Morningstar, Lipper push for better ESG data
The fund trackers are seeking uniform disclosure and transparency
Fund tracking firms Morningstar and Refinitiv Lipper are each upping their sustainable investing focus with efforts that support the trend of growing investor appetite for strategies that target environmental, social and governance issues.
Morningstar, which launched sustainability globe ratings for funds more than four years ago, is now taking an active position in pushing the asset management industry to develop a higher level of uniformity around sustainable investing practices and procedures.
“There’s a mismatch between where we think ESG investing is important and where there could be improvements and how policy makers could close that gap,” said Aron Szapiro, Morningstar’s head of policy research.
As ESG investing continues to gain momentum, Morningstar is trying to leverage its size and reputation to encourage regulators to embrace some industry standards, which Szapiro said could be found among industry organizations.
“Embracing the existing standards doesn’t mean you have to use them forever, and that regulators can’t augment them,” he said. “But there’s no reason to reinvent the wheel.”
Szapiro said parts of Europe are ahead of the United States in terms of universal ESG-related reporting by companies.
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“Current regulations in the U.S. are very principles based,” he said. “A company might disclose that climate change could disrupt their business, but it doesn’t address its contribution to climate change or what’s being done to address it, or any plans to mitigate it in the future.”
Meanwhile, along similar lines of raising sustainability awareness, Lipper has rolled out its Refinitiv Lipper Funds ESG Scores, which grades funds on a 100-point scale based on the ESG rankings of the underlying portfolio holdings.
The fund scores, which are recalculated monthly as updated portfolio holdings are made available, require ESG scores on at least 70% of a fund’s holdings.
“There is a focus that investors want, and which asset managers need to demonstrate ESG factors,” said Leon Saunders Calvert, head of sustainable finance at Refinitiv Lipper.
“In addition to the old view of your appetite for risk and return, there’s the question now being asked about the impact you’re having,” he added. “It’s a third vector, and the reason this is important is because there is also a requirement to factor in some of these ESG measures to understand the portfolio’s risk profile. That’s an important consideration.”