Upgrade to corporate governance methodology and strengthening of three material ESG risk measures for Sustainalytics flagship product began May 30 and represents the most significant updates since industry-leading ratings were introduced in 2018.

Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment insights, today announces significant enhancements to Morningstar Sustainalytics flagship ESG Risk Ratings, covering more than 16,000 companies globally. The corporate governance methodology enhancements were implemented on May 30 and stronger material ESG risk measures will be implemented in the coming months.

Laura Lutton – Director of ESG Product Management, Morningstar Sustainalytics

“Our clients look to Morningstar Sustainalytics to provide leading edge sustainable investment data, research and ratings to better address a myriad of ESG-related risks and opportunities and provide a consistent independent lens on financially material ESG issues. Our ESG Risk Ratings help investors identify company exposure to industry-level ESG risks and how effectively companies are managing that exposure. The world is constantly changing, creating a challenging environment for investors, and our ESG risk metrics need to evolve along with it. These enhancements represent the most significant change to our methodology since we introduced our flagship ESG Risk Ratings to investors in 2018. We’re extremely excited to offer this capability to our clients and to the market.”

As the first step in a series of enhancements to its industry leading ESG Risk Ratings, on May 30 Morningstar Sustainalytics introduced an upgrade to its corporate governance methodology. In its second annual Voice of the Asset Owner Survey which canvassed viewpoints on ESG investing from 500 asset owners globally, Morningstar found that two of three asset owners (67%) globally believe ESG has become more material to investment policy in the past five years. With ESG-related issues and risks increasingly becoming a material part of company operations and a focus of senior leadership, corporate governance is taking center stage. Good governance is being viewed as a foundational element – the “wiring” if you will – that enables companies to operate in a robust way and avoid ESG-related business-specific and systemic risks. High governance standards can help improve investor confidence, reduce risk, enhance brand value and increase employee engagement. Ongoing scrutiny from the market, shareholders and key stakeholders has helped highlight a number of examples of poor corporate governance in recent years.

Henry Hofman – ESG Research Director, Corporate Governance, Morningstar Sustainalytics

“Corporate governance is not only a core component of ESG, but a vital consideration in any investment decision and a material element of sustainable investing. Our clients have expressed growing concern on a number of developing corporate governance issues including voting structures at Meta, board independence questions at Tesla and lawsuits directed at shareholders of ExxonMobil. We are aligning our corporate governance methodology for our ESG Risk Ratings to that of our material ESG issues and adding enhancements to reflect areas of heightened scrutiny. The methodology is now easier to interpret and more transparent, leading to a stronger corporate governance signal and improving investors’ ability to identify key issues and material risks across a global portfolio.”

Sustainalytics will also strengthen its material ESG risk measures (MEIs), with new MEIs for raw materials use and water and an expanded data privacy and cybersecurity MEI which underpin the ESG risk ratings methodology. This enhanced thematic research will be implemented on a company-by-company, rolling basis as Morningstar Sustainalytics rated companies go through their regular review cycle. It is expected that all companies in the coverage universe will complete this process by September 2024.

About Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment insights in North America, Europe, Australia, and Asia. The Company offers an extensive line of products and services that serve a wide range of market participants, including individual and institutional investors in public and private capital markets, financial advisors and wealth managers, asset managers, retirement plan providers and sponsors, and issuers of fixed-income securities. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $294 billion in AUMA as of March 31, 2024. The Company operates through wholly- or majority-owned subsidiaries in 32 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on X (formerly known as Twitter) @MorningstarInc.

About Morningstar Sustainalytics

Morningstar Sustainalytics is a leading ESG data, research, and ratings firm that supports investors around the world with the development and implementation of responsible investment strategies. For more than 30 years, the firm has been at the forefront of developing high-quality, innovative solutions to meet the evolving needs of global investors. Today, Morningstar Sustainalytics works with hundreds of the world's leading asset managers and pension funds who incorporate ESG information and assessments into their investment processes. The firm also works with hundreds of companies and their financial intermediaries to help them consider material sustainability factors in policies, practices, and capital projects. Morningstar Sustainalytics has analysts around the world with varied multidisciplinary expertise across more than 40 industry groups. For more information, visit www.sustainalytics.com.

©2024 Morningstar, Inc. All Rights Reserved. The information, data, analyses and opinions contained herein (1) include the proprietary information of Morningstar, (2) may not be copied or redistributed, (3) do not constitute investment advice offered by Morningstar, (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete or accurate. Morningstar has not given its consent to be deemed an "expert" under the federal Securities Act of 1933. Except as otherwise required by law, Morningstar is not responsible for any trading decisions, damages or other losses resulting from, or related to, this information, data, analyses or opinions or their use. References to specific securities or other investment options should not be considered an offer (as defined by the Securities and Exchange Act) to purchase or sell that specific investment. Past performance does not guarantee future results. Before making any investment decision, consider if the investment is suitable for you by referencing your own financial position, investment objectives, and risk profile. Always consult with your financial advisor before investing.

Morningstar Sustainalytics produces various metrics, ratings, and assessments, which include assumptions of future events, which may or may not occur or may differ significantly from what was assumed. These metrics, ratings, and assessments are statements of opinions, subject to change, are not to be considered as guarantees, and should not be used as the sole basis for investment decisions. Morningstar Sustainalytics does not provide investment advice or any other form of (financial) advice and nothing within this press release constitutes such advice.

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Tim Benedict, +1 203 339-1912 or newsroom@morningstar.com

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