Morningstar integrates ESG factors into its overall analysis
The company will use environmental, social and governance risk ratings as part of a new commitment-level evaluation
Morningstar has begun integrating environmental, social, and governance factors into its analysis of stocks, funds and asset managers, using risk ratings from Sustainalytics, a firm it acquired this past July.
Morningstar said its equity research analysts will capture ESG valuation-relevant risks across more than 1,500 stocks, which will inform its assessment of a stock’s intrinsic value and the margin of safety required before assigning its star ratings.
Analysts will analyze the extent to which strategies and asset managers are incorporating ESG factors as part of its new Morningstar ESG Commitment Level evaluation, which will follow a four-point scale of leader, advanced, basic and low.
In a release, the company said that the new risk measures will be used “in a manner that aligns with Morningstar’s long-term oriented and fundamentals-focused investment philosophy” through its economic moat rating and its uncertainty rating, which are rolled into the overall Morningstar rating for stocks.
Additionally, Morningstar said its stewardship rating will be renamed the “Morningstar Capital Allocation Rating,” reflecting a refining of the framework to isolate and evaluate management performance across balance sheet health, investment efficacy and shareholder distributions.
[More: Morningstar evolving well beyond its origins analyzing mutual funds]
Learn more about reprints and licensing for this article.
