Investing in ESG (Environment, Social, Governance) funds
Managed funds with the highest Morningstar Sustainability Rating and/or Low Carbon Designation
The Morningstar Sustainability Rating helps investors evaluate the relative risks of their investment options on environmental, social, and governance (ESG) factors. The Sustainability Rating is depicted on fund profiles by globe icons where a low ESG risk score equals 5 globes and a high ESG risk score equals 1 globe. Sustainability Ratings are updated monthly. It is is calculated using Sustainalytics’ ESG Risk Ratings for corporate issuers and Sustainalytics’ Country Risk Ratings for sovereign issuers and is based on historical holdings.
Morningstar has a number of requirements for a fund to receive a Sustainability Rating. That include: 1) At least 67% of a fund’s qualified holdings must be eligible to receive an ESG risk score (ESG Risk Rating for corporate holdings or Country Risk Rating for sovereign holdings), 2) Sustainability Rating is assigned to a fund in a Morningstar Global Category with more than 30 funds, and 3) Morningstar must be in receipt of full portfolio holdings data for a fund to attain a Sustainability Rating. The latest portfolio data must be less than nine months old.
The Morningstar® Low Carbon Designation™ is assigned to portfolios that have low carbon-risk scores and low levels of fossil-fuel exposure. The designation is an indicator that the companies held in a portfolio are in general alignment with the transition to a low-carbon economy. Unlike the Sustainability Rating, the Low Carbon Designation is not a relative ranking against peers.
The Morningstar Portfolio Carbon Risk Score is the asset-weighted carbon-risk score from the equity or corporate-bond holdings in a portfolio. The Portfolio Fossil Fuel Involvement is the portfolio’s percentage exposure to fossil fuels, Both the Carbon Risk Score and Fossil Fuel Involvement is averaged over the trailing 12 months. To receive a Morningstar Portfolio Carbon Risk Score, at least 67% of portfolio assets must have a carbon-risk rating from Sustainalytics. Funds with a Carbon Risk Score below 10, and Fossil Fuel Involvement less than 7% of assets will receive the Low Carbon designation.
Before using Morningstar Sustainability Rating or Low Carbon Designation, you should understand the underlying methodology which can be found at www.morningstar.com/research/signature
Here is a selection of the top-rated ESG managed funds available through the Netwealth platform.
To view the research and ratings you will need to login to your Netwealth account or sign up for a free research account.
Login to your Netwealth account.
Click 'Research' and then 'Compare Funds & Models.'
Click the 3 dots and select 'Download research.'
Open the pdf download and view the Morningstar Sustainability Rating and Low Carbon Designation at the top. There are definitions on the back page, as well as Sustainability information in the bottom left corner.
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