Morningstar’s move to rate mainstream mutual funds on their environmental, social and governance (ESG) issues should prompt advisors to broach the issues with their clients, says Amy O’Brien, managing director and head of the responsible investment team for TIAA, formerly known as TIAA-CREF.
“This should be a conversation starter for advisors to ask clients how they feel about ESG factors,” says O’Brien. “Advisors can find out how important it is to their clients to include ESG screening in their portfolios.”
Research firm Morningstar has announced it will start rating mainstream mutual funds on environmental, social and governance factors this year. The company has not said how many funds it will rate at first, but eventually it says it will include a wide range of funds with stocks, corporate bonds and sovereign debt.
The rating by Morningstar indicates the growing importance of ESG screens for investors, says O’Brien. As a caution, O’Brien says, investors and advisors will need to review the methodologies for determining the rankings before using them as an investment screen.
“We are going to see more of these types of screens in the future,” she says. “Investors and advisors should use this as an opportunity to reflect on their views and as an opportunity to share their ideas on ESG investing.”
TIAA is a financial services organization mainly for academic, research, medical and cultural organizations' personnel.