Nearly two years after partnering with Sustainalytics to develop ESG ratings of funds, Morningstar acquired a 40% stake in the Amsterdam-based ESG research firm. Purchase terms were not disclosed.
Morningstar acquired the ownership stake from Triodos Bank, a Dutch bank focused on sustainable issues, which had invested in Sustainalytics since 2009 when it was created from a merger of Dutch Sustainability Research and Jantzi Research.
The two firms have been collaborating since August 2015, when they announced their intention to develop ESG ratings of funds and ETFs. Since then Morningstar Sustainability Ratings™ have been assigned to more than 35,000 mutual funds and ETFs, drawing on Sustainalytics company-level ESG research.
In October 2016 Morningstar launched 27 global equity indexes based on company-level ESG research and ratings from Sustainalytics. In addition, Morningstar has released company-level ESG metrics for the holdings of 35,000 mutual funds and ETFs and a tool that enables investors to screen portfolios for various ethical issues.
Morningstar’s increasing involvement with ESG reflects growing momentum in ESG-related assets. According to the Global Sustainable Investment Alliance, almost 30 percent of professionally managed assets today are associated with responsible investment strategies. Global sustainable investment assets totaled more than $22.8 trillion in 2016, according to the Global Sustainable Investment Review.
Headquartered in Amsterdam, Sustainalytics has expanded through acquisitions and organic growth since its founding in 1992. The firm now has 13 offices and more than 300 staff members, including 170 analysts covering more than 40 sectors. The company is currently recruiting for 13 positions, having grown its staff by nearly a third over the last two years. It was voted best independent responsible investment research firm in Extel’s Independent Research in Responsible Investment (IRRI) surveys three times over the last five years.
Sustainalytics has been proactively promoting greater ESG use. It has partnered with asset manager clients and European fund sponsors to highlight sustainability metrics with end investors. It convinced BNY Mellon to offer ESG data to depositary receipt issuers. It allied with Harvard Business Review, Ceres and Channel NewsAsia and CSR Asia to create ESG evaluations of CEOs and companies.
The likely outcome of Morningstar’s investment will be a full acquisition of Sustainalytics over the next five years or so, just as Morningstar absorbed Pitchbook. Buying Sustainalytics would give Morningstar a global ESG franchise. Sustainalytics has a large European footprint, with most of its development and data staff based in Romania. It has been expanding in Asia, opening offices in Sydney and Japan in the last two years.
Sustainalytics is not exclusively wedded to Morningstar. It has a separate partnership with STOXX which introduced ESG indices based on Sustainalytics data in 2011 and last year allied with the Singapore Exchange (SGX) to launch SGX Sustainability Indices. It also integrated its ESG research and ratings on more than 10,000 companies into Glass Lewis’s proxy research and vote management platform.
Nevertheless, the tighter bonds with Morningstar reflect the large potential for ESG research in the US, which has historically lagged Europe in its appetite for ESG analysis. Morningstar’s increasing involvement is helping to broaden ESG visibility, creating a virtuous circle of growth. Above all, the deeper ties with Morningstar further strengthen Sustainalytics’ competitive position against arch-rival MSCI ESG Research, providing a powerful US presence and access to deeper pockets.