Morningstar, the global research house, has developed a reputation in recent years for focusing on ESG issues for both managers and their clients. Its latest report on the subject highlights three important trends.
Jon Hale, Morningstar global director of sustainability research, cites three trends, which resonate in the Australian and New Zealand market:
. Climate risk is top of mind for investors, he says. Investors want to know more about climate risk from companies in which they are shareholders or are thinking about investing in. Australian shareholders should be told of climate risk to profits; companies need to enhance their climate-related disclosures.
. There is increasingly more engagement from investors on ESG issues. Gender diversity on boards and in the executive layer of organisations was a hot topic of conversation through 2017 and will ramp up in 2018, Hale says. Stewardship is also on the agenda.
. Investors are also more interested than ever in the ESG-related approach to investing. Financial advisors need to incorporate sustainable investing into their practices or be left behind, Hale says. “And while millennials and women are leading the way with sustainable investing, there is also interest from the baby boomers.”
Morningstar introduced its ‘Sustainability Rating for Funds’, or ‘Globe Rating’, in 2016 and continues to work on tools to support advisors incorporate ESG into their practice, a spokesperson said last week
In a recorded interview, Hale said: “I think more and more investors are recognizing that climate risk is something that they want to know more about from companies. We just saw last week a group of investors, they are calling themselves, Climate Action 100, say that next year they are going to focus on the 100 companies with the largest carbon footprint globally. In their engagement with those companies get them to agree to disclose in more detail what they think the risks are from climate change to their business.
“I think this is indicative of a heightened investor awareness, and there’s already a lot of movement in this area. Just also last week Exxon filed with the SEC saying they would enhance their climate-related disclose next year. That of course was in response to a shareholder vote this past May in which 63 per cent of Exxon shareholders voted to encourage the company to do that. I think we are going to see more of that this coming year…
“I think investor stewardship is something we definitely are going to see more of in 2018 partly because of the climate risk disclosure. There’s also the issue of gender diversity on boards and in executive suites of companies. That’s an interesting issue as well. I think what we are going to see – and Blackrock, Vanguard and State Street led the way last year – we are going to see asset managers doing more of this because, I think, their investors are interested in what they are doing in this area and think that as some of the largest shareholders of most major companies in the world that asset managers can make a difference in how some of these companies deal with some of these sustainability issues like climate change.”
Greg Bright is publisher of Investor Strategy News (Australia)