The Morningstar Sustainability Rating for Funds is designed as a tool for investors who are interested in sustainability, in addition to more-traditional investment criteria. The rating, which we rolled out in March, measures funds on a variety of environmental, social, and governance (ESG) criteria, such as environmental and workplace policies, product safety, and corporate responsibility, and also dings companies involved in controversies, such as Volkswagen's (VOW) recent emissions scandal. Funds with a Sustainability Rating of High (represented by 5 globes) have holdings that collectively score very well on ESG factors, while funds with lower scores earn lower ratings, down to Low (represented by 1 globe).
Since introducing the Sustainability Rating, we've done some preliminary studies to see how the rating correlates with other investment factors. Not surprisingly, funds that explicitly commit themselves to sustainability as part of their mandate tend to have high Sustainability Ratings, with 80% earning ratings of Above Average or High. We also found that Morningstar Medalists (funds with a Morningstar Analyst Rating of Gold, Silver, or Bronze) tend to have modestly higher Sustainability Ratings than the universe as a whole. We also looked at some of the funds in each Morningstar Category that earn the highest Sustainability Ratings, whether or not they're consciously ESG-oriented.
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David Kathman has a position in the following securities mentioned above: VPMCX. Find out about Morningstar’s editorial policies.