Morningstar to create ethical fund rankings


Morningstar plans to launch ranks of funds by their level of environmental, social and governance (ESG), using data on each fund’s underlying holdings.

The research firm will enveil the ESG rankings later in the year in a bid to enable investors and advisers to better understand how ethical each fund is.

Using stock-specific research from Sustainalytics, which analyses 4,500 different companies, Morningstar will create an ESG ranking score for each fund based on its company-level holdings. It will rank both mutual funds and ETFs.

Morningstar is hoping to benefit from a growing interest in ESG funds from investors.

Morningstar director of manager research for North America Jon Hale says: “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.”

Julius Baer is going to license the ESG scores for its fund research team.

“For the first time, investors will be able to compare funds across categories, relative to benchmarks, and over time using ESG factors,” says Hale.

Investors will also be able to see a specific score for every fund for each of the environmental, social and governance factors.

The ESG scores are expected to be available by the end of the year.