Tags: morningstar | sustainability | investing | ratings system

Morningstar's Answer to Mystery in Sustainability Investing

Morningstar's Answer to Mystery in Sustainability Investing

(Dollar Photo Club)

By
Tuesday, 23 August 2016 07:23 AM Current | Bio | Archive


For investors who are particularly keen on investing in companies with sustainability initiatives, Morningstar's new ratings system is expected to raise awareness on how well funds and ETFs are managing risk and opportunities in the areas of Environmental Social and Governance (ESG).


Given the widespread and growing interest in sustainable investing around the world, investors need better tools to help them determine whether the funds they own or are considering adding to their portfolio reflect best sustainability practices,” said Steve Smit, CEO of Morningstar Benelux.
 

The Morningstar Sustainability Rating will cover 20,000 funds globally.
 

Because Morningstar ratings are widely known and used in the financial services industry, it shines a spotlight on the fact that ESG analysis is important and can be accomplished.

Up until now, it has been hard to verify when firms say they invest according to sustainability principles but using the ratings investors can draw their own conclusions based on Morningstar’s analysis of a fund’s holdings.
 

“Our new ratings make it easier to compare funds based on their ESG attributes,” said Jon Hale, CFA and former head of manager research for North America. “Investors can better determine how to incorporate sustainable investing into their portfolios or assess the extent to which their fund investments are upholding best sustainability practices.”
 

However, the ratings do not take into account how fund managers vote at the annual meetings of the underlying companies.
 

“Some fund managers automatically vote with management, which is a concern,” Voorhes told Consumer’s Digest.
 

The ratings also do not asses whether fund managers are deliberately trying to develop a sustainable responsible investing fund that evaluates companies for its policies on greenhouse emissions, climate risk, water conservation and fossil fuels, for example. “It’s possible that a fund could happen to have high ESG scores with fund managers that are not necessarily paying attention to ESG issues,” said Voorhes.
 

Over time, the ratings could increase the investment options that are available to retirement plan participants such as 401k plans and IRAs.
 

“It will be helpful in driving investments towards mutual funds whose underlying companies have stronger ESG initiatives or at least a greater emphasis on ESG reporting,” Voorhes said.
 

Criticism includes that a particular fund only receives an ESG rating when at least 50% of its assets are invested in companies with ESG scores but not only companies are scored especially outside of the U.S.
 

“As a result, the fund may be investing in a group of companies where there are no ESG scores available so it’s hard to assess companies in emerging markets where there’s less information,” said Voorhes. 

Juliette Fairley is an author, lecturer and TV host based in New York. To read more of her work, Click Here Now.

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
JulietteFairley
For investors who are particularly keen on investing in companies with sustainability initiatives, Morningstar's new ratings system is expected to raise awareness on how well funds and ETFs are managing risk and opportunities in the areas of Environmental Social and Governance (ESG).
morningstar, sustainability, investing, ratings system
453
2016-23-23
Tuesday, 23 August 2016 07:23 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved