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Morningstar and Sustainalytics team up to develop ESG scores for funds globally

Julius Baer is the first to licence new scores for fund research

Investment research giant Morningstar has teamed up with Sustainalytics, the environmental, social and governance (ESG) research house, to develop ESG ratings for global mutual funds and exchange traded funds in the latest sign that ESG has gone “mainstream”.

And Chicago-based, Nasdaq-listed Morningstar has already signed up Julius Baer for the planned offering. The Swiss private banking group with CHF284bn (€261bn) under management will be the first Morningstar client to license the ESG scores for its fund research team.

Morningstar will launch the scores later this year, based on ESG company ratings from Sustainalytics. Morningstar tracks the holdings of more than 200,000 global managed products, and Sustainalytics provides ESG ratings on more than 4,500 companies.

“ESG considerations, once viewed from the sidelines, are increasingly front and center for fund investors,” said Sustainalytics’ CEO Michael Jantzi.

Using its portfolio holdings data, Morningstar will create asset-weighted composite ESG fund scores based oncompany-level Sustainalytics ESG ratings, though the exact details of how this will work are still being decided.

“For the first time, investors will be able to compare funds across categories, relative to benchmarks, and over time using ESG factors,” Morningstar said in a statement.

Users will also be able to “drill down” to see scores for each of the three ESG pillars. Morningstar expects to launch the fund-level ESG scores in the fourth quarter of 2015 and through its datafeeds and its major software platforms in 2016.

Jon Hale, Morningstar’s director of manager research, North America, said the move was a “natural extension” of its work: “We want to bring even greater transparency and accountability to the investment industry with ESG research, data, and tools, while helping investors to put their money to work in ways that are meaningful to them.” Terms of the deal weren’t disclosed.

In addition to its research business, Morningstar also offers investment management services, with more than $180bn in assets under advice and management.