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Morningstar formally integrates ESG into analysis

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Morningstar has commenced formal integration of ESG factors into its analysis of stocks, funds and asset managers, having released its first assessment of the level of commitment from major firms.

Morningstar equity research analysts will use a standardised framework to capture ESG risk across 1,500 stocks, which will then inform the research provider’s assessment of a stock’s intrinsic value, with ratings between one and five stars. 

The company will also analyse the extent to which strategies and asset managers are incorporating ESG factors, as part of its Morningstar ESG Commitment Level evaluation, covering more than 5,400 vehicles.


Analysts will be considering how firms articulate their ESG policies and how it’s driven through their culture and investment processes. 

The ESG Commitment Level evaluation of strategies and asset managers will follow a four-point scale of leader, advanced, basic and low. 

Firms with a leader ranking will be considered to be incorporating ESG factors to the greatest extent compared to their peers, following best-in-class engagement and proxy voting practices, among other aspects.

Alongside the declared changes, Morningstar has ranked firms in a new research paper, the first assessment of strategies and asset managers using the new ESG commitment standard. 

Out of 40 asset managers assessed, six were awarded the top accolade of leader, including Calvert, Robeco and Stewart Investors. At the opposite end of the scale, 12 were named with a low ranking, including Vanguard, American Century and Fidelity Investments. 

Major players such as BlackRock, PIMCO and UBS earned a basic rating, while others including AXA Investment Managers, Nuveen and Schroders were a little more ahead with an advanced level of commitment. 

Morningstar head of research Haywood Kelly said the company has aimed to address the trend and “empower investors with long-term, methodological research approaches”. 

“Integrating ESG directly into the marrow of our research methodology helps us to widen the aperture of the traditional financial analysis and more precisely capture ESG risks that can exert a profound influence on long-term competitive dynamics and the sustainability of a company’s earnings,” Morningstar head of equity Dan Rohr added.

The company’s analysts will be using Sustainalytics’ ESG research, to capture risk across industries. Analysts will be using the firm’s ESG Risk Ratings as the basis for identifying valuation-relevant risks. 

Morningstar acquired Sustainalytics, an ESG specialist, in July. 

Sustainalytics executive director of ESG research, Wilco van Heteren commented: “Investors need to understand what the long-term risks to a company are, how much of that risk is well managed by a company and how much unmanaged risk remains.

“By affording material ESG issues a central role in a risk-based approach to valuation, Morningstar is reinforcing its long-term investment philosophy.”

The equity research rating changes will start to roll out from 9 December and will apply to Morningstar’s global equity universe. 

The incorporation of ESG factors will update on a rolling basis through 2021.

Morningstar formally integrates ESG into analysis

Morningstar has commenced formal integration of ESG factors into its analysis of stocks, funds and asset managers, having released its first assessment of the level of commitment from major firms.

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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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