Chicago-based Morningstar Inc. plans to launch environmental, social, and governance (ESG) scores for mutual funds and exchange-traded funds later this year, the investment research firm announced on Thursday.
Morningstar will base the scores on the ESG ratings of individual companies provided by Sustainalytics, the Amsterdam-based provider of ESG and corporate governance ratings and research.
Morningstar says that it will use the ESG ratings provided by Sustainalytics on more than 4,500 companies to create asset-weighted composite ESG scores for the mutual funds and ETFs that it covers based on the company-level ESG ratings. Morningstar tracks the holdings of more than 200,000 managed products globally.
These new fund-level scores will give investors, for the first time, the ability to compare funds across categories, relative to benchmarks, and over time using ESG factors. They will also be able to assess individual scores for each of the three components of ESG ratings — environmental, social, and governance factors.
Morningstar says that it expects to launch the fund-level ESG scores in the fourth quarter of 2015 and to make them available through Morningstar data feeds and its major software platforms in 2016.
“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, Morningstar’s director of manager research, North America, in a statement.
“ESG considerations, once viewed from the sidelines, are increasingly front and center for fund investors,” adds Michael Jantzi, chief executive officer of Sustainalytics. “We applaud Morningstar for its innovation and look forward to working together to create a new standard for fund benchmarking.”