Independent investment research firm Morningstar announced today a significant expansion in the funds covered under its Morningstar Sustainability Rating, by incorporating funds’ investments in sovereign debt, in addition to corporate securities, through the inclusion of Country Risk Ratings from ESG ratings and research provider subsidiary Sustainalytics. Morningstar completed the acquisition of Sustainalytics in July 2020. 

Morningstar introduced its Sustainability Rating in 2016, aiming to help investors use ESG information to evaluate portfolios. In 2019, the company updated the tool by replacing Sustainalytics’ company ESG Rating with its ESG Risk Rating, which measures the degree to which a company’s economic value may be at risk due to ESG issues.

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With the new integration of Country Risk Ratings from Sustainalytics into the solution, Morningstar expands the range of assets used in the calculation of the sustainability rating, and adds coverage for approximately 25,000 multi-asset and fixed-income funds, making the ratings available for more than 85,000 funds worldwide.

According to Morningstar, while Sustainalytics’ ESG Risk Ratings and Country Risk Ratings are both designed to measure the degree of absolute ESG risk, the two ratings measure distinct forms of risk, with the ESG rating measuring risk related to long-term enterprise value, and the country rating assessing the risk to long-term economic development.

Will Ridout, Senior Manager of Product Strategy and Development at Sustainalytics, said:

“Investors with a fixed income focus are increasingly looking at how ESG risks may affect their funds and underlying holdings. Thanks to these enhancements, investors can assess the ESG risk of their sovereign exposure and integrate these considerations into their fund selection criteria. By offering visibility into our Corporate Sustainability Scores and Sovereign Sustainability Scores, Morningstar and Sustainalytics are offering investors a comprehensive assessment of ESG risk through multiple lenses.”