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Portfolio > Portfolio Construction > ESG

Morningstar Acquires 40% Stake in ESG Ratings Firm Sustainalytics

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Just a few days after Morningstar announced a sustainable investing education initiative with the Money Management Institute, it announced the acquisition of a 40% ownership stake in Sustainalytics, one of the leading providers of ESG ratings and analyses.

(Related: Morningstar, MMI Launch Sustainable Investing Initiative)

Sustainalytics has been a partner with Morningstar since August 2015 and its environmental, social and governance ratings are the basis for Morningstar’s Sustainability Rating for more than 35,000 mutual funds and ETFs and for Morningstar’s Global Sustainability Index Family, a series of 27 global equity indexes comprising companies with high sustainability ratings and a risk-return profile similar to the overall market.

(Related: Top 10 Best Performing ESG Funds of 2017: Morningstar)

“Enhancing this relationship enables us to leverage the expertise Sustainalytics has built over the last 25 years, and build on the momentum we started with the launch of the Sustainability Rating,” said Morningstar CEO Kunal Kapoor in a statement.

Michael Jantzi, CEO of Sustainalytics, in that same statement said his firm’s “close collaboration with Morningstar over the last two years has helped to broaden distribution” of its ESG research, “allowing Sustainalytics to work with more asset managers and owners to integrate ESG into their investment processes.”

Demand for ESG assets has been growing steadily. ESG assets top $12 trillion globally and account for almost 30% of professionally managed assets, according to the Global Sustainable Investment Alliance.

(Related: Morningstar Files to Launch Its Own Mutual Funds for Advisors)

There is, however, no single standard to rate the sustainability profile of companies. Sustainalytics is a leading provider of those ratings; so is MSCI. Others include the Carbon Disclosure Project, Bloomberg, Thomson Reuters, TruValue Labs and Okeom Research.

Sustainalytics, headquartered in Amsterdam, was ranked among the top three ESG ratings firms in 2015 and 2016 by the Independent Research in Responsible Investment survey of analysts, portfolio managers, investor relations and corporate social responsibility analysts. The other top two for 2016 were MSCI ESG Research and the Carbon Disclosure Project.

Morningstar’s stake in Sustainalytics continues an expansion of services for the firm, which began rating mutual funds for performance. It currently offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors and institutional investors in private capital markets, including much more extensive analyses of funds. In addition, Morningstar offers investment management services and it has filed with the Securities and Exchange Commission to launch its own mutual funds for financial advisors through the launch of the Morningstar Funds Trust.

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