implications for the field of sustainable investing and corporate sustainability.

The first is that fund investors who want to incorporate their sustainability concerns into their portfolios now have an expanded universe from which to choose. No longer must they select funds from the tiny sliver of the investment universe consisting of funds that have an intentional focus on sustainable/responsible investing. Now investors can select, category by category, from among the many funds that have higher portfolio sustainability ratings. These ratings are an indication of how well the companies held in a portfolio are managing their ESG-related risks and opportunities, and are based on company research by Sustainalytics, a leading ESG research firm. To be sure, intentional sustainable/responsible funds tend to score very well on our metrics, but so do many conventional funds. Our rating is category-relative, meaning that we have identified portfolios with the best (and worst) sustainability scores in most Morningstar Categories. This enables fund investors to more easily incorporate sustainability concerns into their personal portfolios while maintaining a suitable asset allocation.