Morningstar Inc., a leader in independent investment insights, has introduced new resources to assist investors and corporations in addressing emerging regulatory reporting challenges tied to the EU Action Plan.
As part of its EU Sustainable Finance Action Plan Solutions Suite, Morningstar Sustainalytics has launched a Corporate Sustainability Reporting Directive (CSRD) aligned data service. This offering maps Sustainalytics’ data to meet evolving regulatory requirements. Additionally, the company has introduced a dedicated solution to help align with the new ESMA Fund Naming Rules and an enhanced EU Taxonomy solution that improves the coverage, quality, and presentation of ESG data.
Catalina Secreteanu, Managing Director, ESG Solutions, Morningstar Sustainalytics said, “The EU has made significant progress bringing company disclosures around ESG-related factors in line with traditional reporting requirements. Yet the increased level of transparency, disclosure and accountability and third-party assurance to enforce it, while good for investors, creates a range of new challenges for companies reporting ESG information and for the investors tracking them. For example, the pressure is currently rising as CSRD reporting requirements become reality for a myriad of major European companies on January 1. Our new CSRD aligned data program, part of our broader EU Sustainable Finance Action Plan Suite, helps our clients address these changes with confidence.”
The Corporate Sustainability Reporting Directive (CSRD), a key element of the European Green Deal, enhances disclosure requirements for companies regarding the risks, impacts, and opportunities associated with their environmental, social, and governance (ESG) practices. This directive aims to ensure accountability for the progress of sustainability strategies. The multi-year implementation of the CSRD will commence on January 1, 2025, and is anticipated to conclude in early 2029, affecting around 50,000 companies in the EU, including 10,000 companies worldwide.
Sustainalytics’ CSRD-aligned data, built on a robust data foundation, provides both quantitative and qualitative insights aligned with over 450 criteria from the European Sustainability Reporting Standards (ESRS) and covers up to 25,000 companies. Investors can leverage this comprehensive dataset for portfolio analysis, evaluate the impact and financial significance of ESG factors, adhere to evolving regulatory standards, and simplify their CSRD reporting processes.
The ESMA guidelines on ESG fund names aim to safeguard investors from the risks of greenwashing while establishing minimum standards for funds marketed in the EU that include specific ESG terminology. Key requirements dictate that (1) at least 80% of investments must align with defined environmental or social characteristics or sustainable investment goals, and (2) exclusions set by EU regulations for Paris-aligned benchmarks (PABs) and climate-transition benchmarks (CTBs) must be observed. Morningstar Sustainalytics’ ESMA Fund Naming Rules Solution offers data and screening capabilities with a conservative methodology, allowing investors to customise exclusions to maintain regulatory compliance.
Arthur Carabia, ESG Policy Research Director, Morningstar Sustainalytics, said on ESMA Fund Naming Rules Solution, “The ESMA guidelines on ESG funds’ names is a significant regulatory step up for investors moving away from transparency to portfolio composition requirements. Our research shows that more than 1,600 funds are exposed to at least one stock potentially in breach of activity-based exclusion rules. This represents a significant number of funds that may need to consider either divesting from the stocks or rebranding. Our new ESMA resource provides investors with a conservative approach to methodology while enabling them to customise exclusions to ensure regulatory alignment.”
The EU Taxonomy serves as a classification framework to assess whether an economic activity is environmentally sustainable. It aids investors, companies, and policymakers in making informed decisions by identifying activities that significantly contribute to environmental objectives, thereby facilitating the transition to a more sustainable economy. Morningstar Sustainalytics’ EU Taxonomy Solution provides investors with detailed data to streamline regulatory reporting and enhance investment analysis. This comprehensive dataset encompasses all six objectives and three key performance indicators (KPIs) – revenue, capital expenditure (capex), and operational expenditure (opex) – thereby supporting compliance with the latest ESG regulations and enabling various other applications.
Hortense Bioy, Head of Sustainable Investing Research, Morningstar Sustainalytics said, “Leveraging our data powered by our enhanced EU Taxonomy solution, as outlined in our new EU Taxonomy research we found that at least 1,300 non-financial companies are now reporting on their Taxonomy-related activities. Encouragingly, the aligned capital investments reported by companies are rising, reaching a total of over USD $500 billion over the past years. But this year’s average alignment levels are quasi-unchanged compared to last year. On average, capex alignment remains at just about 19%. Aligned investment opportunities are expected to grow further when reporting on alignment for the four new environmental objectives of the Taxonomy becomes mandatory, namely circular economy, pollution prevention, biodiversity protection, and water and marine resources.”
