Morningstar targets fund managers with new sustainable Indexes

By Penny Pryor

Morningstar has launched a new suite of impact ESG indexes - the Morningstar Global Sustainable Activities Involvement (SAI) Indexes - which utilise the ESG Impact Framework of Morningstar Sustainalytics.

The suite of indexes consists of five individual impact theme indexes, three multi-impact theme indexes and one aggregated impact theme index.

Australian senior product manager, Morningstar Indexes, Elle Kuhta, says these indexes should provide a good base for fund managers wishing to construct products around them.

"These are designed definitely to be investable. So, if an ETF issuer or any mandate wanted to track this type of strategy, that's something that these indexes are designed for," she said.

"I think what is important to understand about this index family, is that they're quantitative and they are really designed specifically around the SDGs."

The SDGs are the United Nations Sustainable Development Goals. There are 17 SDGs and Morningstar Sustainalytics has grouped them under the five impact themes of human development, climate action, health ecosystems, resource security and basic needs.

To be included in the indexes, there are stringent ESG screens and companies need to have significant revenue aligned to one or more of the impact themes. Index weightings are tilted toward companies with the greatest percentage of revenue derived from SDG-aligned activities.

Kuhta uses the example of US-based semiconductor maker Micron Technology that specializes in the production of computer memory and computer data storage.

"This is a company where its operations are set to be powered by 100 per cent renewable energy by 2025. So, the company's revenues are primarily aligned with what we call SDG seven, which is affordable and clean energy. So that would be a company that would be eligible for inclusion. Now, what's important to know is in order for a company to be eligible for inclusion in our aggregate SAI index, is the company would have to have at least 50 per cent revenue exposure across themes," she says.

"And then if we're looking at the five individual themes, it would have to have revenue exposure of at least 25 per cent."

Australian companies that meet the criteria to be included in the indexes include CSL Ltd(CSL), Vicinity Centres, (VCX), Mirvac Group (MGR) and Sims Ltd (SGM).

"We're seeing a diversified pool of investors that are looking to allocate capital to create measurable environmental and social impacts and that's really what we feel like this index family does," Kuhta says.