2 Funds Leading on ESG

VIDEO: Morningstar analysts have assessed the ESG credentials of more than 400 funds across the globe. Here are two of the most highly ranked

Holly Black 4 August, 2021 | 10:54AM
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Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Ronald Van Genderen. He is a fund analyst at Morningstar. Hello. 

Ronald Van Genderen: Hello, Holly. 

Black: So Ronald at the end of last year, Morningstar introduced something called the ESG Commitment Level that looks at the sustainable characteristics of funds. Can you give us a quick recap of what that measure entails?

Van Genderen: Yeah, sure. So, at the end of last year, we introduced the Morningstar ESG Commitment Level. That's a new qualitative measure that aims to help investors better understand how environmental, social and governance factors inform investment strategies, and also, which funds and asset managers are committed to deliver the ESG outcomes that best meets investor sustainability preferences. Since the launch late 2020, we have evaluated 71 asset managers and more than 400 funds across the globe. Out of these funds, which cover both conventional and sustainable funds, only 24 were awarded the Morningstar ESG Commitment Level of leader or the highest mark. Another 33 funds received an advanced score. Meanwhile, 94 funds earned a basic rating, and the remaining funds received an ESG Commitment Level of low. 

Black: So let's look at a couple that have scored well and got the coveted leader status, what's one fund you like? 

Van Genderen: So the first fund that we would like to discuss is Impax Global Equity Opportunities. And this strategy has a strong sustainability focus as it invests in companies that the manager sees as likely to benefit from the transition to a more sustainable economy. And to identify such companies the team apply Impax Industry Sustainability research that ranks economic sub industries by ESG related opportunities and risks. And given the positive inclusion approach, negative screenings or exclusion criteria are not central to the strategy. Strategy benefits from a highly experienced capable equity research team that is responsible for the ESG company research, and it is deeply involved in proxy voting and engagement efforts. We consider these active ownership practices to be very strong. And on a final note, we will welcome more detailed fund level reporting on its active ownership activities.

Black: Okay, so what is another fund that we like that's leading on ESG?

Van Genderen: Yeah, the second fund is Stewart Investors Worldwide Sustainability, which ranks among the industry's finest global equity ESG options in our opinion. And it earns a Morningstar Commitment Level of leader. It is managed by Stewart Investors (indiscernible) Sustainable Funds Group. This is a group of experienced stable people and includes seasoned team leaders. ESG is ingrained into all aspects of the investment approach. And the team focuses on finding management teams with a shared vision of driving sustainable developments in the markets in which they operate. A by-product of this philosophy is that the strategy will not invest in companies with material exposures to harmful products, including weapons, tobacco, alcohol, fossil fuels, and gambling.

Black: Fantastic. Ronald, thank you so much for your time. For Morningstar I'm Holly Black.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Holly Black  is Senior Editor, Morningstar.co.uk