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Jan Lee headshot

Sustainalytics, Morningstar Release New Tools for ESG-Minded Investors

By Jan Lee

Investors looking to determine the potential carbon exposure in markets have a bevy of tools at their disposal these days to keep them informed about the environmental, social, governance (ESG) performance of publicly held companies. Thanks to Sustainalytics and Morningstar, which just released two new products on the market, locating companies that commit to ESG factors will be all the easier.

This month the Dutch Sustainalytics unveiled its Carbon Risk Ratings, which tracks a company’s exposure and how it manages material carbon vulnerability.

“The Carbon Risk Rating captures a variety of carbon signals in a single, quantitative assessment designed to support investment analysis, decision-making and reporting” the company stated in a press release, noting that the program is designed to report on risks that aren’t necessarily available through more conventional methods of tracking a company’s carbon footprint.

“Given mounting regulatory and industry pressures around climate change, investors informed us they need deeper insights that go beyond carbon footprinting and that reflect a focus on risk and financial materiality,” explained Michael Jantzi, who serves as Sustainalytics’ chief executive officer. “Sustainalytics’ Carbon Risk Ratings symbolize our commitment to build and deliver innovative, high-quality products and services that support investors’ decision-making processes.”

The Carbon Risk Ratings program looks at more than 4,000 publicly listed companies that span some 147 industries across the world, with an approach the company says, that meets today’s needs for more informed research.

“A holistic view of carbon risk is required by investors today,” said Vikram Puppala, Sustainalytics’ associate director of Carbon Solutions. “Our Carbon Risk Ratings look at unmanaged carbon risks in a company’s operations and its products and services, offering investors a lens into the material carbon risks in their investments.”

Portfolios that demonstrate low carbon risk exposure and have low carbon ratings will also be featured on Morningstar’s Portfolio Carbon Risk Score. They will also receive the company’s Low Carbon Designation, which is designed to help investors quickly identify portfolios that support sustainable goals, such as the environmental benchmarks supported by the Paris agreement.

“Companies held within those portfolios tend to have low carbon emissions or are lowering carbon emissions in line with the goals of the Paris agreement in their own operations and by developing carbon solutions,” the company said in a statement.

And there is a reason for that, said Haywood Kelly, Morningstar’s global head of research. “Climate change will pose great challenges to investors seeking to balance their desire for high returns with a commitment to achieving a positive environmental impact. Given this, investors will need a means of more precisely analyzing their portfolio exposures to ensure they meet the realities of a carbon-constrained future."

The company bases its scores on the ratings assigned by Sustainalytics and are evaluated on a quarterly basis for any fund that has 67 percent or greater of its portfolio assets covered by Sustainalytics company-wide carbon-risk assessments.

Roughly 30,000 funds will be rated initially by Morningstar, with lower scores indicating lower carbon exposure risk. The company says it has found that EU (ex-UK) currently have the lowest scores, while Asia funds (ex-Japan) may have the largest. U.S. portfolios tend to fall in the middle. The firm did not offer any observations for Israeli portfolios, which have been gaining increasing attention by investment managers. The Tel Aviv Stock Exchange (TASE) also has its own set of SDG-rated indices.

Sustainalytics and Morningstar announced the release of the new carbon risk assessment tools at the 12th UK annual investment conference in London on May 1. More information about the companies’ latest tools available to investors is available through Sustainalytics and Morningstar.


Flickr image: Les Haines

Jan Lee headshot

Jan Lee is a former news editor and award-winning editorial writer whose non-fiction and fiction have been published in the U.S., Canada, Mexico, the U.K. and Australia. Her articles and posts can be found on TriplePundit, JustMeans, and her blog, The Multicultural Jew, as well as other publications. She currently splits her residence between the city of Vancouver, British Columbia and the rural farmlands of Idaho.

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