Photo illustrating concept of cutting employees.

ESG service provider Sustainalytics is set to cut between 10-12 percent of its global workforce to “strengthen the financial footing of the business”.

The firm is in the process of being integrated into parent Morningstar’s indexes business, a move that Responsible Investor revealed in June. The announcement comes at the end of a 90-day review of the two businesses aimed at identifying areas to integrate more closely.

Ron Bundy, president of Morningstar Indexes, told RI that, while Sustainalytics was one of Morningstar’s fastest growing business units, “there are times in the business where sometimes we have to make adjustments”.

“We’ve been on such a rapid growth pace, now it’s time to really focus the business on efficiency and quality,” he said.

Sustainalytics is focused on “a healthy growth plan that aligns new revenue with the investments we’re making in our business”, he added, noting that the decision had been “difficult”.

Similar job losses on the index side are not anticipated.

The move runs somewhat counter to the messaging when the integration was announced in June. Morningstar told RI at the time that it was a question of expansion rather than streamlining of the businesses.

“When you’re in a period of rapid growth and you’re moving fast, you invest in a number of areas of the business and we’ve done that and we’re seeing good payback from a lot of those investments,” Bundy said on Wednesday.

“But there comes a time in every business where you step back and really start to focus on efficiency and quality, making sure that the investments you’re making are focused and are going to have the biggest positive impact on clients, so that’s what we’re doing here.

“This is really just making some adjustments in our business as we step back and assess the rapid growth that we’ve been in.”

A spokesperson for Morningstar said that as part of the alignment, it was making adjustments to “strengthen the financial footing of the business”.

“Headcount reductions in addition to other expense reductions are part of the mix. While it has been a very difficult decision, we plan to reduce our global headcount at Sustainalytics by 10-12 percent to ensure we can get the business on healthy financial footing to be able to move forward and grow,” the spokesperson continued.

“We took great care in making these decisions and in every case will work closely with those who are impacted, as well as those who remain, to ensure a smooth transition and support for our global teams.”

Employees set to lose their job will find out next week.

According to a Morningstar investor presentation from May, revenues have risen fast at Sustainalytics over the past two years. Organic revenue growth came in at 46.5 percent in the second half of 2022 and 39.9 percent in Q1 this year, outpacing every other Morningstar division.

Looking ahead, Bundy told RI that Morningstar plans to invest in Sustainalytics’ Europe business, as well as AI and machine learning capabilities. It will also look to focus on its climate solutions, in particular Low Carbon Transition Ratings and risk scoring, and EU taxonomy-related services.

The firm has already seen the departure of previous president Bob Mann, who exited as part of the integration. Founder and CEO Michael Jantzi left in 2022 after being appointed to the ISSB.

Morningstar acquired a 40 percent stake in Sustainalytics in 2017 and bought out the remaining shares in 2020 for a lump sum of €55 million plus undisclosed additional payments in a deal that valued the firm at €170 million.

Sustainalytics was no stranger to acquisitions itself, having previously bought out a number of service providers.