Stockholm (NordSIP) – On 30 August, Morningstar revealed their annual assessment of asset managers’ ESG commitment level. Evaluating 108 firms globally, the analysts find that the majority exhibit only a basic level of commitment to the ESG cause, with only eight asset managers crowned as leaders in the field. According to the report, rating changes have picked up compared with previous years, featuring several high-profile up- and downgrades.
Since first introduced in 2020, the analysis has become a valuable feature for investors when conducting their fund and asset manager due diligence process. The systematic qualitative rating communicates succinctly the assessments of asset managers’ determination to incorporate ESG factors into their investment processes and deliver sustainability outcomes relative to peers. The scale runs from best to worst: Leader, Advanced, Basic, and Low.
To arrive at the overall assessment, the analysts evaluate three key pillars: philosophy and process, resources, and active ownership. The ESG Commitment Level is not to be confused with the Morningstar Sustainability Rating, which is a quantitative, holdings-based measure of a fund’s ESG risks relative to category peers. The two ratings are instead to be viewed as complementary.
According to Morningstar, eight asset managers are leading the pack in 2023: Robeco, Impax, Parnassus, Australian Ethical, Boston Trust Walden, Domini Asset Management, Affirmative Investment Management, and Stewart Investors. A common feature for most of these firms is that they have been focused on sustainability since inception and yet managed to stay at the cutting edge of developing innovative ESG frameworks over the years. Their active ownership practices are outcome-oriented, and the engagement processes clearly define escalation alternatives. The leaders have also managed to attract and retain top-notch talent.
“The cohort of 21 asset managers who earn Advanced ESG Commitment Levels reflects a more varied group of investment firms, including large firms such as Amundi and Schroders, as well as small and midsize shops like Royal London Asset Management and Generation Investment Management,” comment the analysts. Newcomers to the category this year are Wellington Management and Brown Advisory, both upgraded from Basic.
Most asset managers end up in the Basic group, which is also the most diverse of the four categories, encompassing giants such as BlackRock and State Street Global Advisors, as well as boutiques like Colchester Global Investors and Acadian Asset Management. Whether for lack of ambition or due to implementation shortcomings, these managers lag behind their more advanced peers. “Firms with an ESG Commitment Level of Basic have made a meaningful effort to integrate sustainability themes into their investment process, but they still blend in with the crowd,” conclude the report’s authors.
Lastly, 31 asset managers in the sample, including Vanguard, Schwab Asset Management, and Dimensional, are awarded dishonourable Low ESG Commitment Levels. This year, two previous laggards, Franklin Templeton and Betashares, have been upgraded to Basic from Low.
Investors curious to know more about how their managers fare, compared to their peers or standalone, are advised to peruse the report in detail. Morningstar’s report provides valuable insights into each firm’s key sustainability ambitions and practices.
