Financial research giant Morningstar has launched a “plainspoken” ESG service to help the growing army of global retail investors navigate the sustainable finance landscape.
The Chicago-based company’s Investable World is a free data-enriched web portal that walks users through the key concepts, assets and investment strategies that form the backbone of the sustainability sector. It outlines how people can influence environmental, social and governance issues through their investments and importantly, it also explains the risks inherent in the ESG space.
The web-based service is designed to educate non-expert investors who are curious about how they can make their money work for good, but who may also be unsure of how the market works – or who are baffled by some of the technical language often used.
“It’s intentionally designed to be accessible for retail investors and to cater to folks that aren’t spending all of their days keeping tabs on the ESG landscape but who want more control and personalisation over where they’re investing their money,” explained Alyssa Stankiewicz, associate director of sustainability research at Morningstar.
Morningstar’s Investable World site is divided between the themes of water, food, energy, health, and community and explains the challenges associated with them and how finance might help address them. While it creates no new score or rating, it offers data visualisation tools that help explain more than 750 fund investment strategies geared towards offering solutions.
The service comes as retail investors take greater interest in ESG markets, mainly through buying into mutual funds and exchange-traded funds (ETFs). Spanish banking group Santander’s asset management unit recently said investments in themed funds for a quarter of global ESG capital allocations in 2020, up from 11 per cent in 2012. The European Securities and Markets Authority (ESMA) said local assets under management in ESG ETFs had quadrupled in the two years to 2020, reaching €34 billion (US$34.5bn).
However, the International Organization of Securities Commissions (IOSCO) said in August that retail investors are poorly informed on sustainability products and strategies. Calling for better education efforts, the central banks industry group said non-institutional investors were at a greater disadvantage from the absence of a “consistent and comparable framework to enable their understanding of sustainable finance products”.
“This knowledge gap, when combined with low levels of financial literacy, could expose retail investors to different risks of potential misconduct, which may include greenwashing, and undermine confidence in the market,” IOSCO wrote.
Stankiewicz said that the Morningstar service was expected to be used by financial advisers to help them explain sustainable investing to poorly informed clients and those who are new to the space.
“The fact that it is accessible should support those conversations they’re having with their clients, in terms of getting people to speak the same language about these decisions,” she told ESG Insight.
Investable World is part of Morningstar’s determination to democratise access to information that can better inform investment decisions, Stankiewicz said. The need for that was clear from the growth in retail interest, particularly among younger people. That was made clear from the so-called meme stocks controversy last year when day traders coordinated their activities via social media to force up the price of ailing stocks. The episode reflected young “people’s willingness to do research and desire to take some agency in this space”.
Additionally, the presentation of ESG data and concepts in a format that can be understood by non-expert investors would help dispel misunderstandings that have fuelled a recent backlash against sustainable finance. Importantly, it explains that there is a difference between ESG opportunities and ESG risks.
“I see the pushback as a great opportunity for the ESG investing industry to simplify its language and clarify what it’s trying to do – not just for politicians, but for the end investor – so that investors are not misled,” Stankiewicz said.
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