Morningstar Simplifies ESG Investing with New Investable World

Data-driven digital experience highlights opportunities and trade-offs facing investors, with striking differences across managing ESG risk and making a sustainable impact

CHICAGO, Sept. 7, 2022 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN), a leading independent investment research provider, today launched Investable World, a data-driven digital experience designed to make sustainable investing more understandable, engaging, and actionable for investors. Investable World allows investors to explore plainspoken themes—water, food, energy, health, and community—and weigh opportunities and trade-offs across varying investment approaches, from hedging against risk to prioritizing sustainable outcomes.

In addition to a wealth of research-driven education using investment examples across these easily understood themes, the digital experience includes a free, interactive data visualization tool that allows investors to filter a universe of more than 750 thematic funds globally across water, food, energy, health, and community themes according to their chosen intersecting variables of maturity, performance, risk, and sustainable impact.

"Investors have differing preferences around sustainable investing, but their interest in the topic is undeniably mainstream. They're talking about it with family, colleagues, and financial advisors," said Morningstar CEO Kunal Kapoor. "Today's definition of what's considered uniquely 'investable' for each person varies by the investor's goals and conviction across three dimensions: performance, risk, and sustainable impact. Investable World brings transparency and accessibility to investors, empowering them to make choices that align with success on their own terms."

Sustainable Investing is Not 'One Size Fits All' 
Investable World recognizes that investors' differing motivations and degrees of conviction warrant different investing approaches, each with a unique blend of opportunities and trade-offs. The initiative builds on Morningstar and its affiliate's research across asset classes, as well as its ESG Risk Ratings and Impact Metrics. ESG Risk Ratings evaluate a company's exposure to and management of ESG risks, and Impact Metrics measure a company's revenues tied to activities across five impact themes – climate action, healthy ecosystems, resource security, basic needs, and human development – in alignment with the United Nations Sustainable Development Goals (SDGs).

The Investable World data visualization tool allows investors to quickly see if a strategy targeting a specific sustainable theme has a portfolio that actively contributes to positive change in line with that motivation, as well as whether it avoids unwanted risks, for example. It assists investors who approach ESG topics in different ways: one investor may seek to avoid investments involved in genetically modified crops in favor of biodiversity, while another may emphasize GMO crops in sustainability-themed investments as a tool to simultaneously reduce water dependency and feed a growing population.

Hidden Risks of Feel-Good Companies 
In a new research analysis published today on the Investable World experience, Adam Fleck, director of ESG equity research at Morningstar, reveals risk-related trade-offs facing investors looking to prioritize their investments with companies aligned to positive societal change. A company whose revenue is well-aligned with the U.N. SDGs does not preclude it from facing ESG risks in other areas or guarantee its long-term competitive advantage. Fleck finds:

• Only a limited number of companies have commercial activities aligned to sustainable impact. Only 1,329 of the more than 12,000 companies in Morningstar's ratings universe are estimated to have revenue exposure to any of Morningstar's Impact Themes, and about a third of those (449) have more than 50% of their revenue aligned to one or more impact themes, though the number of aligned companies varies by theme.

• Sustainable impact and ESG risk are fundamentally different considerations. Morningstar covers 74 of the companies with at least 50% revenue alignment, and over half of them (43) carry a high or medium ESG Risk Rating. A company, such as Tesla Inc. or Eli Lilly and Company, whose revenues are well-aligned with sustainable impact activities, may carry substantial risk in other ESG areas.
• Companies with revenues aligned to sustainable impact do not always hold a durable competitive advantage.  Fewer such companies are assigned an economic moat (51%) than across Morningstar's equity coverage as a whole (61%). Even in areas that carry both low ESG risk and alignment to sustainable impact, such as the renewables sector, other factors such as low barriers to entry often dissuade Morningstar analysts from assigning those firms moats.

Funds Face Similar Sustainability Trade-Offs, Too 
Managed investments reflect performance, maturity, risk, and sustainable impact in different ways, too. An analysis of 759 thematic funds globally focused on water, food, energy, health, and community in Investable World's daily-updated data visualization tool found that, as of August 18, 2022, only 33% of these funds earn an Above Average or High Morningstar Sustainability Rating (excluding the 158 funds which are not eligible for a Morningstar Sustainability Rating).

Additional findings include:

• While 500 of these funds have some level of exposure to climate action, 86 funds have more than 50% of assets invested in companies aligned to climate action.
• On an asset-weighted basis, average expense ratios are higher for food (1.26%) and community funds (1.02%) than for health (0.86%) and energy funds (0.91%), though a minority of energy funds have noticeably high fees. United States funds are cheaper than international equivalents, which represent 67% of the thematic funds analyzed. This calculation references the net expense ratio for a fund's oldest share class.
• Only 31 of the thematic funds in question landed in the value section of the Morningstar Style Box, and none of those funds invested in small caps. This represents an additional constraint on sustainable investability, as investors may struggle to fill out a diversified portfolio.

Investable World will be showcased at the upcoming Future Proof Conference in Huntington Beach, California, from Sept. 11 – 14, 2022. Conference attendees can visit the Investable World booth to interact with and get to know their Investable World. Investable World insights will also continue throughout the year, including during Climate Week NYC, Sept. 19 – 25, 2022, and the U.N. Climate Change Conference 2022, Nov. 7 – 18, 2022. Explore Investable World here.

About Morningstar 
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The Company offers an extensive line of products and services for individual investors, financial advisors, asset managers and owners, retirement plan providers and sponsors, and institutional investors in the debt and private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $253 billion in assets under advisement and management as of June 30, 2022. The Company has operations in 29 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on Twitter @MorningstarInc.

Morningstar's Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Morningstar's Manager Research Group produces various ratings and assessments including the Morningstar Analyst Rating and the Morningstar Quantitative Rating. The Morningstar Analyst Rating is derived from a qualitative assessment process performed by a manager research analyst, whereas the Morningstar Quantitative Rating uses a machine-learning model based on the decision-making processes of Morningstar's analysts, their past ratings decisions, and the data used to support those decisions. In both cases, the ratings are forward-looking assessments and include assumptions of future events, which may or may not occur or may differ significantly from what was assumed. The Morningstar Analyst Ratings and Morningstar Quantitative Ratings are statements of opinions, subject to change, are not to be considered as guarantees, and should not be used as the sole basis for investment decisions. This press release is for informational purposes only; references to securities should not be considered an offer or solicitation to buy or sell the securities.

Morningstar's Equity Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Morningstar's Equity Research Group produces analysis, estimates and ratings on stocks through qualitative and quantitative means. The ratings for stocks are forward-looking assessments and include assumptions of future events, which may or may not occur or may differ significantly from what was assumed. Ratings on stocks are statements of opinions, subject to change, are not to be considered as guarantees, and should not be used as the sole basis for investment decisions. This press release is for informational purposes only; references to securities should not be considered an offer or solicitation to buy or sell the securities.

About Morningstar Sustainalytics 
Morningstar Sustainalytics is a leading ESG research, ratings and data firm that supports investors around the world with the development and implementation of responsible investment strategies. For 30 years, the firm has been at the forefront of developing high-quality, innovative solutions to meet the evolving needs of global investors. Today, Morningstar Sustainalytics works with hundreds of the world's leading asset managers and pension funds who incorporate ESG and corporate governance information and assessments into their investment processes. The firm also works with hundreds of companies and their financial intermediaries to help them consider sustainability in policies, practices, and capital projects. With 17 offices globally, Morningstar Sustainalytics has more than 1,500 staff members, including more than 500 analysts with varied multidisciplinary expertise across more than 40 industry groups. For more information, visit www.sustainalytics.com

About PitchBook 
PitchBook is a financial data and software company that provides transparency into the capital markets to help professionals discover and execute opportunities with confidence and efficiency. PitchBook collects and analyzes detailed data on the entire venture capital, private equity and M&A landscape—including public and private companies, investors, funds, investments, exits and people. The company's data and analysis are available through the PitchBook Platform, industry news and in-depth reports. Founded in 2007, PitchBook has offices in Seattle, San Francisco, New York and London and serves more than 50,000 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.

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