Morningstar buys Sustainalytics stake as data market consolidates
Chicago-based Morningstar has acquired a 40% stake in Sustainalytics, an environmental, social, and governance (ESG) research firm. The deal will see Steven Smit, Morningstar's head of sustainability, join the Sustainalytics board of directors, and the latter firm's executive team take a minority equity stake in Morningstar in exchange. The rest of the terms of the acquisition were undisclosed. Last year, the two companies entered into a strategic collaboration that resulted in the launch of the Morningstar Sustainability Rating.

Investment research firm Morningstar has acquired a 40% stake in environmental, social, and governance (ESG) research and ratings firm Sustainalytics, in a sign of the growing consolidation in the field.

The terms of the deal were not disclosed, although Steven Smit, head of sustainability at Morningstar, will join the Sustainalytics board of directors. The Sustainalytics executive team has also taken a minority equity stake in the company.

It is the third major merger and acquisition deal involving investment data firms in less than year. In October 2016, S&P Dow Jones Indices picked up a controlling stake in carbon and environmental data company Trucost, while ISS acquired the investment climate data division of South Pole Group last month.

Morningstar said the direct investment in Sustainalytics was “an important milestone in its long-term sustainability strategy and [would support] Sustainalytics’ ability to deliver high-quality, innovative ESG products and services to the global investment community”.

The deal followed a strategic collaboration between the two firms that resulted in the launch of the Morningstar Sustainability Rating in March 2016 for global mutual and exchange-traded funds (ETFs).

Morningstar CEO Kunal Kapoor said the deal allowed Morningstar to build on the momentum from the launch of the Sustainability Rating.

“We have the largest ESG fund coverage universe today, and we look forward to continuing to meet the increasingly sophisticated ESG needs and requirements of our clients through integrated solutions and innovative research that highlights good stewardship, lower costs, and transparency for investors,” Kapoor said.

The Morningstar Sustainability Rating, which covers more than 35,000 mutual funds and ETFs, uses Sustainalytics’ company-level ESG research, allowing investors to gauge how well companies held in their funds are managing ESG issues.

In October 2016, Morningstar launched the Global Sustainability Index Family, a series of 27 global equity indexes designed to provide a standard for sustainability investing.

It also released company-level ESG metrics for the holdings of 35,000 mutual funds and ETFs in April 2017. A tool enabling investors to screen portfolios for various ethical issues was launched in June 2017.

Michael Jantzi, chief executive officer of Sustainalytics, said: “Close collaboration with Morningstar over the last two years has helped to broaden distribution of our ESG research, allowing Sustainalytics to work with more asset managers and owners to integrate ESG into their investment processes.”