Morningstar has begun to rate more than 20,000 mutual funds on their environmentally sustainable characteristics, and that should give a boost to sustainable investing in general say organizations that promote impact investing.
“Any additional disclosure about sustainable investing is good, and it is something investors want to know,” says Andrew Montes, director of digital strategies for As You Sow, an organization that promotes corporate responsibility for environmental issues and shareholder advocacy.
In March, Morningstar announced its new sustainability rating, which ranks mutual funds on environmental, social and governance factors.
“There are great things and challenging things about this movement,” says Mark A. Regier, vice president of stewardship investing for Everence, a faith-based financial services organization. Everence offers Praxis Mutual Funds, a series of funds that incorporate ESG factors into investments.
“ESG issues, as they relate to investing, are not simple,” says Regier. “The availability of information from companies and the quality of the information has to be considered, especially for small-cap companies, which may not have the resources to produce the information. If a company does not have a rating consistent with its reputation, that should be a starting point for investors to do more research. This is not a simple journey but we are pleased Morningstar is doing this and we hope it will make advisors look at sustainable investing in a new way.”
TIAA, formerly TIAA-CREF, a financial services firm for the public and nonprofit sector, says the Morningstar rating should be a conversation starter for financial advisors to ask clients how they feel about sustainable investing.
David Richardson, managing director at Impax Asset Management, says, “The more attention sustainable investing receives, the more it will drive financial advisors to understand it for clients.”
Impax says its investments are based on the conviction that population dynamics, resource scarcity, inadequate infrastructure and environmental constraints will profoundly shape global markets, creating investment risks and opportunities.
Morningstar's sustainability ratings earn funds a rating of one to five “earth globes,” rather than the traditional Morningstar one- to five-star rating. “We’re excited about this. In the future, globes may be more important than stars,” Richardson says.
Morningstar’s Steven Smit, who is head of the new rating system, says, “Given the widespread and growing interest in sustainable investing around the world, investors need better tools to help them determine whether the funds they own or are considering adding to their portfolios reflect best sustainability practices.”