Are the investment portfolios of Europe's largest funds sustainable? It would seem not. At least according to Morningstar, one of the world's most renowned financial research firms. The story is reported by the Financial Times.

Vast investment portfolios, little sustainability

Morningstar has assigned a sustainability "score" to the twenty largest investment portfolios in Europe. The result is striking: more than one in three rates "low" or "below average". This includes the very largest, namely Sweden's AP7 Aktiefond, DWS Top Dividende by Deutsche Asset Management (part of the Deutsche Bank group) and IP High Income by US-based Invesco. Jon Hale, who heads sustainability research at Morningstar, explained to the British financial daily that funds managing vast amounts of capital tend to pick the largest companies regardless of any ethical concerns. Indeed, when share prices collapse, for some funds it is precisely the right moment to invest — even when the collapse is triggered by a scandal such as the terrible accident at Deepwater Horizon in the Gulf of Mexico.

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Introducing the Morningstar Sustainability Rating for Funds news.morningstar.com/articlenet/art… #MstarESG #sustainability

♥ 3 17 mar 2016 · Apri su X →

What Morningstar's sustainability rating is

Morningstar's analysts, whose work is to measure and evaluate trends in the investment world, could not afford to overlook the growing public interest in ethical and sustainable finance. So, in March of this year, the agency chose to launch a fully fledged sustainability rating. To calculate it, Morningstar relies on data from Sustainalytics, a company that specialises in research on ESG (environment, social and governance) issues. For each fund, Morningstar obtains from Sustainalytics the ESG rating assigned to every individual security. It then calculates a weighted average, adjusted according to the sector to which the companies concerned belong and the "weight" of those securities within the portfolio. From this it ultimately arrives at a sustainability rating for each fund — and arranges them into a kind of ranking.

Investment funds: controversies and progress

Such resounding failures could not fail to spark controversy. According to some fund managers, Morningstar's criterion is too draconian because it is based solely on the companies in which the funds invest, without asking, for example, whether the fund managers have entered into a dialogue with their management, or whether they have drawn up a blacklist to exclude less responsible companies in future.

Yet the picture is not entirely bleak, at least according to Michael Jantzi, chief executive of Sustainalytics. Speaking to the Financial Times, he explains that fund managers are preparing to meet the demands of increasingly attentive and aware investors. BlackRock, for instance, has established a new unit dedicated to responsible investment. State Street Global Advisors, which manages $2,400 billion, has launched a specific investment portfolio that favours companies in which women hold senior roles.

Morningstar: origins and activities

But what is Morningstar, and can it really be trusted? Among industry insiders, Morningstar is recognised as the world's most renowned provider of independent financial research. Founded in the mid-1980s, it arrived in Italy in 2001. Its success grew from a single insight: fund returns must be evaluated in relation to costs and the risk taken on by managers. From this idea — which, viewed through today's eyes, may seem almost too straightforward — a long series of fund evaluation tools was born, growing richer and more varied over time. Today, Morningstar provides data on approximately 500,000 investment instruments and has twenty-seven offices around the world.