The Takeaway
The Morningstar® Global Sustainable Activities Involvement Indexes™ include companies that derive at least 50% of revenues from one or more of the following Sustainalytics’ Impact Themes: Human Development, Climate Action, Healthy Ecosystems, Resource Security, and Basic Needs.
By aggregating SDG-aligned revenue to the portfolio level, the indexes provide a standard for impact investing.
The indexes’ selective approach results in exposure that is highly distinctive, diverging meaningfully not just from the broad market portfolio but also from investments screened on the basis of ESG risk.
For many sustainable investors, it’s all about impact. Whereas environmental, social, and governance-based investments often focus on material financial risks that affect companies, impact takes the opposite vantage point: How can investments help improve the world? More than $1 trillion worldwide has been allocated by investors to address challenges like climate change and poverty, while simultaneously pursuing financial return.
Unlike financial return, however, impact can be difficult to define, challenging to quantify, and costly to implement as an investment strategy. Few standards exist. Impact investors must choose outputs, methods of measurement, and styles of data analysis. Benchmarks that balance impact and investment performance are lacking.
The Morningstar® Global Sustainable Activities Involvement Indexes™ include public companies whose business activities address the world’s social and environmental challenges, as defined by the United Nations Sustainable Development Goals. Security selection is revenue-based. The indexes include companies that derive at least 50% of their revenues from one or more of five impact themes identified by Sustainalytics, a Morningstar company specializing in environmental, social, and governance research. The indexes, which feature stringent ESG screening in addition to tilting weight by impact revenue, can augment the toolkit of impact investors.
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