Low Carbon Transition Rating
Involvement Areas and Frameworks
August 2024
Introduction
Morningstar Sustainalytics' Product Involvement (PI) research covers company involvement in products and services. The research is used by our investor clients to screen companies according to specific criteria motivated by ethical, impact, compliance and ESG risk considerations.
PI research includes the following features for investors:
- Product and revenue analysis.
- Range of revenue derived from products (i.e., 0-4.9%, 5-9.9%, 10-24.9%, 25-49.9%, 50-100%).
- Percentage of revenue derived from products.
- Production capacity ranges and capacity percentage for relevant energy involvement categories.
- Percentage of ownership in companies involved in the product.
Note: the percentages shown go to the .99% range; the display is used for simplicity purposes. The 0-4.9% range also includes 0% revenues, applicable to companies that are involved in revenue-based areas, but that are not currently deriving revenue from the activities.
PI currently covers a comprehensive set of involvement areas (27), from energy and environment to defense and health and life, including over 60 different product categories.
Product Involvement Areas
Click on a Product Involvement area to view details. The tables provide an overview of the different categories of involvement per area, as well as available revenue ranges and thresholds, where available. We also include proxies used for each area.
Energy | Environment | Defense & Military | Business Practices | Health | Values-based |
This involvement area provides an assessment of whether companies engage in providing medical procedures which include abortion and contraceptive surgical procedures, as well as the production and distribution of abortifacients.
Abortion can be considered controversial from a religious or ethical point of view, but also from a women’s rights point of view. It is often seen as essentially a moral issue, concerning the commencement of human personhood, the rights of the fetus, and a woman's rights over her own body.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenue data not available | ||||
|---|---|---|---|---|---|---|
| Operations | The company owns and/or operates one or more acute care hospitals or surgical centers. | n/a | n/a | n/a | n/a | n/a |
| Significant ownership (operations) | The company owns 10-50 per cent of another company with involvement in owning and/or operating one or more acute care hospitals or surgical centers. | n/a | n/a | n/a | n/a | n/a |
| Production | The company manufactures drugs that have abortifacient properties. | n/a | n/a | n/a | n/a | n/a |
| Significant ownership (production) | The company owns 10-50 per cent of another company with involvement in manufactures drugs that have abortifacient properties. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from adult entertainment. This includes producers of adult movies, cinemas that show adult movies, adult entertainment magazines, and the broadcasting of adult entertainment.
Adult Entertainment can be considered controversial as it is claimed that it may undermine faith and family values. Other concerns are that the materials show the subordination of (wo)men.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenues Percentage of revenue data available. | ||||
|---|---|---|---|---|---|---|
| Production | The company is involved in the production of adult entertainment and/or owns/operates adult entertainment establishments. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Production) | The company owns 10-50 per cent of another company with involvement in the production of adult entertainment and/or owns/operates adult entertainment establishments. | n/a | n/a | n/a | n/a | n/a |
| Distribution | The company is involved in the distribution of adult entertainment materials. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Distribution) | The company owns 10-50 per cent of another company with involvement in the distribution of adult entertainment. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from alcoholic beverages. These include producers of these beverages as well as retailers, distributors and suppliers of alcohol-related products/services to alcoholic beverage manufacturers.
Alcoholic beverages are considered controversial because excessive drinking can lead to social problems (addiction) and health problems. Furthermore, certain religions prohibit the use of intoxicants such as alcohol.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenues Percentage of revenue data available. | ||||
|---|---|---|---|---|---|---|
| Production | The company manufactures alcoholic beverages. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Production) | The company owns 10-50 per cent of another company with involvement in manufacturing alcoholic beverages. | n/a | n/a | n/a | n/a | n/a |
| Related Products/ Services | The company is a supplier of alcohol- related products/services to alcoholic beverage manufacturers. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Related products/ services | The company owns 10-50 per cent of another company with involvement in the supply of related products/services to alcoholic beverage manufacturers. | n/a | n/a | n/a | n/a | n/a |
| Retail | The company derives revenues from the distribution and/or retail sale of alcoholic beverages. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Retail) | The company owns 10-50 per cent of another company with involvement in the distribution and/or retail of alcoholic beverages. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies are involved in conducting testing on animals, for pharmaceutical products and/or medical devices and/or biotechnology, as well as non-pharmaceutical products. This includes both cosmetics as well as chemicals such as pesticides and food additives.
Animal testing can cause pain, suffering and distress to the animals involved. Additionally, the necessity of testing on animals is disputed.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenue data not available. | ||||
|---|---|---|---|---|---|---|
| Pharmaceutical products | The company conducts animal testing for pharmaceutical products, medical devices and biotechnology. | n/a | n/a | n/a | n/a | n/a |
| Significant ownership Pharmaceutical products | The company has a significant ownership (10-50%) in a company that conducts animal testing for pharmaceutical products, medical devices and biotechnology. | n/a | n/a | n/a | n/a | n/a |
| Suspected involvement Pharmaceutical products | Based on the company’s activities and products, the company is likely to be involved in animal testing for pharmaceutical products, medical devices and biotechnology. | n/a | n/a | n/a | n/a | n/a |
| Non- pharmaceutical products | The company conducts animal testing for non-pharmaceutical products. | n/a | n/a | n/a | n/a | n/a |
| Significant ownership (Non- pharmaceutical products) | The company has a significant ownership (10-50%) in a company that conducts animal testing for non-pharmaceutical products. | n/a | n/a | n/a | n/a | n/a |
| Suspected involvement Non- pharmaceutical products | Based on the company’s activities and products, the company is likely to be involved in animal testing for non- pharmaceutical products. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenues from oil and gas exploration within offshore Arctic regions.
Exploring for oil and natural gas in the Arctic is controversial in the context of global climate change and because of the increased risk of environmental disasters.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenues Percentage of revenue data available. | ||||
|---|---|---|---|---|---|---|
| Extraction | The company is involved in oil and gas exploration in Arctic regions. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (extraction) | The company owns 10-50 per cent of another company with involvement in oil and gas exploration in Arctic regions. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from cannabis products that are used as plant-based medicine (medical cannabis) or as psychoactive drugs (recreational cannabis). This includes producers and distributors of recreational and/or medical cannabis.
Cannabis is considered controversial because it can create dependence and become addictive, and because of the health risks associated with heavy, long-term use. However, active substances of cannabis have been shown to have analgesic and anti-inflammatory properties and are therefore used as treatment for chronic pain and for symptoms of difficult-to-treat conditions such as cancer, HIV/AIDS and multiple sclerosis.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenues Percentage of revenue data available. | ||||
|---|---|---|---|---|---|---|
| Production (Medical Cannabis) | The company is involved in the development and/or cultivation of medical cannabis. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Production Medical Cannabis) | The company owns 10-50 per cent of another company with involvement in the development and/or cultivation of medical cannabis. | n/a | n/a | n/a | n/a | n/a |
| Retail (Medical Cannabis) | The company derives revenues from the distribution and/or retail sale of medical cannabis. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Retail Medical Cannabis) | The company owns 10-50 per cent of another company with involvement in the distribution and/or retail sale of medical cannabis. | n/a | n/a | n/a | n/a | n/a |
| Production (Recreational Cannabis) | The company is involved in the development and/or cultivation of cannabis for recreational purposes. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Production Recreational Cannabis) | The company owns 10-50 per cent of another company with involvement in the development and/or cultivation of cannabis for recreational purposes. | n/a | n/a | n/a | n/a | n/a |
| Retail (Recreational Cannabis) | The company derives revenues from the distribution and/or retail sale of cannabis for recreational purposes. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Recreational Cannabis) | The company owns 10-50 per cent of another company with involvement in the distribution and/or retail sale of cannabis for recreational purposes. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies are involved in the manufacturing of contraceptives.
Contraceptives are considered controversial by people who believe that the union between people has procreation as a primary purpose. A second issue relates to whether certain forms of birth control act purely as a contraceptive or whether they have abortive intention or potential. Others view contraception as positive, as it allows women and couples to have the number of children they want, when they want them, which is everybody’s right under the United Nations Declaration of Human Rights. Other benefits include lowering the number of teenage pregnancies and reducing pregnancy-related risks for vulnerable girls and women.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenue data not available. | ||||
|---|---|---|---|---|---|---|
| Production | The company manufactures contraceptives. | n/a | n/a | n/a | n/a | n/a |
| Significant ownership (production) | The company owns 10-50 per cent of another company with involvement in manufacturing contraceptives. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies are involved in the manufacture of controversial weapons or components or services thereof.
Controversial weapons, in contrast to conventional weapons, have a disproportionate and indiscriminate impact on civilian populations, sometimes even years after a conflict has ended. Certain controversial weapons are illegal, as their production and use are prohibited by international treaties and bans. In various countries there is legislation in place regarding investments in controversial weapons.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: revenue data not available | ||||
|---|---|---|---|---|---|---|
| Tailor-made and essential | The company is involved in the core weapon system, or components/services of the core weapon system that are considered tailor-made and essential for the lethal use of the weapon. | n/a | n/a | n/a | n/a | n/a |
| Significant ownership (tailor- made and essential) | The company is involved, through corporate ownership, in the core weapon system, or components/services of the core weapon system that are considered tailor-made and essential for the lethal use of the weapon. | n/a | n/a | n/a | n/a | n/a |
| Non-tailor-made or non-essential | The company provides components/services for the core weapon system, which are either not considered tailor-made or not essential to the lethal use of the weapon. | n/a | n/a | n/a | n/a | n/a |
| Significant ownership (non-tailor-made or non essential) | The company provides, through corporate ownership, components/services for the core weapon system, which are either not considered tailor-made or not essential to the lethal use of the weapon. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from fur or specialty leather.
Fur and specialty leather are considered controversial as many alternatives are available for the production of consumer products, and the animal suffering and death are considered unnecessary.
| Category of Involvement | Description | Level of Involvement Ranges Proxy: Revenues. Percentage of revenues data available. | ||||
|---|---|---|---|---|---|---|
| Production | The company manufactures products made from fur or specialty leather. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Production) | The company owns 10-50 per cent of another company with involvement in manufacturing products made from fur or specialty leather. | n/a | n/a | n/a | n/a | n/a |
| Retail (≥10% total revenues) | The company derives 10 per cent or more of its revenues from the distribution and/or retail sale (>10% total revenues) of products made from fur or specialty leather. | n/a | n/a | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Retail) | The company owns 10-50 per cent of another company with involvement in the distribution and/or retail sale of products made from fur or specialty leather. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from gambling. This includes companies that offer gambling services (operation of casinos, lotteries, bookmaking, online gambling, etc.), gambling products (slot machines and other gambling devices) or supporting products/services to gambling operations.
Gambling is considered controversial because it can lead to addiction, with sufferers exhibiting many of the same problems as those with substance addictions, creating severe social problems.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenues. Percentage of revenue data available. | ||||
|---|---|---|---|---|---|---|
| Operations | The company owns and/or operates a gambling establishment. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Operations) | The company owns 10-50 per cent of another company with involvement in owning and/or operating a gambling establishment. | n/a | n/a | n/a | n/a | n/a |
| Specialized Equipment | The company manufactures specialized equipment used exclusively for gambling. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Specialized Equipment) | The company owns 10-50 per cent of another company with involvement in manufacturing specialized equipment used exclusively for gambling. | n/a | n/a | n/a | n/a | n/a |
| Supporting Products/ Services | The company provides supporting products/services to gambling operations. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Supporting Products/ Services) | The company owns 10-50 per cent of another company with involvement in providing supporting products/services to gambling operations. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from the development and/or cultivation of genetically modified seeds and/or plants, as well as the growth of genetically modified crops.
The use of genetically modified seeds is considered controversial because of health and socio-economic (patented biotechnology) concerns as well as environmental risks associated with the spreading of GMOs to other plants in the ecosystems. Other concerns are increasingly pesticide resistant weeds and insects due to increased use of chemicals.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: revenues Percentage of revenue data available. | ||||
|---|---|---|---|---|---|---|
| Development | The company is involved in the development and/or cultivation of genetically modified seeds and/or plants. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Development) | The company owns 10-50 per cent of another company with involvement in the development and/or cultivation of genetically modified seeds and/or plants. | n/a | n/a | n/a | n/a | n/a |
| Growth | The company grows genetically modified crops. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Growth) | The company owns 10-50 per cent of another company with involvement in growing genetically modified crops. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies engage in human embryonic stem cell research and technology development as well as the use of fetal cell lines for vaccines.
The main area of controversy surrounding this research arises from the harvesting of stem cells for research. The most flexible stem cells are obtained from embryos and harvesting those stem cells is a process that destroys the embryo. Benefits of embryonic stem cell therapies are that they have been proposed for regenerative medicine and tissue replacement after
injury or disease.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenue data not available |
|---|---|---|
| Use of human embryonic stem cells | The company is involved in the use of human embryonic stem cells. | n/a |
| Significant ownership (use of human embryonic stem cells) | The company owns 10-50 per cent of another company with involvement in the use of human embryonic stem cells. | n/a |
| Use of fetal cell lines | The company is involved in the use of fetal cell lines for vaccine or biologics development. | n/a |
| Significant ownership (use of fetal cell lines) | The company owns 10-50 per cent of another company with involvement in the use of fetal cell lines for vaccine or biologics development. | n/a |
| Technology development | The company develops technologies that enable human embryonic stem cell research. | n/a |
| Significant ownership (technology development) | The company owns 10-50 per cent of another company with involvement in the development of technologies that enable human embryonic stem cell research. | n/a |
This involvement area provides an assessment of whether companies derive revenue from the manufacturing of weapons or weapon components or from providing tailor-made products or services to the army or the defense industry.
Military contracting, also referred to as the defense or armaments industry, can be considered controversial for reasons of pacifism, asymmetric defense- related purchasing power between countries, negative effects on economic growth and development particularly in post-conflict areas as a result of defense spending, potential issues around transparency and corruption, and
its potential for (re-)fueling wars and conflicts.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenues. | ||||
| Weapons | The company manufactures military weapon systems and/or integral, tailor- made components for these weapons. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Weapons) | The company owns 10-50 per cent of another company with involvement in manufacturing military weapon systems and/or integral, tailor-made components for these weapons. | n/a | n/a | n/a | n/a | n/a |
| Weapon related products and/or services | The company provides tailor-made products and/or services that support military weapons. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (weapon-related products and/or services) | The company owns 10-50 per cent of another company with involvement in tailor-made products and/or services that support military weapons. | n/a | n/a | n/a | n/a | n/a |
| Non-weapon related products and/or services | The company provides non-weapons related tailor-made products and/or services to the military or defense industry. Products or services in this category are customized for military application, but are not used for lethal and offensive purposes, nor do they support offensive weapon systems. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (non- weapon-related products and/or services) | The company owns 10-50 per cent of another company with involvement in non-weapons related tailor-made products and/or services to the military or defense industry. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies are involved in the production or distribution of energy from nuclear sources or developing products or services that support the nuclear power industry.
The use of Nuclear Power has advantages in that it has low CO2 emission, is not a scarce resource, and that some isotopes can be used for medical applications. Significant downsides are the substantial environmental damage and long-term health concerns for living organisms in case of accidents, nuclear waste disposal, and potential usage of waste as input for
nuclear weapons.
| Category of Involvement | Description | Proxy: Revenues Percentage of revenue data available. Percentage of production capacity data for NP1 - Production category of involvement also available. | ||||
|---|---|---|---|---|---|---|
| Production | The company produces nuclear power. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (production) | The company owns 10-50 per cent of another company with involvement in the production of nuclear power. | n/a | n/a | n/a | n/a | n/a |
| Supporting Products and Services | The company provides products/services that support the nuclear power industry. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (supporting products/ services) | The company owns 10-50 per cent of another company with involvement in the provision of products/services that support the nuclear power industry. | n/a | n/a | n/a | n/a | n/a |
| Distribution | The company distributes electricity generated from nuclear power. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (distribution) | The company owns 10-50 per cent of another company with involvement in the distribution of electricity generated from nuclear power. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from involvement in oil and gas industries. It includes the oil and gas upstream, midstream, downstream and power generation industries. Petrochemicals and distribution activities are not included.
The Oil & Gas industry is controversial because of its high carbon intensity and the impact on climate change. Also, it is very resource intense in terms of land and water resources. Its impacts on ecosystems include spillages, waste management issues, and spontaneous flaring, which can lead to fines and are associated with reputational risks. In certain geographies oil & gas operations are associated with strained relations with local communities and with issues with governance and business practices. Health and safety issues are also important as repetitive accidents can lead to operational disruption or fatalities.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenues. Percentage of revenue data available. Percentage of production capacity data for the OG5 - Generation category of involvement also available. | ||||
|---|---|---|---|---|---|---|
| Production | The company is involved in oil and gas exploration, production, refining, transportation and/or storage. Subcategories: - Exploration and Production - Refining - Transportation - Storage | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (production) | The company owns 10-50 per cent of another company with involvement in exploration, production, refining, transportation and storage of oil and/or gas. | n/a | n/a | n/a | n/a | n/a |
| Supporting Products/ Services | The company provides tailor-made products and services that support oil and gas exploration, production, refining, transportation and storage. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Supporting Products/ Services) | The company owns 10-50 per cent of another company with involvement in the provision of tailor-made products and services that support oil and gas exploration, production, refining, transportation and storage. | n/a | n/a | n/a | n/a | n/a |
| Generation | The company generates electricity from oil and/or gas. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (generation) | The company owns 10-50 per cent of another company with involvement in the generation of electricity from oil and/or gas. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies are involved in oil sands extraction.
Oil sands are considered unconventional because they are extremely carbon intensive, and dirty – their extraction methods cause air pollution ‘in situ’, as well as water withdrawal, and contamination from mining.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenues. Percentage of revenue data available. Percentage of production capacity data for OS1- Extraction category of involvement also available. | ||||
|---|---|---|---|---|---|---|
| Extraction | The company extracts oil sands. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (extraction) | The company owns 10-50 per cent of another company with involvement in extraction of oil sands. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from palm oil production and/or distribution.
Palm Oil is considered controversial because large areas of tropical forests and other ecosystems with high conservation values (in Africa, Asia & Latin America) have been cleared to make room for vast monoculture oil palm plantations – destroying critical habitat for many endangered species. Other major ESG concerns related to palm oil production are violations of human, labour and land rights.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenues. Percentage of revenue data available. | ||||
|---|---|---|---|---|---|---|
| Production and distribution | The company is involved in the production and/or distribution of palm oil. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (production and distribution) | The company owns 10–50 per cent of a company that is involved in the production and/or distribution of palm oil. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from manufacturing or marketing pesticides including herbicides, fungicides and insecticides for agricultural application/crop protection.
The use of pesticides is considered beneficial as it can help farmers prevent damage to their crops and control the number of invasive species. However, pesticides are considered controversial because of their potential toxicity to humans and animals and their bioaccumulation. Especially when applied for crop protection in agriculture and in large-scale horticulture these negative effects may occur. Recently certain pesticides have been associated with mass deaths of pollinators such as bees.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenues. Percentage of revenue data available. | ||||
|---|---|---|---|---|---|---|
| Production | The company manufactures pesticides. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (production) | The company owns 10-50 per cent of another company with involvement in the manufacturing of pesticides. | n/a | n/a | n/a | n/a | n/a |
| Retail (≥10% total revenues) | The company derives 10 per cent or more of its revenues from the distribution and/or retail sale of pesticides. | n/a | n/a | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (retail) | The company owns 10-50 per cent of another company with involvement in the distribution and/or retail sale (≥10% total revenues) of pesticide | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from pork products. This includes producers and distributors of pork meat as well as providers of pork-related products/services.
Pork products are considered controversial for Islamic investors that abide by Sharia law, because it is a forbidden food.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenues Percentage of revenue data available. | ||||
|---|---|---|---|---|---|---|
| Production | The company manufactures pork products. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (production) | The company owns 10–50 per cent of another company which is involved in the manufacture of pork products. | n/a | n/a | n/a | n/a | n/a |
| Related Products/ Services | The company provides pork-related products/services. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (related products/ services) | The company owns 10–50 per cent of another company which is involved in pork-related products/services. | n/a | n/a | n/a | n/a | n/a |
| Retail (≥10% total revenues) | The company derives 10 per cent or more of its revenues from the distribution and/or retail sale of pork products. | n/a | n/a | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (retail) | The company owns 10–50 per cent of another company which derives 10 per cent or more of its revenues from the distribution and/or retail sale of pork products. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from exploitive lending practices.
Predatory Lending is considered controversial due to its questionable or immoral business ethics and the potential socio-economic impacts of high interest rates and/or unfavorable terms on borrowers.
Morningstar Sustainalytics' Predatory Lending indicator is designed to capture companies that derive revenue from potentially exploitive lending practices.
For a lending product to be considered “predatory” it must meet the following criteria:
- High interest rates
- Unfavorable terms
- Target market is economically vulnerable
Pawn loan products are loans provided based on high interest rates and some type of asset as collateral. These types of products meet the Morningstar Sustainalytics definition of “predatory” for the following reasons:
- The target market is economically vulnerable
- Typically, the customer is in significant need of a short-term loan, and thus even more vulnerable.
- Customers accept unfavorable terms
- The loan is typically less than market value of the asset
- The interest rates are significantly above market rate.
Pawn loan products are comparable to other high-interest loan products that meet the “predatory” definition because of the total cost of the loan. The total cost includes interest, fees, and the asset.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenues Percentage of revenue data available. | ||||
|---|---|---|---|---|---|---|
| Operations | The company is involved in predatory lending activities. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Operations) | The company owns 10-50 per cent of another company with involvement predatory lending activities. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from owning or operating private prisons. This includes immigration detention centres, and provision of in-house correctional or ancillary services.
Private prisons are considered controversial because the rights of inmates can be compromised; targeted cost cutting can result in poorer services and conditions; and the business model of private prisons is linked to an increase in the incarcerated population.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenue Percentage of revenue data available. | ||||
|---|---|---|---|---|---|---|
| Operations | The company owns and/or operates private prisons. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Operations) | The company owns 10-50 percent of another company with involvement in owning and/or operating private prisons. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies are involved in the manufacturing of protection equipment and/or riot control weapons.
The primary concern with riot control is that crowds are sometimes suppressed violently, leading to injury or death of civilians.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenue data not available |
|---|---|---|
| Protection equipment and riot control weapons | The company manufactures protection equipment and riot control weapons. | n/a |
| Significant ownership (Protection equipment and riot control weapons) | The company owns 10-50 per cent of another company with involvement in manufacturing protection equipment and riot control weapons. | n/a |
| Riot control weapons | The company manufactures riot control weapons. | n/a |
| Significant ownership (Riot control weapons) | The company owns 10-50 per cent of another company with involvement in manufacturing riot control weapons. | n/a |
| Protection equipment | The company manufactures protection equipment. | n/a |
| Significant ownership (Protection equipment) | The company owns 10-50 per cent of another company with involvement in manufacturing protection equipment. | n/a |
This involvement area provides an assessment of whether companies derive revenue from shale energy (gas and/or oil) extraction and/or production.
Shale energy production involves environmental risks like water pollution and carbon emissions. Rock fracture, fracking, is needed to make natural gas flow through the shale, which poses environmental concerns due to its potential effects on the watershed. Shale energy is also associated with slightly higher carbon emissions than conventional resources.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenues Percentage of revenue data available. | ||||
|---|---|---|---|---|---|---|
| Extraction | The company is involved in shale energy exploration and/or production. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (extraction) | The company owns 10-50 per cent of another company with involvement in shale energy exploration and/or production. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from firearms. It includes manufacturers of firearm weapons such as guns, rifles, and pistols, manufacturers of components of these weapons and retailers.
Firearms can be considered controversial as they are reported to be a major factor in the increase of armed conflict worldwide. They are the weapon of choice for many terrorist groups around the world and often hinder smoother rebuilding and development after a conflict has ended. Besides the loss of human life and physical harm, armed violence also has significant (direct and indirect) economic costs.
| Involvement Area | Description | Level of Involvement (Ranges) Proxy: Revenues. Percentage of revenue data available. | ||||
|---|---|---|---|---|---|---|
| Civilian customers (Assault weapons) | The company manufactures and sells assault weapons to civilian customers. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Civilian customers – assault weapons) | The company owns 10-50 per cent of another company that manufactures and sells assault weapons to civilian customers. | n/a | n/a | n/a | n/a | n/a |
| Military/law enforcement customers | The company manufactures and sells small arms to military/law enforcement. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Military/law enforcement customers) | The company owns 10-50 per cent of another company manufactures and sells small arms to military/law enforcement. | n/a | n/a | n/a | n/a | n/a |
| Key components | The company manufactures and sells key components of small arms. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Key components) | The company owns 10-50 per cent of another company that manufactures and sells key components of small arms. | n/a | n/a | n/a | n/a | n/a |
| Retail/ Distribution (assault weapons) | The company is involved in the retail and/or distribution of assault weapons. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Retail/ Distribution – assault weapons) | The company owns 10-50 per cent of another company that is involved in retail and/or distribution of assault weapons. | n/a | n/a | n/a | n/a | n/a |
| Retail/distribution (Non-assault weapons) | The company is involved in the retail and/or distribution of small arms (non- assault weapons). | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Retail/ Distribution – non-assault weapons) | The company owns 10-50 per cent of another company that is involved in retail and/or distribution of small arms (assault weapons). | n/a | n/a | n/a | n/a | n/a |
| Civilian customers (Non-assault weapons) | The company manufactures and sells small arms (non-assault weapons) to civilian customers. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (Civilian customers – non-assault weapons) | The company owns 10-50 per cent of another company that manufactures and sells small arms (non-assault weapons) to civilian customers. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from mining thermal coal, generating electricity from thermal coal or providing supporting products or services for thermal coal extraction.
On a lifecycle basis thermal coal is more carbon intensive than other fossil fuel sources, while from an energy generation perspective it is easily substitutable. Thermal coal, also known as energy coal, or steam coal, is mainly used in power generation.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenues. Percentage of revenue data available Percentage of production capacity data for TC3 - Power Generation category of involvement also available. | ||||
|---|---|---|---|---|---|---|
| Extraction | The company extracts thermal coal. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (extraction) | The company owns 10-50 per cent of another company with involvement in the extraction of thermal coal. | n/a | n/a | n/a | n/a | n/a |
| Power Generation | The company generates electricity from thermal coal. (additional proxy: generating capacity) | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (power generation) | The company owns 10-50 per cent of another company with involvement in the generation of electricity from thermal coal. | n/a | n/a | n/a | n/a | n/a |
| Supporting Products/Services | The company provides tailor-made products and services that support thermal coal extraction. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (supporting products/services) | The company owns 10-50 percent of another company with involvement in the provision of tailor-made products and services that support thermal coal extraction. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from tobacco products including cigarettes, cigars, tobacco, electronic cigarettes, paper used by end consumers for rolling cigarettes, filters, snuff tobacco, etc. It includes tobacco products manufacturers, retailers and distributors, as well as companies providing tobacco-related products or services.
Tobacco is considered controversial because of the negative health consequences (cancer) of long-term use of tobacco products, also leading to substantial medical costs for society. Tobacco companies are exposed to significant financial and reputational risks as a result of legal cases and class actions brought against them.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenues Percentage of revenue data available. | ||||
|---|---|---|---|---|---|---|
| Production | The company manufactures tobacco products. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (production) | The company owns 10-50 per cent of another company with involvement in manufacturing tobacco products. | n/a | n/a | n/a | n/a | n/a |
| Related Products/ Services | The company supplies tobacco-related products/services. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (related products/ services) | The company owns 10-50 per cent of another company with involvement in supplying tobacco-related products/services. | n/a | n/a | n/a | n/a | n/a |
| Retail | The company derives revenues from the distribution and/or retail sale of tobacco products. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (retail) | The company owns 10-50 per cent of another company with involvement in the distribution and/or retail sale of tobacco products. | n/a | n/a | n/a | n/a | n/a |
This involvement area provides an assessment of whether companies derive revenue from whale meat production.
Whaling is considered controversial since the number of whales has declined increasingly during years of overexploitation and some species are at the point of becoming extinct. The controversy on an ethical level also concerns the suffering that the animals are subjected to when hunted.
| Category of Involvement | Description | Level of Involvement (Ranges) Proxy: Revenue Percentage of revenue data available. | ||||
|---|---|---|---|---|---|---|
| Whale meat processing | The company processes whale meat. | 0- 4.9% | 5- 9.9% | 10-24.9% | 25-49.9% | 50-100% |
| Significant ownership (whale meat processing) | The company owns 10-50 per cent of another company with involvement in processing whale meat. | n/a | n/a | n/a | n/a | n/a |