Where Data Speaks Materiality

This week, at the Morningstar Sustainable Investing Summit, institutional investors and asset managers from across Europe reaffirmed that ESG remains a priority.

Indeed, our latest Voice of the Asset Owner Survey shows that two-thirds of global asset owners say ESG has become more material and that they’ve upped allocations to sustainable strategies. But for all the progress, the persistent debate around it highlights a deep-seated belief that there will be a loser if ESG progresses. Many in the investment sector remain skeptical, cautioned by a belief that ESG is outside the bounds of fiduciary duty.

Here’s what I emphasized today: To drive the next phase of ESG adoption, we need to prove its materiality in a language that’s common to investors of all types.

Materiality is visible everywhere, from Tampa Bay's housing market fluctuations to major insurers withdrawing from certain states. When examining value, risk, and impact—dimensions of materiality essential to fundamental investment analysis—you can see that insurers can’t price premiums high enough to account for climate risks and growing claims. They grasp the materiality, and they’re acting on it to ensure long-term survival and success.

In squabbling over ESG and its terms, the industry has veered from an investor-focused story and overcomplicated it. Here’s how we should refocus on investors:

1. Challenge assumptions: Use systematized data to continually question established beliefs, even those widely accepted.
2. Tell simple stories of materiality: Consider the chemicals industry; neglecting ESG controversies and governance data years ago would have meant missing the most material impact on future returns—lawsuits piled up from now-recognized health effects.
3. Cut to data that speaks: Morningstar excels at data that speaks, and we’ve got the data across public and private markets that speaks materiality. Investors need data that links ESG ambitions to actual outcomes across value, risk, and impact. That’s how they can do more than debate—they can act.

We're ready for the challenge of taking ESG to its next stage. But data that clearly articulates materiality must lead, and that's Morningstar’s commitment.