Resource Center

This episode of ESG in Conversation explores ESG materiality and what a shift in political agendas globally could mean for the state of sustainability-related regulations.

In this article we define ESG materiality and highlight what investors need to know when considering the materiality of ESG issues in their investment portfolios.

Morningstar Sustainalytics’ Annual ESG Risk Ratings Industry Reports are now available. Discover the cross-industry insights that emerge from this year’s reports and the research behind them.

The physical climate risks affecting assets are likely to increase in the coming years, as the impacts of climate change are felt more frequently and with more intensity. In this guide, learn how companies and investors can assess their exposure to physical climate risks.

Data centers play a critical role for many technology and telecom companies and for their supporting servers, digital storage equipment and network infrastructure for data processing and storage. Data centers require high volumes of water directly for cooling purposes and indirectly, through electricity generation. Morningstar Sustainalytics’ recent activation of the Resource Use Material ESG Issue (MEI) within its ESG Risk Ratings recognizes water risks of data centers.

The past two decades have seen a surge in interest in environmental issues, mainly climate change, global warming, and fossil fuels. Yet, another equally important dimension - water scarcity - has thus far remained largely unexamined and has not been given adequate importance in the economic development agendas of many countries.

This report sheds light on the growing effects of water scarcity on companies and countries. To address these challenges, investors can use water reporting metrics to identify companies and countries with severe water risk. We further relate water metrics to firm and country characteristics and highlight substantial cross-sectional differences.

As our clients and the industry at large focus on proactively mitigating risk and capitalizing on this evolving landscape, stewardship will be a key lever for savvy investors—particularly those facing external pressure to divest. Here are the ESG themes we see influencing stewardship priorities this year.

Reactions to the COP26 Conference and the resulting Glasgow Climate Pact have predictably run the gamut from claims of greenwashing to the celebration of progress in the fight against climate change. Ultimately, any judgement on COP26 may be premature, as the success of the conference will best be measured in time by the extent to which commitments made are put into motion. While we wait to see the concrete actions that materialize, the past two weeks have underscored the importance of several themes that will garner increasing attention and should be considered by sustainable investors.

Despite the shifting timelines, we observe that the market momentum around PAIs is not diminishing, quite the contrary. Investors in the scope of the regulation are using the fourth quarter of this year to get acquainted with PAI data and set up their systems. Most investors we speak with want to be prepared in time to be able to monitor PAIs throughout 2022 and adjust their portfolios to boost their PAIs (or rather limit the downside, as these are adverse impact indicators). This means that PAIs may significantly impact stock selection and portfolio construction by fund managers keen to have ‘good’ PAI scores.

The publication of these rules marks the end of a prolonged period of uncertainty in the market around final rules and timelines - assuming the RTS will be adopted as-is in a Delegated Act, which turns these rules into regulation. There are several noteworthy aspects to these rules, which we address from our perspective in this article.

With the threats of climate change and the existing inequalities in natural resource access and availability around the world, ensuring an adequate supply of clean water is necessary to ensure the well-being of all people across the world.

There are many factors that rating agencies consider within its overall assessment. For example, ESG rating companies tend to look for at least three years of ESG metrics to determine company trends and long-term ESG targets, goals, and strategies to manage and reduce ESG risks at least five years ahead. Read on to learn about how Sustainalytics' Material Risk Engagement program promotes and protects long-term value by engaging with high-risk companies on financially-material ESG issues. (A North American Snapshot)

On World Water Day, we reflect on global companies’ dedicated attention to this most vital resource. Water risks are related to nine of the top ten worst global risks in the Global Risk Report published by the World Economic Forum, with risks likely to increase due to climate change. As global water resources contend with increased stress, companies are expected to face growing scrutiny of their water use due to the significant impacts that it can have on resource security and the health of ecosystems. This scrutiny may manifest in business risk, including limits placed on water withdrawal, increasing costs and heightened regulations.

The growing scarcity of freshwater resources is a risk to the economic, social, and environmental well-being of populations worldwide, and a material issue for companies. Corporate-wide water strategies are essential, but because water security challenges are experienced at the local level, and water basin conditions are unique, there is no one-size-fits-all solution for companies to implement.

As onshore resources became harder to locate over the past decades, offshore exploration and production have grown into a global industrial activity. The prospect of finding hydrocarbons has led some companies to explore deeper waters in some regions.

For this edition, Sustainalytics, in cooperation with AP7, repeated the analysis of the same 299 companies on the five universal and three sector-specific indicators focusing on the key aspects of corporate water management.

The Water Stewardship and Risk Engagement combines both scale and detail, and covers the food and beverage, mining and garment sectors, which are associated with a high level of water risk. This engagement links water policy and practices in these three sectors to the targets of Sustainable Development Goal 6 (to ensure the availability and sustainable management of water and sanitation for all)

This engagement focuses on sustainable management of water resources on the local level. The engagement targets companies across selected sectors that share the same water catchment in the Tiete (Brazil) and/or Vaal (South Africa) river basins.

Do you believe climate change is a problem needing urgent attention? Have extreme weather events got you thinking about the personal or professional risks you face? Are you interested in how the global population will be fed in the future? Concerned about the mass migration of people in search for a better life? Worried about the outlook of energy production? If you answered yes to any of these questions, then you may also want to consider the vital element connecting all of the above: water.