This year, Morningstar – one of the most-commonly used platforms for investors – will begin displaying environmental, social, and governance (ESG) scores for mutual funds and exchange-traded funds.
For the first time, investors will be able to compare funds based on the social and environmental responsibility of their holdings.
Netherlands-based Sustainalytics will provide the ratings based on its research on more than 4500 publicly-traded companies. Morningstar will then create asset-weighted composite scores for the mutual funds and ETFs that hold those companies. Morningstar tracks about 200,000 such products globally.
There will be separate ratings on environmental, social, and governance factors.
"Providing fund scores on environmental, social, and governance factors is a natural extension of our work. We want to bring even greater transparency and accountability to the investment industry with ESG research, data, and tools, while helping investors to put their money to work in ways that are meaningful to them," says Jon Hale, North America director of manager research for Morningstar.
"ESG considerations, once viewed from the sidelines, are increasingly front and center for fund investors. We applaud Morningstar for its innovation and look forward to working together to create a new standard for fund benchmarking," says Michael Jantzi, CEO of Sustainalytics.
Federal Employees Can Invest in Sustainable Funds
Also for the first time, federal employees will be able to put their retirement money in funds that hold environmentally and socially responsible companies.
The Federal Retirement Thrift Investment Board, which runs the government’s massive retirement system, voted to provide the option of investing in several of these funds.
"The potential for expansion of environmental, social and governance investment options to the Thrift Savings Plan beneficiaries is a sign not only of the growing importance of sustainability considerations to investors, but the sophistication behind ESG analysis of mutual funds," says Linda-Eling Lee, Global Head of ESG Research for MSCI.
EPA employees, for example, want the option of putting their money in funds that exclude fossil fuel companies, Lisa Woll, CEO of US Sustainable Investment Forum, told Financial Advisor Magazine.