what is the morningstar sustainability rating 
the morningstar sustainability rating is a framework for comparing thousands of mutual funds and exchange traded funds etfs based on environmental social and governance esg standards introduced in 2016 and updated since the morningstar sustainability rating uses five globes to indicate where a fund stands regarding esg in its industry group from one at the bottom to three average to the five globes the highest the ratings are issued monthly 1understanding the morningstar sustainability ratingmorningstar developed its rating system in part because of the dramatic increase in importance given sustainability in investment decisions 2companies are rated relative to their global peers meaning two firms with the same score but belonging to different peer groups may not have equivalent esg performance 1the ratings are based on research by morningstar s sustainalytics firm and its esg risk ratings which measure how much risk to a company s enterprise value is related to esg factors each company in the portfolio is graded on an open ended scale relative to other firms in its global industry peer group scores typically range from 0 to 50 the lower the score the better 1to receive an esg score at least 67 of a portfolio s assets under management must have a company esg score 1rating methodologymorningstar s sustainability ratings are derived through a five step process finally morningstar adjusts the corporate sustainability and sovereign sustainability ratings by weighing each factor and then sums up their weighted scores the result is rounded to the nearest whole number to produce the fund s final sustainability rating 1morningstar star rating vs sustainability ratingaccording to morningstar funds with higher sustainability ratings tend to have higher quality holdings they are more likely to be favored by morningstar analysts be less volatile and have more exposure to financially healthy companies with economic moats 3however a fund could have a high star rating and a low sustainability rating for example fidelity s total market index premium fund has a four star rating for its risk adjusted returns 4 morningstar s analyst report called this fund a great choice for diversified exposure to u s stocks of all sizes thanks to its low cost and broad market cap weighted coverage of the u s market 5 it also carried a gold rating indicating that analysts expect the fund to outperform over a full market cycle of at least five years however it only had a sustainability rating of two globes out of five below average based on an 80 ranking in its category and a sustainability score of 45 sustainable responsible and impact investing alternativesmorningstar s sustainability ratings help tilt your portfolio toward sustainability without using sustainable responsible and impact sri also known as socially responsible investing funds as your means for doing so sri funds have several shortcomings they represent a small percentage of the fund universe and retail investors have long hesitated to put their money into them 6using morningstar s ratings then can help retail and institutional investors choose one fund over another if an investor is choosing between two large cap growth funds with similar long term performance and investment strategies and one has a two globe rating and the other a four globe rating the globe rating may then be the deciding factor 