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Morningstar reveals funds’ ESG commitment

The first batch included 15 funds available for sale in Asia, with only four of them receiving a "Leader" rating.
Wing Chan, Morningstar

Morningstar has has begun formally integrating ESG factors into its analysis of funds, asset managers and stocks, according to a statement from the firm.

For funds and asset managers, Morningstar’s manager research analysts will examine the extent to which strategies and asset managers are incorporating ESG factors. Analysts will assign a qualitative “ESG Commitment Level” to strategies and asset on a four-point scale of “Leader”, “Advanced”, “Basic” and “Low”.

The ESG commitment level for strategies are determined by evaluating each strategy’s process, resources and the asset manager behind the strategy.

Meanwhile, the ESG commitment level for asset managers are determined by assessing each firm’s philosophy and process, resources and active ownership activities.

“Fund investors in Asia are relatively early in their ESG journey, though there are no shortage of fund products that claim to possess varying degrees of ESG attributes,” Wing Chan, Morningstar’s director of manager research practice for EMEA and Asia, said in the statement.

“With local regulations on ESG disclosures taking shape, we hope the ESG commitment level will provide investors an independent and objective assessment that can help investors identify the most appropriate ESG fund products that align with their ESG preferences,” he added.

So far, Morningstar has made its first assessment, which includes at least 100 strategies and 40 asset managers.

For Asia, Chan identified 15 funds that currently have ESG commitment levels which are relevant to investors in the region:

Meanwhile, for its ESG integration into its stocks analysis, Morningstar’s equity research analysts will employ a globally consistent framework to capture ESG risk across at least 1,500 stocks. Analysts will identify the most valuation-relevant risks for each company using Sustainalytics’ ESG Risk Ratings, which measures a company’s exposure to material ESG risks, then evaluate the probability those risks materialize and the associated valuation impact.

Part of the Mark Allen Group.