Advisors with clients who invest internationally may be interested in Morningstar's latest sustainability atlas, which rates 46 global equity indexes based on their ESG and ESG-related controversy scores. The 46 Indexes represent 97% of global market capitalization.
The ratings can be useful for clients who are interested in socially responsible investments — investments that exclude certain types of companies, such as cigarette producers, or include companies that rate high on environmental, social and governance metrics or are actively engaged in addressing E, S or G issues.
In general, European stock indexes merit higher sustainability ratings than U.S. indexes — which usually score below the median, in large part due to ESG-related controversies. U.S.-based companies like Facebook, Alphabet (Google's parent company), Amazon and Wells Fargo, for example, score low due to governance controversies.
The Netherlands merits the top sustainability rating because ESG-friendly companies like ASML, a leader within the global semiconductor industry, and ING Group, a banking giant, are included in the country's stock indexes. Finland, home to Nokia, a leader within the global technology hardware industry and Kone, a machinery outperformer, is a close second.
On the flip side are the low scorers for sustainability and ESG: emerging markets including Russia, China, Qatar, the United Arab Emirates, Egypt, Poland and the Czech Republic and the developed markets of Israel and Singapore.
Asian countries are mixed, with Japan, Taiwan, India and Thailand tending toward middling scores and besting the U.S. for sustainability while Korea, Singapore and the Philippines score below the U.S.
In addition to its overall sustainability and ESG scores, the Morningstar atlas rates global indexes based on the individual metrics that comprise the ESG ratings — environmental, social and governance. For the first time, the atlas also includes ratings on the carbon metrics of country stock indexes: their carbon intensity, or total greenhouse gas emissions per millions of dollars of revenue, and carbon risk, the risk related to a global move away from fossil fuels.
