Skip to Content
Commentary

Introducing a New Way to Size Up ESG Risk

Our enhanced Sustainability Rating helps investors better evaluate their funds' overall risk to ESG factors.

We’ve retooled our Sustainability Rating to help users better analyze and evaluate a fund portfolio’s aggregate environmental, social, and governance, or ESG, risks. We will debut the new rating on the Portfolio tab of fund and exchange-traded fund quote pages on Morningstar.com in November.

What’s New
Investors increasingly view sustainability as a way to understand the vulnerability of their investment portfolios to ESG factors. Our new Sustainability Rating scores the overall ESG risk in a fund portfolio. We think this will be more useful for users who seek to understand and manage the ESG implications of their investments. 

At the heart of our new rating is a datapoint recently developed by our partner, Sustainalytics. Called the ESG Risk Score, it measures the degree to which a company's economic value may be face risks from ESG issues. 

The new rating is similar in intent to our original rating, but we no longer use an industry-relative scale. The ESG risks are now measured on the same scale, across all economic sectors. This is a significant enhancement because ESG risk can now be compared across industries. Some industries have more ESG risks than others; for example, most oil and gas companies have higher ESG risk than most financial companies. Under the old rating, the best-ESG-performing oil and gas company would score the same as the best-ESG-performing financial company.

The rating is expressed the same way as the old rating: Five globes means the overall portfolio has low ESG risk; one globe means it is exposed to significant ESG risk.

Read more: Morningstar Sustainability Rating Methodology