Important Updates to the ESG Risk Ratings
The investment industry is ever evolving, and at Morningstar Sustainalytics, we are dedicated to providing solutions that are adapted to these dynamic shifts in ESG risks. To align with evolving industry standards, we will be rolling out a series of enhancements to our ESG Risk Ratings beginning on May 30, 2024, as summarized below:
- We are aligning our Corporate Governance Methodology to align with the Material ESG Issues methodology (MEIs) in the ESG Risk Ratings.
- We are creating a new, dedicated Water MEI to reflect emerging water-related risks.
- We are enhancing our existing Cyber Security and Data Privacy MEIs to reflect emerging risks.
To delve deeper into these updates, please download our updated Methodology document below:
For a comprehensive overview of these changes, refer to the Detailed Change Summary.
Implementation Guidance Documents
We will provide up-to-date, useful information to help companies understand these important updates on a monthly basis, beginning in Q3 2023. These documents provide additional information and resources leading up to the launch in 2024.
- MEI Descriptions
- Indicator Description
- Unified Data Catalog
- Technical Guidance
- Enhancement Overview File
- ESG Risk Ratings Tear Sheet
- ESG Data Tear Sheet
- Impact Analysis
- Sample Files
Please do not hesitate to reach out to your client advisor throughout the transition period. For Sample Files and Mapping Files, please reach out through your regular client service channel.
Featured Content
-- NEW! -- Data breaches, critical infrastructure compromise, corporate espionage, ransomware attacks create high profile impacts of risk. As cyber threats evolve, staying updated on data privacy and the associated ESG risks is crucial for investors.
In this webinar, our knowledgeable panel delve into these topics and more:
- ESG risk drivers
- Data privacy and cybersecurity risk trends
- Market signals and companies’ weaknesses
- How prepared are companies and what investors should look for regarding cyber risks
Watch this panel discussion about ESG product governance risk, including what it means and how to manage it.
Topics Covered Include:
- Quantifying exposure
- Defining risk drivers
- Identification and application of ESG data
- Defining financial impacts
Corporate Governance
Currently, our Corporate Governance Ratings have a separate methodology from that of our ESG Risk Ratings. To streamline our overall methodology and make it simpler for clients to understand the data, we are changing the Corporate Baseline methodology to align with the way we calculate our other MEIs in the ESG Risk Ratings. Additionally, all Corporate Governance clients will be transitioned to the ESG Risk Ratings.
These changes are expected to yield a stronger corporate governance risk signal. Additionally, we anticipate it will make use of the Corporate Governance data more efficient, consistent, and transparent by reducing unnecessary complexity. These changes are designed to make our corporate governance methodology more logical, and easy to understand, while keeping in line with emerging corporate governance best practices.
Materials to assist you in this transition will be released on this page in the coming weeks.
Water
Water-related risks are a crucial consideration in the ESG Risk Ratings due to their significant impact on environmental sustainability, social welfare, and long-term business viability. Water scarcity, pollution, and inadequate water management pose substantial challenges to both companies and communities worldwide.
To better account for these risks, we are centralizing our water risk measurement by creating a new, dedicated water MEI to capture the magnitude of water risk as water scarcity and risk become crucial throughout the globe.
We’ve collected several resources below about water-related risks that showcase why this is an important MEI for investors to consider, and we will add additional materials here as they become available.
ESG Risks Affecting Data Centers: Why Water Resource Use Matters to Investors
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.
Data Privacy and Cybersecurity
Data privacy and cybersecurity-related risks are vital considerations in the ESG Risk Ratings due to the escalating threats posed by digitalization and the increasing reliance on data. As technology advances, businesses gather and store vast amounts of sensitive information, making them vulnerable to cyberattacks, data breaches, and privacy infringements.
In today’s technology driven world where AI and other technological advances proliferate daily, it is crucial to capture Data Privacy and Cybersecurity risks. In line with these needs, we are strengthening our Cyber Security and Data Privacy MEIs to capture evolving risks.
We’ve collected several resources below about Cyber Security and Data Privacy risks that showcase why these are important MEIs for investors to consider, and we will add additional materials here as they become available.
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Cybersecurity: A Growing ESG and Business Risk
Cyber risk is one of the most immediate and financially material ESG risks that organizations face today. As companies continue to digitalize and business models shift to incorporate a complex mix of technology and data supply chains, stakeholders are reckoning with a significant realignment in global security risk.
Important Updates to the ESG Risk Ratings
The investment industry is ever evolving, and at Morningstar Sustainalytics, we are dedicated to providing solutions that are adapted to these dynamic shifts in ESG risks. To align with evolving industry standards, we will be rolling out a series of enhancements to our ESG Risk Ratings beginning on May 30, 2024, as summarized below:
- We are aligning our Corporate Governance Methodology to align with the Material ESG Issues methodology (MEIs) in the ESG Risk Ratings.
- We are creating a new, dedicated Water MEI to reflect emerging water-related risks.
- We are enhancing our existing Cyber Security and Data Privacy MEIs to reflect emerging risks.
To delve deeper into these updates, please download our updated Methodology document below:
For a comprehensive overview of these changes, refer to the Detailed Change Summary.
Implementation Guidance Documents
We will provide up-to-date information to help companies understand these important enhancements. These documents provide additional information and resources during the change management period.
The Issuer Relations team, a unit of the Morningstar Sustainalytics Research team, is available to assist companies with any questions regarding these updates.
Corporate Governance
Currently, our Corporate Governance Ratings use a separate methodology from the ESG Risk Ratings. To streamline our overall methodology and make it simpler for issuers and investor clients to understand and use the data, we are changing the Corporate Governance baseline methodology to align with the way we calculate other MEIs in the ESG Risk Ratings.
These changes are expected to yield a stronger corporate governance risk signal. Additionally, we anticipate the changes will make the Corporate Governance data more efficient, consistent, and transparent by reducing unnecessary complexity. The updates are designed to make our Corporate Governance methodology clearer, more logical, and easier to understand, while keeping in line with emerging corporate governance best practices.
We will post additional materials on this page in the coming weeks.
Water
Water-related risks are a major consideration in the ESG Risk Ratings due to their significant impact on environmental sustainability, social welfare, and long-term business viability. Water scarcity, pollution, and inadequate water management pose substantial challenges to both companies and communities worldwide.
To better account for these risks, we are centralizing our water risk measurement by creating a new, dedicated water MEI to capture the magnitude of water-related risk, including water scarcity, as it becomes more prevalent globally.
We’ve collected several resources below that cover water-related risks and showcase why this is an important MEI. We will add additional materials as they become available.
ESG Risks Affecting Data Centers: Why Water Resource Use Matters to Investors
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.
Data Privacy and Cybersecurity
Data privacy and cybersecurity-related risks are vital considerations in the ESG Risk Ratings due to the escalating threats posed by digitalization and the increasing reliance on data. As technology advances, businesses gather and store vast amounts of sensitive information, making them vulnerable to cyberattacks, data breaches, and privacy infringements.
In today’s technology-driven world, where AI and other technological advances proliferate daily, it is crucial to capture Data Privacy and Cybersecurity risks. We are strengthening our Cyber Security and Data Privacy MEIs to capture these evolving risks.
We’ve collected several resources below that showcase Cyber Security and Data Privacy risks and the significance of this MEI. We will add additional materials here as they become available.
Cybersecurity: A Growing ESG and Business Risk
Cyber risk is one of the most immediate and financially material ESG risks that organizations face today. As companies continue to digitalize and business models shift to incorporate a complex mix of technology and data supply chains, stakeholders are reckoning with a significant realignment in global security risk.