Case study by Morningstar, Inc.
In the spirit of showcasing leadership and raising standards of responsible investment among all our signatories, we are pleased to publish case studies of all the winning and shortlisted entries for the PRI Awards 2020.
Give a brief overview of your project’s objectives and how your approach to the subject matter differed from previous research.
The European Sustainable Fund Landscape paper was written in 2019 as a response to the growing demand for guidance on the complex topic of ESG funds alongside detailed data analysis. The line between traditional and sustainable funds is becoming increasingly blurred, adding confusion to an already complex topic. The report’s aim was to help investors navigate the shifting landscape by grouping sustainable funds into three general types: ESG Focus, Impact, and Sustainable Sector.
Describe your methodology, including how you addressed macro trends and mechanisms for effecting systemic change.
The research covered flows, assets, and launches, and encompassed 2,232 open-end and exchange-traded funds domiciled in Europe, as of June 2019.
The European sustainable funds universe was deemed as those open-end funds and exchange-traded funds domiciled in Europe that, by prospectus, either state that they use ESG criteria as a key part of their security-selection process, or indicate that they pursue a sustainability-related theme, or seek measurable positive impact alongside financial return.
The fund list required the Sustainability Research team to manually review prospectuses and other legal documents in different languages to ensure correct tagging.
The paper offered a comprehensive view of the growth of the European sustainable funds universe. It highlighted flows on an asset manager and fund-level, fund launches, repurposed funds (the number of funds that have turned into full-fledged sustainable investment offerings with a new mandate) and the proportion of money allocated to passive in comparison to active.
In terms of future work, subsequent papers have built upon the fund list and framework captured by the paper, including regular quarterly US, European and global flow reports and landscapes.
A recent example, European Sustainable Funds Show Resilience During Covid-19 sell-off, demonstrated that, driven by continued investor interest in environmental, social, and governance issues, the European sustainable fund universe pulled in €30bn in the first quarter of 2020. This compares with an outflow of €148 billion for the overall European fund universe.
The methodology was intended to be clear and the findings have been shared widely to ensure full transparency to a broad audience and range of investors, from professional to retail.
All of these landscape and flow reports have been extremely well received by the asset management and investor community, as well as the media. In terms of numbers, ESG fund flows for US and Europe represented a large portion of the total Morningstar ESG media coverage last year, earning 300+ media placements as reporters seek out this hard-to-find and inconsistent data to quantify the growing ESG landscape. Research from this team secured 724 media placements and an incredible 182 interviews for Q1 globally.
Outline how your findings have been applied in a practical context and their wider benefits for investors or the financial system.
The European Sustainable Funds Landscape formed part of a campaign whose primary markets were the UK, France and Germany (the full campaign was translated for these languages) and secondary markets - Benelux, Italy, Spain, Switzerland and Austria (the campaign entry points were translated into local languages with the remainder of the campaign offered in English, French and German).
The primary targets of the campaign were portfolio managers, product managers, marketers and distribution within asset management, wealth management, insurances, pensions and institutional investors and advisers. The secondary target focused on individual investors.
Ultimately, the intermediary community, including advisers, wealth managers and private banks, was a clear benefactor, as the paper was a useful tool to counsel their investor client base and get a heightened understanding of sustainable funds and ESG trends in Europe, using factual evidence and data analysis.
The data and findings of the paper were shared and discussed at multiple industry conferences and investor forums. Examples include FundForum ESG and Impact in Amsterdam, Sustainable Forum in Luxembourg, Investment Network in London, Private Wealth Forum in Hong Kong, and many other events.