Ellis: Another area of growth is the green bond market. Does Morningstar have plans to incorporate ratings of fixed-income funds in this process?
Hale: We want to address fixed income but we’re still in the exploratory stages of looking at green bonds and municipal bonds. An assessment of current municipal bond portfolios on sustainability issues could spur a lot of investor interest.
Ellis: Are there other asset classes that will be added to the Sustainability Ratings system?
Hale: Sustainalytics has expanded its ability to cover smaller companies, so we’ve expanded our fund-level ratings to small-cap equity funds. Also, our Sustainability Ratings are now available for separately managed accounts, which I think is an invaluable tool for advisors using those vehicles.
Ellis: Any other ideas on how advisors can use the Sustainability Ratings system, Jon?
Hale: For advisors who use intentional ESG funds, the rating is a proof of concept for whether the fund is doing what it claims to be doing. Our rating doesn’t have to be the final word on sustainability, but advisors can use it as a basis for dialogue about ESG with fund managers. I think such conversations are good for transparency and for clarity surrounding sustainable investing.
Paul Ellis founded Paul Ellis Consulting to work with financial advisors who want to integrate sustainable and impact investment strategies for their clients.