What is the Morningstar ESG Commitment level?

--  |   20/11/2020 Text size  Decrease  Increase   |  
email_fwd
<p><strong>Karen Wallace:&nbsp;</strong>ESG funds have gained a lot of traction with investors in the past few years. And no surprise&mdash;there are more ESG funds out there than ever before. With an increasingly crowded landscape, investors looking for an ESG fund want to know if ESG concerns play a central role in buy and sell decisions or whether they're barely considered at all. Morningstar analysts have developed a new assessment that helps investors answer this question and more. I'm here with Alyssa Stankiewicz, an analyst on Morningstar's Manager Research team, to discuss Morningstar's new ESG Commitment Level.</p> <p>Alyssa, thanks for being here.</p> <p><strong>Alyssa Stankiewicz:&nbsp;</strong>Thank you so much for having me.</p> <p><strong>Wallace:&nbsp;</strong>Alyssa, you and your team do very extensive evaluations of funds' resources and strategies. Can you discuss some of the high-level findings that have come out of your research?</p> <p><strong>Stankiewicz:&nbsp;</strong>One thing we expected is that the level of quality varies really widely. Some funds take a rigorous in-depth approach to integrating ESG. Others may be labeled ESG, or sustainable, but really do very little. One surprise was just how many asset managers don't label themselves ESG but do regularly consider those factors. In many cases, managers cite sustainability as a helpful lens for understanding financially material risks and opportunities. So, this ESG Commitment Level was designed to provide investors a really clear understanding of the ESG fund landscape. Currently, most investors are dependent on marketing materials to sift through different approaches to ESG investing. But even if that information is trustworthy, it's hard to compare one fund to another. So that's where Morningstar comes in. Our unique position as independent researchers allows us to help investors navigate an increasingly confusing space.</p> <p><strong>Wallace:&nbsp;</strong>I'd like to take a second and discuss that notion of independence. What does that mean?</p> <p><strong>Stankiewicz:&nbsp;</strong>The ESG Commitment Level is specifically geared toward investors and advisors, not the fund managers or firms themselves. As with our Analyst Rating, asset managers have no say in whether we consider them in our reports. So, we as analysts are under no pressure to give a good or bad rating to a fund. We develop our own opinions through our research. And because we're independent, we can be really transparent about those opinions.</p> <p><strong>Wallace:&nbsp;</strong>And what are some of the criteria that analysts look for when determining a fund's Commitment Level? What makes a Leader?</p> <p><strong>Stankiewicz:&nbsp;</strong>It starts with the fund's ESG philosophy, but then it's backed up by the resources they're committing to the effort, how strong the process is for considering and integrating ESG in the fund, and then how active the team is about engaging with portfolio companies on sustainability issues. A lot of it is actually very similar to how we look at funds for the Analyst Rating: You want to know how strong a fund's strategy is, that the team is well supported in carrying that out, and that the process is robust enough to deliver consistently strong portfolio. Often, the best performers on ESG have developed really thorough proprietary frameworks for evaluating companies. And once a company makes it into the portfolio, they're active about engaging with company management, to ensure they're making progress on sustainability issues. Some fund managers actually have a policy that requires them to sell out of a company if they're not making enough progress.</p> <p><strong>Wallace:&nbsp;</strong>What would be the flip side of that? What would be some characteristics of a fund that you would give a Low score to?</p> <p><strong>Stankiewicz:&nbsp;</strong>In some cases, you'll see a fund that's labelled sustainable or ESG, but once we start digging into the resources and the process backing that up, we find they're really not doing much at all. The portfolio managers may look for ESG opportunities, but there may not be any actual minimum criteria or firm guidelines to make sure the portfolio reflects the ESG mandate. Some of these are pretty obvious: You wouldn't expect an ESG fund to have huge holdings in the oil and gas industry. So, if a fund does, that's something we want to take a closer look at. It's also worth noting that because we'll eventually extend the ESG Commitment Level to all of the funds in our coverage universe, some funds that we think really highly of from a financial perspective might receive a Low or Basic ESG Commitment Level. Some funds just make it clear that ESG isn't part of their process, and that doesn't necessarily mean the fund won't perform well. So that's why we've kept the Analyst Rating separate from the ESG Commitment Level.</p> <p><strong>Wallace:&nbsp;</strong>That's a good point. Alyssa, how should investors use this Commitment Level alongside the Morningstar Analyst Rating or the Morningstar Sustainability Rating?</p> <p><strong>Stankiewicz:&nbsp;</strong>It's important to note that the ESG Commitment Level is completely separate from our other ratings. If a fund is a Leader, which is the top ESG Commitment Level, that doesn't mean they'll receive an upgrade or a medal in the Analyst Rating. The Analyst Rating seeks to identify funds that will outperform the category index in terms of financial return or alpha. The ESG Commitment Level is designed to identify funds that have stronger or weaker approaches from a sustainability perspective. And the way this differs from the Sustainability Rating, or the "globe rating," is that that's really based on the companies that are currently in a fund's portfolio. So, it's more of an aggregate of those companies' sustainability scores, and it's not as forward-looking as this ESG Commitment Level.</p> <p><strong>Wallace:&nbsp;</strong>Alyssa, thank you so much for being here to discuss this ESG Commitment Level. Not all ESG funds are alike, and this rating really helps investors go under the hood to find funds that take the smartest and most thoughtful approaches to ESG investing. Thank you so much for being here to discuss it.</p> <p><strong>Stankiewicz:&nbsp;</strong>Thank you so much for having me.</p> <p><strong>Wallace:&nbsp;</strong>For Morningstar, I'm Karen Wallace. Thanks for tuning in.</p>

Video Archive...

Looking for growth and income among industrials
21/01/2021  Redpoint CEO and portfolio manager Max Cappetta looks at the dividend potential of large-cap names, the resilience of Qantas, and the local tech landscape.
What we expect from oil prices
19/01/2021  Stocks still look cheap across all subsectors, especially oilfield services and refining, says Morningstar analyst Dave Meats.
What’s app-ening: investing from your phone
19/01/2021  What are the rewards and risks of using this technology?
A Democrat clean sweep and corporate America
15/01/2021  Morningstar's head of policy research Aron Szapiro explains what sort of changes a Biden government will make and how they will affect company valuations.
3 stocks for climate transition
14/01/2021  Freight-rail, building temperature efficiency, and carmaking are among the sectors Aviva Investors' Jaime Ramos Martin has his eye on.
The outlook for dividends
13/01/2021   Dividend investors had a hard time in 2020, but Morningstar analyst Dan Lefkovitz think the outlook is brighter for the year ahead.
3 themes for fund investors in 2021
11/01/2021  Morningstar Investment Management's Dan Kemp reveals the three investment themes on his mind for the year ahead.
What next for oil and gas companies?
06/01/2021  Morningstar equity analyst Allen Good looks at the prospects for oil and gas giants in the year ahead. 
China outlook 2021
05/01/2021  China had a strong year after a rocky start, but can it continue—and what does a US President Biden mean for the region? Morningstar analyst Lorraine Tan explains.
Tech, travel and trends for 2021
04/01/2021  Morningstar equity director Alex Morozov considers the outlook for tech, travel and beyond for the year ahead.
Money and investment lessons of 2020
01/01/2021  How to plan for things you can't plan.
Morningstar Year in Review 2020
25/12/2020  2020: we look back at the highs and lows of an unprecedented year in financial markets and explore the themes shaping 2021.
Are music streaming companies a big hit with investors?
22/12/2020  Music streaming companies have seen stellar growth in user numbers. We ask Morningstar equity analyst Neil Macker if the trend can continue.
What Tesla's inclusion in the S&P 500 means for investors
21/12/2020  While it stands as the largest addition in the index's history, this likely won't impact everyday investors all that much. 
Peter Warnes and the 2021 Forecast
18/12/2020  Will there be opportunities to deploy cash in the new year? Will there be a reprieve from covid? And what will the incoming Biden administration mean for markets?
Investing in the climate transition
18/12/2020  Companies that specialise in solar, building efficiency and renewables underpin Aviva Investors' Climate Transition Global Equity Fund, says Jaime Ramos Martin.
Why does liquidity matter?
16/12/2020  Why does liquidity matter to investors, and how can it affect your returns? Morningstar equities director Tom Whitelaw explains.
Introducing the Morningstar Capital Allocation Rating
14/12/2020  Learn what we look for when rating a company.
Incorporating ESG into our equity research process
14/12/2020  Morningstar's new approach unpacks the environmental, social and governance risks that companies face.
Tagliaferro: yield ideas for your portfolio
10/12/2020  Industrial companies typically generate better cash flows and can offer a steady income stream, says the IML founder.
Anton Tagliaferro on value versus growth
09/12/2020  The lofty valuations of Tesla and Afterpay typify the effervescence and speculation in the market, says the IML founder.
Can car companies be ESG investments?
08/12/2020  Car makers may not be an obvious investment choice for ESG-conscious investors, but Morningstar analyst Tancrede Fulop says some of the largest companies score highly in some measures such as safety and human capital.
The US and China under president-elect Biden
07/12/2020  Janus Henderson's Matt Peron considers how the relationship between the US and China will evolve under a President Biden.
Investing basics: what is active and passive investing?
04/12/2020  What is active investing, and what is passive investing? We're at the whiteboard to explain the pros and cons of each 
Why we still like Treasury Wine
04/12/2020  Treasury Wine Estates remains an undervalued stock in spite of China's demand-destroying tariff on Australian wine. Morningstar director of equity research Adam Fleck explains why.
What is gold worth?
03/12/2020  And do any other assets currently compare?
Why now is the time for ESG investing
02/12/2020  We're at an inflection point in ESG investing, says Sustainalytics founder Michael Jantzi. Here's why. 
10 stocks retail investors bought in covid sell-off
01/12/2020  Beaten-down travel stocks and BNPL providers featured heavily, says nabtrade’s Gemma Dale.
How retail investors seized on covid sell-off
30/11/2020  Many people were waiting for the opportunity to buy shares at historic discounts, says nabtrade’s Gemma Dale.
AMP: difficulties now, but dividends later
27/11/2020  The 171-year-old wealth manager has had its scandals but there's merit to its turnaround strategy and the quality of its other assets, says Morningstar's Shaun Ler.
'Be careful using buy now pay later'
27/11/2020  BNPL products such as Zip Co help boost consumer spending but they come with risks and are overvalued, says Morningstar analyst Shaun Ler.
Hamish Douglass: Winners and losers in the covid era
26/11/2020  The Magellan co-founder argues the ecommerce acceleration is here to stay and ponders the effect it will have on other sectors such as travel and commercial real estate.
A 'wonderful hunting ground'
25/11/2020  Greg Dean of Cambridge Global Asset Management explains why the consumer services sector has yielded healthy returns.
Hamish Douglass and big tech
25/11/2020  Magellan's co-founder explains which tech behemoth the Magellan Global Fund no longer owns, why one was too tricky to value, and why regulation is no threat.
Hamish Douglass: 'We're lucky this pandemic hit when it did'
24/11/2020  Magellan's co-founder on why 2020 resembles 2000 and why covid-19 is a dry run for something that could be much worse without proper planning.
Should you beef up your exposure to meat processors?
23/11/2020  Their shares have gotten hammered this year. Are they opportunities or value traps?
What is the Morningstar ESG Commitment level?
20/11/2020  Our new rating highlights the degree to which a fund or asset manager considers environmental, social, and governance issues.
What's driving the flows into ESG funds
19/11/2020  Morningstar's Grant Kennaway explains why sustainable funds are increasingly popular and why they're performing well. 
Too much upside baked into Bunnings: Morningstar
17/11/2020  Morningstar director of equity research Johannes Faul looks at home improvement retailer Bunnings.
What is ESG?
16/11/2020  From climate change to workers' rights, ESG is a big part of the investing world. We're at the Morningstar whiteboard board to explain what it means and why it matters.
"I'm still cautious": Peter Warnes' best ideas for income investors
12/11/2020  We're not out of the woods yet, says our head of equity research, as he looks for safety in businesses we can't live without and shies away from the banks. 
Is it time to get exposure to China?
11/11/2020  Perhaps it is time to have exposure to this economic powerhouse and its 1.4 billion population, says Morningstar's Peter Warnes.
Tapping into the contactless spending boom
10/11/2020  What happens when you buy something when your bank card? Morningstar analyst Niklas Kammer explains which companies are benefiting from your transaction.
Can luxury stocks recover from covid?
09/11/2020  With travel bans and economic lockdowns, the luxury sector has been hit hard in 2020. But there are still opportunities, says Morningstar analyst Jelena Sokolova.
US election scenarios and what they mean for investors
05/11/2020  A discussion of taxes, stimulus, regulation, and the likely market reaction as results from the 2020 poll come in. 
Don't try to time elections
03/11/2020  Why you should resist the urge to make predictions when there's a disconnect between the economy and security prices.
3 names on the alternative protein shelf
02/11/2020  Etoro analyst Josh Gilbert shares his thoughts on Beyond Meat and two other companies making inroads into the plant-based meat sector.
Hamish Douglass: I'd be super surprised if Trump won
30/10/2020  The Magellan rainmaker explains why he doubts the Republican leader will prevail and why investors should brace for volatility—and ignore it. 
Gauging the appetite for alternative protein
29/10/2020  The market for plant-based meat is worth $14bn today and is expected to grow massively, says eToro's Josh Gilbert.
Browsing the opportunities aisle in retailing
28/10/2020  Morningstar equity analyst Johannes Faul explores the flipside to the surge in growth in online sales.
3 top Asian picks on Longlead's radar
22/10/2020  China and Hong Kong have been a happy hunting ground, says Longlead Capital Partners' co-founder Andrew West, who singles out tech, pharmaceuticals and power tools.
3 undervalued travel stocks we like
22/10/2020  These names stand to benefit from a resumption of leisure travel - and are all trading below our fair value estimates.
3 reasons to like bonds
20/10/2020  Morningstar's Mark Preskett looks at three reasons why bonds are an important tool in your investment portfolio.
The monopoly asset that could boost Link
19/10/2020  A bigger stake in the online conveyancer PEXA could be the key to increasing Link Administration's revenue, says Morningstar's Gareth James.
How Longlead Capital defied the covid plunge
16/10/2020  Longlead Capital Partners co-founder Andrew West reveals how his Asia-focused fund managed to make gains during the historic covid-19 sell-off.
Investing basics: why invest in bonds?
16/10/2020  The investment board is back with an explainer on why you might invest in bonds.
Retiring during a pandemic
13/10/2020  How to handle this decision—even when it is made for you.
3 top picks in sustainability and software
12/10/2020  Nick Griffin of Munro Partners reveals why and where he sees opportunities in renewable energy, diagnostics and software. 
Investing basics: what's your personal inflation rate?
09/10/2020  Take stock of your spending to determine if inflation is an issue for you.
Ant Group IPO: What you need to know
09/10/2020  Morningstar analyst Chelsey Tam explains why investors are excited about the flotation of Ant Group and why it's different from Alibaba.
Spotting the winners of tomorrow
06/10/2020  Companies that address the growing demand for decarbonisation will have a 20-year growth opportunity, says Nick Griffin of Munro Partners.
An interview with Whitehaven Coal chief Paul Flynn
30/09/2020  EXCLUSIVE EXTRACT: Morningstar's Mat Hodge and Lex Hall talk to the CEO of the independent producer and exporter about the company's fortunes and its future.
How to get rich slowly
30/09/2020  Slow and steady wins the financial race.
3 top picks in global healthcare
29/09/2020  American Century Investments' low-turnover strategy invests in companies developing vaccines, treatments for neuro-cognitive diseases and innovations in telemedicine.
Investing in the healthcare needs of the future
25/09/2020  By 2050, almost 20 per cent of the global population will be over 65 and demand for healthcare will climb, says Michael Li of American Century Investments.
Morningstar's Mat Hodge on Rio's fortunes
22/09/2020  The destruction of an indigenous cave shelter was unforgiveable but there are other reasons why the iron ore heavyweight is overvalued.
Cannabis: the world in 2030
21/09/2020  Morningstar equity analyst Kristoffer Inton on the outlook for the seven producers under coverage.
3 top picks for the EV revolution
18/09/2020  Morningstar's Seth Goldstein singles out three undervalued stocks that span the entire electric vehicle supply chain.
The 2020 election and your portfolio
18/09/2020  The bumps and bruises of election time may tempt you to shift your portfolio strategy.  
'The tech rally has gone too far'
17/09/2020  UK-based Premier Miton's Simon Evan-Cook says the tech rally of 2020 is reminiscent of the dotcom boom, but inflation could be a bigger threat.
Why EVs will be a common sight on the roads of the future
16/09/2020  By 2025, the cost of batteries and manufacturing will fall and EV functionality will improve, says Morningstar's Seth Goldstein.
Using personal data to better estimate retirement savings
11/09/2020  Estimating the length of your retirement with personalized information will help you save the correct amount.
2 China stocks we like
09/09/2020  Morningstar's Chelsey Tam reveals which stocks and sectors have shone—and which have underwhelmed.
How to be a better investor: episode 3
28/08/2020  Products, services, what is what in the world of finance—and how to look out for yourself
Where to invest for income
24/08/2020  A raft of companies have cut their dividends this year, leaving income investors concerned. But Morningstar's Dan Lefkovitz says there are still plenty of options out there.
DNR Capital's eye for gaming, building supplies and software
18/08/2020  DNR Capital's chief investment officer Jamie Nicol profiles some of the top ten holdings in his Australian Equities High Conviction fund. 
The trouble on Telstra's horizon
17/08/2020  Morningstar's Brian Han explains why he has trimmed his fair value estimate for Australia's dominant telco and the future of its dividend payout.
Finding bargains the market overlooks
14/08/2020  DNR Capital's Jamie Nicol reveals how his Australian Equities High Conviction fund finds quality businesses that will endure difficult conditions.
How to be a better investor: episode 2
13/08/2020  Put your money to work if you're looking for financial freedom.
How to be a better investor: episode 1
10/08/2020  Learn how to picture your goals so you can better reach them.
3 undervalued names in childcare
05/08/2020  Morningstar's Gareth James identifies three sector names trading at attractive discounts in an increasingly 'essential' sector.
Is the 60/40 portfolio dead?
05/08/2020  Reports of the strategy's demise are greatly exaggerated, says Morningstar's Christine Benz.
Why you should ignore a fund's yield
04/08/2020  Investors may assume a fund's yield to determine how much income it will pay, but it's not always so simple, warns Morningstar analyst Rajesh Yadav.
What are the right bonds for retirees today?
03/08/2020  It depends on your expectations and timeframe. Look at bonds as being portfolio stabilisers—sources of cash flow you can draw on when your equities are down, says Christine Benz.
3 top picks in rail, roads and utilities
28/07/2020  When utility stocks plunged during the onset of the pandemic Lazard Asset Management's Warryn Robertson knew it was time to jump in.
Infrastructure stocks in the covid era
24/07/2020  Lazard Asset Management's Warryn Robertson looks at how the pandemic has affected toll roads and airports and what the future of travel holds.
ESG stocks shine in covid-19 crisis
23/07/2020  Morningstar analyst Tancrede Fulop singles out a few companies that have performed well and also led the way in looking after staff. 
Stock-picking: Have you got what it takes?
21/07/2020  New stock-pickers are prone to lose money. Are the lessons worth the price? We ask Morningstar's Christine Benz.
Why mining stocks aren't yield plays
20/07/2020  Elevated iron ore prices have lifted mining company earnings to eye-watering levels but this doesn't make them income stocks, says Morningstar's Mat Hodge.
Commodity stocks riding high, but for how long?
17/07/2020  Local miners should deliver stellar fiscal 2020 results but such outperformance is unlikely to last, says Morningstar’s Mat Hodge.
The rise and rise of Amazon
17/07/2020  --
Should your portfolio shift when the economy slumps?
16/07/2020  How to make some upgrades during this down time.
Will Airbnb IPO or what?
16/07/2020  Covid-19 has made the intended public offering impossible, says Morningstar's Andrew Willis.
3 Japanese stock picks
15/07/2020  JPMorgan's Nicholas Weindling talks opportunities in Japan and reveals the stock that has been his largest holding for almost a decade
Small cap stocks: 'Inevitably, we see it all end in tears'
15/07/2020  The asset class has a habit of outperforming but Morningstar's Ross MacMillan sees signs of a bubble.
A trio of growth stocks
13/07/2020  Rachel Winter of UK fund manager Killik & Co talks payments, social media and investing in her monthly stock pick round-up
3 reasons healthcare is showing fit performance
09/07/2020  And what we expect to see moving forward.
Same old story: growth beats value
07/07/2020  Large growth maintains its supremacy in the Morningstar Style Box during a volatile first half for mutual funds. 
Nikko's 3 top Asian picks
06/07/2020  Nikko Asset Management's Peter Monson looks for strong sustainable returns and he sees that in Asian stocks that span financial exchanges, computer game makers and condiments suppliers.
How appealing are Asian stocks?
02/07/2020  China’s ongoing recovery from COVID-19 presents solid investment opportunities, says Nikko Asset Management.