What it is
Sustainalytics, owned by Morningstar since 2020, provides ESG risk ratings for over 20,000 companies. Their methodology assesses both a company's exposure to material ESG issues and how well it manages those risks. The result is an 'unmanaged risk' score: the residual ESG risk that remains after accounting for the company's management efforts.
Why we picked this
Where MSCI rates ESG performance relative to sector peers, Sustainalytics measures absolute risk. This makes it particularly useful for identifying companies with high exposure that are not managing it well. The Morningstar integration means these ratings are accessible through widely used investment research platforms.
Key takeaways
- The 'unmanaged risk' methodology identifies companies where ESG exposure exceeds management capacity, a leading indicator of potential financial impact.
- Integration with Morningstar's platform makes Sustainalytics data accessible to millions of retail investors through their existing investment research tools.
- Ratings cover subindustry-specific material ESG issues rather than applying a one-size-fits-all framework, improving relevance across different sectors.