Little ESG leadership among big investors, Morningstar says

IFR 2499 - 02 Sep 2023 - 08 Sep 2023
3 min read
Julian Lewis

Despite institutions’ strong claims about sustainability, only one major asset manager makes the cut as an ESG leader in Morningstar’s latest assessment of “ESG commitment levels” – the Netherlands’ Robeco.

Robeco, which the analyst firm describes as continuing "to integrate and nurture ESG best practices” on to its decades-long heritage in sustainable investing, ranks among just eight institutions that achieve Morningstar’s top “leader” ranking on this measure.

The other investors the firm designates as leaders in its fourth assessment of ESG commitment are all smaller firms. They include the newly ranked Domini Impact Investments – a women-led US registered investment adviser that Morningstar terms one of the country's “most committed and thorough ESG-focused managers”.

The firm’s analysis of ESG leaders starts with the fund's ESG philosophy and is then backed up by the resources they commit to the effort, how strong the process is for considering and integrating ESG in the fund, and how active the team is about engaging with portfolio companies on sustainability issues, said Alyssa Stankiewicz, associate director of sustainability research, on a Morningstar podcast on ESG commitment levels.

Besides Robeco and Domini, its six other leaders comprise Affirmative Investment Management, Australian Ethical, Boston Trust Walden, Impax, Parnassus and Stewart Investors.

Among 34 investors whose commitment Morningstar was reviewing for the second or third time, Boston Trust Walden, Impax, Parnassus and Robeco all maintained a previous leader ranking.

Overall, Morningstar judged ESG commitment at 108 investors this year. Alongside its handful of leaders, it ranked 21 institutions as advanced, 48 as basic and 31 as low.

It upgraded Brown Advisory and Wellington to advanced from basic and Franklin Templeton and BetaShares to basic from low. In contrast, it downgraded UBS Asset Management to basic from advanced.

Federated Hermes, Northwest Ethical Investments and Melior earned inaugural ratings of advanced.

The firm has previously said that some of the largest asset managers “are constrained in their ability to lead on ESG matters in part because most of their assets track non-ESG indexes”. This particularly applies to the US “big three” of BlackRock, State Street and Vanguard.

Along with fellow heavyweights Capital Group, Columbia Threadneedle, Fidelity, JP Morgan, Invesco, M&G and Putnam, BlackRock and State Street continue to be rated basic. So does DWS, where greenwashing allegations have drawn regulatory scrutiny.

BlackRock’s efforts “to build out topnotch resources and integrate ESG considerations in most parts of its business [are] impressive, but its sheer size and asset mix hamper its ability to fully embrace a culture of sustainable investing”, Morningstar said, pointing to a “limited” ability to push for improvement on ESG issues at investee companies.

The firm acknowledged “some small steps in the right direction over the past year” at State Street, but judged that “hurdles to a stronger ESG programme remain in place”.

Vanguard remains in the low category, with Morningstar citing its “inconsistent integration of ESG factors, paucity of dedicated ESG specialists and low support for key ESG shareholder resolutions”. Moreover, its disclosure of ESG and carbon-related metrics is “lacking across the board”.

Others in this category include PGIM and VanEck.