Morningstar aims to provide carbon-risk reporting on managed funds later this year, the firm’s Asia Pacific head of manager research ratings, Chris Douglas, told a NZ conference last week.
Douglas told the Heathcote Investment Partners ‘Meet the managers’ symposium that the carbon scoring system – based on data supplied by partner firm, Sustainalytics – would “help investors incorporate carbon risk into their investment decisions”.
He said there was growing pressure globally for companies to report on carbon exposure, which was flowing through to better quality and scope of the underlying data.
Morningstar already offers a ‘sustainability rating’ across its fund universe, including the NZ market – again based on Sustainalytics’ environmental, social and governance (ESG) data.
According to Douglas, only six out of the 750 NZ funds in the Morningstar database self-identify as sustainable or ethical products.
“But about 60 funds in NZ actually score highly on our sustainability rating,” he said.
And retail investor appetite for ESG-themed products was on the rise globally, Douglas said, citing research from the Global Sustainable Investment Alliance (GSI).
The GSI study shows retail clients represented over 25 per cent of the responsible investment market in 2016 compared to just under 11 per cent four years previously.
“We can see a lot more products have come to market to meet that demand – but not yet in NZ,” he said.
Over the last few years a growing proportion of sustainable investment products have come in the form of exchange-traded funds (ETFs), which comprised about half of new launches in the space in 2016 and 2017 compared to zero in 2011.
Catalina Secreteanu, Sydney-based Sustainalytics, told the Heathcote crowd that the ‘millennial’ generation and women were particularly driving the demand for sustainable investment options.
Secreteanu said research from the Institute for Sustainable Investing (ISI) in 2017 found almost 40 per cent of millennials were ‘very interested’ responsible investment compared to 23 per cent in the broader population. Overall, the study shows 86 per cent of millennials were either somewhat or very interested in sustainable investing – a 10 per cent premium above the general population.
Women across all age groups outweighed men 87 per cent to 67 per cent based on interest in sustainable investing, according to the ISI survey.
Secreteanu said further GSI research found that about a quarter of all “professionally managed assets” now include some ESG element.
While the finding “should be taken with a pinch of salt” given ESG exposure was self-reported, she said both demand and supply for sustainable investment products was on the rise.
“There’s a growing importance for financial advisers to engage with their clients on ESG,” Secreteanu said.
Last year Morningstar took a 40 per cent stake in Sustainalytics, whose ownership group also includes a consortium of Dutch pension funds.
The Heathcote ESG-themed event also included presentations from Jordan Cvetanovski, Pengana International Equities chief investment officer; Dave Whitten, Janus Henderson commodities portfolio manager; Stephen Bennie, Castle Point portfolio manager; and, Mark Mitchell, director of Australian-based fixed income shop, Daintree.