In the latest example of how Morningstar is leveraging its acquisition of Sustainalytics, the fund tracker has launched a tool to help investors and financial advisers screen the ever-expanding and increasingly-diverse category of funds focused on environmental, social and governance issues.
The screening tool, which is free, is designed to address the confusion around ESG and sustainable investing at a time when the appetite among U.S. investors has never been higher.
“We’ve turned our analytical focus toward ESG because investors are more interested and there are more products to meet that interest, and we want to help people narrow down that universe,” said Karen Wallace, director of investor education at Morningstar.
The ESG screening is relatively intuitive, which includes four basic steps to identifying ESG strategies inside funds.
The initial screen identifies funds that list a focus on sustainable investing in the prospectus, then moves into levels of intentionality, and deeper into specific fund categories.
Among those funds claiming an ESG consideration, the tool enables a more granular look for funds that exclude guns, tobacco, alcohol, fossil fuels and thermal coal.
The screening also includes the usual reporting of fees and performance, as well as where funds rank in Morningstar’s globe ratings system that ranks funds based on the sustainable focus of underlying portfolio holdings.
The tool also allows specific fund searches by ticker symbol or name.
According to Morningstar, the first half of 2020 saw a record $21.4 billion flow into ESG funds, which nearly matches the money that went into the category for all of 2019.
“In many ways, 2020 has presented a good backdrop for ESG funds to make their case,” Wallace said. “On one hand, ESG funds have performance well relative to conventional funds during some really volatile markets. And after showing greater resilience than conventional funds when stocks plummeted in the first quarter, ESG funds more than held their own during the second-quarter rebound.”
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