Morningstar acquires 40% of Sustainalytics and takes board seat

Latest sign of consolidation in the ESG research sector as fund research giant takes stake

Morningstar has taken a 40% stake – and a seat on the board – at environmental, social and governance (ESG) research house Sustainalytics. Financial terms of the transaction weren’t disclosed.

It is the latest deal in the sector, following S&P’s acquisition of Trucost and ISS’s purchase of South Pole’s finance arm earlier this year.

NASDAQ-listed Morningstar – which releases its second-quarter results and holds a sustainability webinar tomorrow – said the investment is “an important milestone in Morningstar’s long-term sustainability strategy” and one which supports Sustainalytics’ ability to deliver ESG products and services to the global investment community.

As part of the transaction, Steven Smit, head of sustainability at Morningstar, will join the Sustainalytics board of directors and the Sustainalytics executive team has taken a minority equity stake in the company.

It follows a strategic collaboration announced in August 2015 that led to the launch, in March 2016, of the Morningstar Sustainability Rating for mutual and exchange-traded funds.

The ratings, which now cover more than 35,000 mutual funds and ETFs, use Sustainalytics company-level ESG research. Building on its arrangement with Sustainalytics, Morningstar then launched the Global Sustainability Index Family, a series of 27 global equity indexes designed to provide a standard for sustainability investing.
The fund rating methodology ran into a barrage of criticism from some in the sustainable investment community, with Andy Howard, Head of Sustainable Research at Schroders, calling it “painting by numbers”.But in an interview with RI in May, Morningstar CEO Kunal Kapoor argued the firm had taken a “very complex set of information and delivered it in a way that people can consume it”.

“Enhancing this relationship enables us to leverage the expertise Sustainalytics has built over the last 25 years, and build on the momentum we started with the launch of the Sustainability Rating,” said Kapoor today.

“We have the largest ESG fund coverage universe today, and we look forward to continuing to meet the increasingly sophisticated ESG needs and requirements of our clients through integrated solutions and innovative research that highlights good stewardship, lower costs, and transparency for investors.”
Close collaboration with Morningstar over the last two years has helped to broaden distribution of our ESG research, allowing Sustainalytics to work with more asset managers and owners to integrate ESG into their investment processes,” said Sustainalytics’ CEO Michael Jantzi.

Sustainalytics, which is 25 years old this year, has 13 offices worldwide and more than 300 staff. It traces its roots to Jantzi Research, formed in 2002 in Toronto.

In 2016 it partnered with proxy firm Glass Lewis to integrate ESG information into proxy advice and engagement.

Sustainalytics came into being in 2009 following the merger of several smaller ESG houses. That same year, Sustainalytics merged with Jantzi’s firm to become the entity it is today – with shareholders including Triodos, MeesPierson and PGGM.