Kunal Kapoor, Morningstar’s CEO, explains why portfolio building is done through the lens and enormous potential of ESG factors.
Here are some excerpts from his opening address at the Morningstar Investment Conference.
We are going all in on ESG at Morningstar.
In the middle of a pandemic, we completed our acquisition of Sustainalytics, the leading provider of ESG data and analytics globally. We are embedding Sustainalytics capabilities across Morningstar.
Michael Jantzi, who founded and led Sustainalytics for more than 25 years, back when ESG was not anywhere near as prominent as it is today, is leading an effort across Morningstar to ensure that advisers are equipped with the tool to make ESG personal.
We think this is important because two of the biggest challenges facing advisers--showing your value and build long-term relationships--can be met by embracing ESG. Research shows that advisers often lose relationships when there's a generational change in the leadership of families. Often that's because the values that apply between one generation are not captured effectively in the manner that portfolios are built. You can change that, and we're going to help you do so.
With Sustainalytics, we've already launched fund's carbon exposure, dozens of data points to assess a company's footprint, including carbon impact. And importantly, we're aggregating ESG portfolios that are stored throughout our software and providing portfolio-level statistics on them when it comes to ESG.
We think these are game changers in the ability that you have to build effective, resonant, and personalized portfolios that show where you can bring value and insights to relationships while delivering the outcomes that clients want. Importantly for you, it ensures that, as intergenerational wealth transfers happen, you are relevant to that conversation.
Look out for our new ESG risk model in Morningstar Direct, which will help advisers visualise how risk and return trade-offs can be balanced when constructing client portfolios in an ESG framework. We're adding ESG screens to our core equity and fixed-income indexes to help you better benchmark those portfolios.
Finally, as a user of our research, you'll have access to our select list for advisers through our manager selection services. These include high-conviction investment ideas, as well as ongoing training, commentary, and support for those of you who are trying to navigate the ESG landscape.
This will open up the investing world to a new generation of investors who are poised to be the beneficiaries of an unprecedented wealth transfer but who bring very different values and an entirely different ethos of responsibility to how that wealth is invested.
For you to engage with them, you, too, will need to be all in on ESG.
Personalization, ESG, the pandemic, uncertainty, hope, societal unrest: You name it; we're living through it.
These are gnarly intertwined issues that leave us all wondering how we can do more to help. When we can create financially better outcomes for more of society, we all benefit. As the pillars of communities that you are part of, you have an important role to keep playing in this context.
The issues around wealth and racial inequity that are roiling the world around us do have more solutions that we can jointly bring to bear.
The role that we have in helping people save, invest, and plan can be magnified and broadened in a positive and impactful way like never before. Morningstar's playing a role in this transformation, both internally and externally.
Externally, we're partnering with firms such as Impact Shares that donates all its advisory profits back to the community to bring ETFs that track the Morningstar Women's Empowerment Index and the Morningstar Minority Empowerment Index to life. The underlying indexes highlight companies that have strong track records on gender, racial, and ethnic diversity.
We want to partner with you in supporting efforts to bring lasting change to the communities that you are a part of. Because more than others, you understand local dynamics and can be vessels of lasting change.
So, pick up the phone and call us, email us, and engage with us, so we can support your efforts to ensure that we're serving a more diverse, inclusive group of investors and empowering their success in ways that drive lasting structural changes to the inequity that we're grappling with today.
These are weighty topics, but together with you, we can certainly make a difference.
The world around us has changed, but our shared mission of empowering investor success is as relevant and resonant as ever.