ESG Commitment of Asset Managers
Morningstar, an international research institution, releases the ESG Commitment Report of asset management companies to help investors identify institutions committed to sustainable development.
Morningstar believes that global attention to ESG is increasing in recent years, and investors also hope that asset management companies can minimize the risks of their investment portfolios. At the same time, some greenwashing issues are also emerging, making funds focused on ESG and sustainable development controversial.
Related Post: What is Greenwashing? How to Avoid Greenwashing?
Assessment Framework for ESG Commitment
In 2020, Morningstar launched an assessment framework for ESG commitment of asset management companies. The framework focuses on qualitative analysis and conducts due diligence on the ESG commitments of these companies, reflecting whether they meet the requirements of regulatory policies and their own direction in terms of ESG. The assessment of ESG commitments mainly includes three parts, namely:
- Investment philosophy and process (40%): the company’s history of sustainable investment, application of ESG principles, etc..
- Resources (30%): company sustainability-related professionals, ESG data, etc..
- Sovereign management capabilities (accounting for 30%): company’s records in proxy voting and engagement of investee companies, etc..
For each part, Morningstar sets four ratings, namely maximum, high, basic and low. Morningstar analyzes a company’s ratings within each component and sums them up based on weights for a final rating. In addition to company-disclosed figures, Morningstar also considered the company’s history of signatories to the United Nations PRI, its commitment to net-zero initiatives and its role in some ESG coalitions.
Unlike the common Morningstar fund ratings, the ESG Commitment does not include a fund’s actual performance. It focuses on the ESG integration of asset managers and their products. The level of ESG commitment also complements existing portfolio sustainability metrics such as the Morningstar Sustainability Rating.
ESG Commitment Level of Asset Management Companies
In the report, Morningstar assessed the ESG commitment level of 108 global asset management companies. These companies are mainly from Europe (49), the United States (45), and other regions. They include the world’s largest asset managers, as well as leading companies in ESG development and companies with good performance in Morningstar Fund Ratings. At the same time, Morningstar conducted the second and third audits of 35 of these asset management companies this year in order to track the ESG commitment level of these companies in real time.
8 of the 108 companies received the highest rating. These companies have focused on sustainable investing since their inception, closely linking sustainable development goals and long-term financial returns. At the same time, these companies have always been in a leading position in information disclosure and ESG practice, and possess high-quality ESG data and talents.
In addition, 21 companies received high-rated ESG commitments. These companies, while not having a long history of prioritizing ESG, are still integrating ESG into investment decisions at the corporate level. 48 companies receive a fundamental rating, which have weaker ESG integration than the former, are integrating sustainability themes into the investment process.
In the end, 31 companies were included in the low rating range. These companies often choose to implement ESG commitments after the introduction of regulatory policies, and do not make ESG a priority.
Morningstar believes that with the development of ESG, the ratings of these companies have also changed to a certain extent. Some companies have made significant investments in people, data, research, etc., and are actively engaged in ESG activities such as proxy voting, improving their commitment ratings compared to the past. Morningstar will continue to review the commitment level of these companies.
Appendix: Top 8 Asset Managers:
Affirmative Investment Management
Boston Trust Walden
Domini Asset Management