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Earth Day 2018: ESG a powerful force for businesses, investors

Glenn Freeman  |  22 Apr 2018Text size  Decrease  Increase  |  
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Media coverage about environmental sustainability is littered with clichés--there's a pun, already. Terms such as "water sustainability", "renewable energy" and "green is good"; and images of cupped hands holding clean water are so pervasive as to, arguably, detract from the message itself. We may even be guilty of using a few here at Morningstar.

But money often has a way of cutting through noise. Businesses and their stakeholders, including investors, tends to narrow the focus and direct one's attention.

Morningstar regularly covers sustainable investing--yes, there's another term rapidly becoming a cliché. While it's taken decades for businesses and individuals alike to recognise the strong correlation between businesses operating sustainably and generating solid profits, it's finally happening.

Just in the last six-months, we've covered numerous topics in explaining where company performance, shareholder value and environmental, sustainability and governance (ESG) business principles are inextricably linked.

Last week, Dan Lefkovitz from Morningstar US discussed the leading markets in ESG, as identified by the Morningstar Sustainability Atlas--which generated some surprising results. It found Colombia is the highest ranking non-European market for investing sustainability, the Morningstar Sustainability Atlas shows. Australia also scores well.

And last month, the co-founder of this ESG-focused portfolio manager last month discussed three key areas his company sees value including UK water and European utilities.

Earlier in March, head of sustainability research for Morningstar, Jon Hale, wrote about sustainable capitalism, whereby corporate leaders assume more social responsibility and consider the concerns of all stakeholders, not just those of shareholders.

At the start of the year, Hale discussed the broader concept of sustainable capitalism: "shareholder value is maximised when managers take a more holistic, responsible long-term view".

Wrapping more hard numbers around the topic, contributor Nicki Bourlioufas cited research showing ESG-focused funds grew by 60 per cent to $51.5 billion in AUM in 2015, having doubled in two years.

The work of Sustainalytics underpins many of the above items, either explicitly or implicitly.

Morningstar's partnership with sustainability ratings company Sustainalytics--in which it holds a 40 per cent stake--provides a detailed fundamental research process that is applied across more than 35,000 managed funds and exchange-traded funds.

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Glenn Freeman is a senior editor at Morningstar. 

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is senior editor for Morningstar Australia

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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