Material Risk Engagement and ESG Risk Rating 

Constructed as an engagement overlay to Morningstar Sustainalytics’ ESG Risk Rating (ESG RR), Material Risk Engagement (MRE) focuses on companies considered high or severe risk, as determined by the ESG RR. MRE is change-oriented and aims to address the management gaps, supporting the target company to improve its ESG risk management, disclosure and performance.  

While MRE Managers have access to ESG RR research and use such assessments to determine focus companies, information and insights collected through the engagement process are not shared with ESG RR analysts and are not used to update the ESG RR scoring. Updates to the ESG RR scoring are made only according to the dedicated product methodology. 

Any recognized progress that a company makes with regard to the set engagement objectives are reflected in the engagement reporting. 

Any questions in relation to the ESG RR should be directed to [email protected].  

Global Standards Engagement and Global Standards Screening  

Morningstar Sustainalytics’ Global Standards Engagement (GSE) has been developed as an engagement overlay to Morningstar Sustainalytics’ Global Standards Screening (GSS). GSE uses GSS assessments to identify companies in scope for engagement.  

Although both services focus on the same list of companies and cases, each has their own independent assessment and review processes. GSE will, in general terms, conclude its engagement when the alleged incident has been addressed and/or mitigated, and appropriate measures have been implemented to prevent a reoccurrence. The decision is based on publicly available information as well as information obtained through the engagement dialogue.  

While GSE Managers have access to GSS research, in order to better understand the incidents and the extent of their impact on people and/or the environment, information and insights collected through the engagement process are not shared with GSS analysts, nor used to inform any GSS updates. Updates to GSS assessments are made only according to the dedicated product methodology. 

Any recognized progress that a company makes with regard to the set engagement objectives will be reflected in the engagement reporting. 

Stewardship and Corporate Solutions 

The clients of Morningstar Sustainalytics Corporate Solutions (SCS) are corporates/issuers, while the clients in Morningstar Sustainalytics’ Stewardship Services are investors. SCS provides various services to issuers and Stewardship Services may engage with the same corporates on behalf of investors (clients). The services from SCS and Stewardship Services can have an overlapping purpose of supporting corporates/issuers to improve ESG risk management, but the approach differs due to the different client perspective. Information is not shared between the two business lines.  

Engagement and ESG Voting Policy Overlay 

ESG Voting Policy Overlay provides investors with vote recommendations related to ESG topics and it provides an escalation option to our Engagement Services. ESG Voting engagement signals offer GSE, MRE and TE Managers a tool to escalate non-responsive companies via a vote recommendation.  

Morningstar Sustainalytics’ engagement approach is based on constructive dialogue, which means that we attempt to listen as much as we speak. We make a great effort to get the facts right and understand the perspective of each company we engage with and the context in which it operates.  

As a starting point, Morningstar Sustainalytics’ Stewardship Services will contact your company via email to inform you about the topic we plan to cover. We will then set up an introductory call to discuss the background of our request, our engagement objectives, and your view on the topic. We will also aim to provide you with best practice examples on relevant policies, ESG management programmes and systems, and related disclosure. We will then follow up via emails, phone calls and meetings (video or in-person). On average, we seek to speak with your company twice a year, until our engagement objective has been met. We also seek to keep in touch throughout the year via email to exchange ideas and ask clarifying questions in between calls. Morningstar Sustainalytics’ high professional standards ensure that the team is well prepared for our joint meetings and other exchanges. We understand companies’ time and capacity constraints and aim for effective and focused exchanges.  

Our investor clients may want to join calls and meetings. We will, in each case, do our best to let you know in advance if there is investor interest in joining a meeting. We take meeting minutes that we share with your company for feedback and clarifications. You will have 10 working days to review draft meeting minutes and respond before they are uploaded to the Global Access platform. The platform can be accessed exclusively by our Stewardship investor clients.  

We provide regular updates to our investor clients on your company’s level of response as well as the progress you are making on the ESG issue(s) in focus. When companies do not respond to our communication or decline to engage, we have an alternative set of activities that we may undertake. These include, among others, investor letters, collaborative engagement with other investor groups and engagement-related voting recommendations.  

If, despite those efforts, there is a persistent lack of response and/or progress, we might issue a “disengage” status. This means that we stop our engagement efforts; however, we continue to monitor the company and contact it periodically to enable an opportunity to enter into engagement dialogue, should it wish to do so. A “disengage” status may also be issued in other scenarios, for example, when a company is under sanctions or in financial distress.  

Morningstar Sustainalytics’ Stewardship Services does not provide investor clients with investment/divestment advice. Our role is to engage in dialogue to align investor and corporate ESG expectations and practices. Our clients seek engagement to promote progress on ESG matters, reduce ESG-related portfolio risks and fulfil their fiduciary duties, among other things. Our investors, therefore, appreciate your willingness, time and efforts to engage with us.