The new Morningstar Low Carbon Designation is given to funds that exhibit low overall carbon risk and have lower-than-average exposure to companies with fossil-fuel involvement.
Carbon risk is an assessment of how vulnerable a company is in the transition away from a fossil-fuel-intensive economy. Risks include policy and legal regulations that limit carbon emissions or put a cost on carbon emissions; public and consumer pressure on companies to align their strategies with the Paris Agreement’s 2-degree scenario; and switching costs to new green technologies. More than half of the 4,000 companies in the coverage universe of Sustainalytics, Morningstar's sustainability research partner, have exposure to carbon risk. To evaluate carbon risk at the fund level, Morningstar rolls up the Sustainalytics company carbon risk scores on an asset-weighted basis.
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Jon Hale does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.