RI TRANSPARENCY REPORT

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RI TRANSPARENCY REPORT

2020

Morningstar, Inc

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About this report

This report is an export of the individual Signatory organisation responses to the PRI Service Provider Reporting

Framework during the 2020 reporting period. It shows your responses to mandatory indicators, as well as

responses to voluntary indicators that your organisation has agreed to make public. You will be able to access

the public RI Transparency report of your organisation and that of other signatories on the PRI website.

The information is presented exactly as it was reported. Where an indicator offers a response option that is

multiple-choice, all options that were available to the signatory to select are presented in this report. Presenting

the information exactly as reported is a result of signatory feedback which suggested the PRI not summarise the

information. As a result, the reports can be extensive. However, to help easily locate information, there is an

Index which highlights where the information can be found and summarises the indicators that signatories

complete and disclose.

Understanding the Index

The Index summarises the response status for the individual indicators and modules. It can be used by

stakeholders as an ‘at a glance’ summary of reported information and to identify particular themes or areas of

interest.

All indicators within a module are presented below. The status of indicators is shown with the following symbols:

Symbol Status

The signatory has completed all mandatory parts of this indicator

The signatory has completed some parts of this indicator

This indicator was not relevant for this signatory

- The signatory did not complete any part of this indicator.

The signatory has flagged this indicator for internal review

Within the table, indicators marked in blue are mandatory to complete. Indicators marked in grey are voluntary to

complete.

http://www.unpri.org/report

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Index Organisational Overview

Indicator Short description Status Disclosure

OO 01 Basic information Public

OO 02 Reporting year Public

OO 03 Signatory category and services Public

OO 04 Other offerings/business activities n/a

OO 05 Breakdown of ESG coverage

Asset mix

disclosed in OO

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OO End

-

Strategy and Governance


SG 01 Responsible investment policy Public

SG 02 Norms used to develop policies n/a

SG 03 Policy offerings to clients Public

SG 04 ESG/RI in business offerings Public

SG 05 Outsourcing of services Private

SG 06 Providing training/education Public

SG 07 Applying, advancing and promoting the PRI principles Public

SG 08 Actions taken to promote responsible investment Public

SG 09 Long term trends Public

SG 10 Interaction with asset owners n/a

SG 11 Aligning approach with investor goals Public

SG 12 ESG recommendations not aligned with investor goals Public

SG 13 Seeking feedback from clients Public

SG 14 Managing conflicts of interest Public

SG End

-

Research and Data Provision


RDP 01 Product type Public

RDP 02 Sources for research and/or rating Public

RDP 03 Stakeholder input n/a

RDP 04 Up-to-date assessment and ratings Public

RDP 05 Balanced research and assessment Public

RDP 06 Consistency and comparability Public

RDP 07 Emerging ESG issues and trends Private

RDP 08 Client use of outputs Private

RDP 09

- n/a

RDP End

-

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Confidence building measures


CM1 01 Other product offerings, processes and/or activities n/a

CM1 02 Assurance of responses Private

CM1 End Module confirmation page -

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Morningstar, Inc

Reported Information

Public version

Organisational Overview

PRI disclaimer

This document presents information reported directly by signatories. This information has not been audited by the

PRI Secretariat or any other party acting on their behalf. While this information is believed to be reliable, no

representations or warranties are made as to the accuracy of the information presented, and no responsibility or

liability can be accepted for any error or omission.

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Basic Information

OO 01 Mandatory Public Descriptive

OO 01.1 Select the location of your organisation’s headquarters.

United States

OO 01.2 Indicate the number of countries in which you have offices (including your headquarters).

1

2 - 5

6 - 10

11 - 50

>50

OO 01.3 Indicate the regions where you have offices.

Africa/Middle East

Asia (excluding Japan ＆ Korea)

Australasia

Canada

Continental Europe

Japan ＆ Korea

Nordic

South America

UK ＆ Ireland

US

OO 01.4 Indicate the approximate number of staff in your organisation in full-time equivalents (FTE).

FTE

7228

Reporting Year

OO 02 Mandatory Public Descriptive

OO 02.1 Indicate the year end date for your reporting year.

31/12/2019

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Signatory category and services

OO 03 Mandatory Public Gateway

OO 03.1 Indicate which of the following categories reflect your core offering or main business activity:

Reporting

Active Ownership Services

Investment consultancy


Other, specify (1)

Other, specify(2)

OO 03.2 Indicate any other business activities that your organisation offers. Indicate whether you wish to report on these business areas.

Reporting

Active Ownership Services

Investment consultancy

Other, specify (3)

Other, specify (4)

None of the above

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Morningstar, Inc


Public version

Strategy and Governance

PRI disclaimer





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Policy on ESG beliefs

SG 01 Mandatory Public Gateway

SG 01.1 Describe how your organisation’s philosophy incorporates environmental, social and governance factors, and the link to your business offerings.

Morningstar's mission is to empower investor success; making sustainable investing and ESG (environmental, social, and governance) measures clear and meaningful for investors is integral to our mission.

Morningstar believes all investors, no matter their size or influence, have the right to know all the facts about their investments. Today, access to the facts means access to ESG performance data alongside financial performance data. This enables investors to 1) Understand the full range of ESG risks (and opportunities) of their investments, and 2) Align their sustainability preferences with their investment decisions.

Morningstar has a long tradition of innovative research centered on good stewardship, lower costs, and more transparency for investors. Providing ratings and scores on ESG factors is a natural extension of our work.

Our sustainable investing data set contains more than 170 environmental, social, and governance (ESG) metrics, including the Morningstar Sustainability Rating™ for 52,000 funds, data on fund sustainable attributes, investor engagement and proxy data, company and fund product involvement, and company and fund carbon risk. These data sets provide investors with a holistic lens for evaluating how well the companies in a fund are managing ESG risks. It allows investors to align their values and preferences for more sustainable investments. Asset managers, asset owners, investment consultants, financial advisors, or individual investors can use our Sustainability Ratings, analytics, tools, software, data, and solutions to support and enhance the sustainable investment research process.

Additional information on our business offerings is found here:

https://www.morningstar.com/company/esg-investing

SG 01.2 Indicate whether you have policies that formalise the incorporation of your ESG beliefs in your business offerings.

Yes

No

SG 03 Mandatory Public Descriptive

SG 03.1 Indicate whether you offer standard, off the shelf, policies to clients as part of your product offerings, and/or whether you create tailored versions for individual clients.

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Off the shelf

Tailored

Asset class-specific RI guidelines

Sector-specific RI guidelines

Screening/exclusions policy

Engagement policy

(Proxy) voting policy

RI guidelines set out within the Investment Policy Statement (IPS)

RI guidelines set out in a freestanding RI policy

Multi-year RI implementation project plan

Conflict of interest management policy

Stockbroker allocation policy

Securities lending policy

Other, please specify (1)



None of the above


SG 04.1 Briefly describe how you include ESG/RI factors as part of your business offerings.

Business area


How you include ESG/RI factors

Morningstar provides the following in data feeds, indices, or software products including portfolio screening and selection tools:

- 45 ESG portfolio metrics like the Sustainability Rating

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- 30 portfolio product involvement data points outlining fund's exposure to 15 business activities like alcohol, tobacco, small arms, and thermal coal

- 75 metrics to assess and report on portfolio carbon risk

- ESG company research from Sustainalytics and Morningstar equity research

- 17 ESG metrics are considered in credit research

SG 04.2 Indicate the roles in your organisation, and indicate for each whether they have oversight and/or implementation responsibilities for ESG/RI within the organisation.

Roles present in your organisation

Oversight/accountability for ESG/RI

Implementation of ESG/RI

Board

Directors

Chief Executive Officer

(CEO), Chief Financial

Officer (CFO)

Chief Operating Officer

(COO), Chief

Information Officer

(CIO)

Other chief-level staff

Please specify

Head of Research

Please specify

Head of Sustainability

Other heads of

department

Dedicated ESG/RI

staff

Other role, specify (1)



None of the above

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SG 04.3 Indicate how you ensure ESG/RI expertise for the roles where there are RI oversight/accountability or implementation responsibilities.

Staff training on ESG/RI incorporation

Including ESG/RI knowledge factors in personal development goals

Having development plans that aim to enhance ESG/RI knowledge of certain departments/teams/individuals

Including ESG in selection requirements when hiring new employees

Other, specify (1)

Other, specify (2)

Other, specify (3)

Other, specify (4)

SG 04.4 Indicate whether your organisation has any ESG/RI linked incentives for its employees.

Yes

SG 04.5 Describe the ESG/RI linked incentives.

Morningstar's Sustainability Team, led by Morningstar's Head of Sustainability, is housed in the organization's research organization, and reports to the Head of Global Research. The group has annual goals pertaining to ESG integration across our products and services; ESG education for our key audiences; and ESG research for the investment community. Additionally, the team is tasked with the strategy and implementation of Morningstar's global coporate sustainability effort.

No

Not applicable, we ensure that employees incorporate ESG/RI into services through other mechanisms.


SG 06.1 Indicate whether you provide training/educational services on ESG/RI. Tick all that apply.

Board/trustee training

Investment manager training

Regulatory bodies/authorities or public policy makers

Corporate executive training

ESG analyst training

Other, specify (1)

Morningstar’s efforts include educational offerings for financial advisors, regulators, and policy makers. The firm maintains global digital properties dedicated to providing free ESG content.

Other, specify (2)

Other, specify (3)

Other, specify (4)

None of the above

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SG 06.2 Describe the main components of your training/educational services on ESG/RI and any variations depending on the group you provide training/education to.

Our research and education efforts are delivered to investor audiences of all sizes through a range of platforms: Asset managers and owners access research through our institutional software platforms and our free digital properties; advisory audiences access our resarch through advisor software tools and components and through free digital properties; individual investors access our research through videos, webinars, and research posted to our free digital properties, on our blog, and through social media channels.

SG 06.3 Describe whether these training/educational services include any commercial elements.

Morningstar does not apply fees to any of our education efforts; such efforts are an integral part of our mission to empower investor success. Fees are associated with the MMI/Morningstar Sustainable Investment education program for advisors.


SG 07.1 Describe how your organisation applies, advances and promotes the PRI Principles.

Morningstar's data, research, indices, ratings, methodologies, and software platforms are designed to deliver tools that support the PRI Principles of incorporation, active ownership, and disclosure. With respect to incorporation, Morningstar provides company level ESG risk data for more than 90% of the Morningstar Global Markets Index, and additional company level product involvement and carbon risk data. Additionally, the firm provides leading fund-level ESG risk, product involvement, and fund engagement data, and a proprietary sustainable attributes and intentionality framework. With respect to engagement and active ownership, our data offerings are combined with software and component tools to help asset managers and advisors assess the companies in their portfolios, better serve their clients, build expertise, and expand their businesses. Finally, Morningstar's research, data, and software services deliver transparency to the industry, reflecting our support for investors' disclosure requirements. We offer Sustainability Ratings on more than 51K managed products and Low Carbon Risk designations for global funds. These ratings and designations are simple, transparent signposts designed to reflect the material risk in investor portfolios and help asset managers position their portfolios for the future. Our research provides an independent view on sustainability data and on ESG strategies and trends in the market. Our global research teams deliver simple, elegant frameworks to understand intentionality, sustainability and ESG investing across all asset classes. Our proprietary software and components are designed to help investors understand and serve the ESG and sustainability interests of their own clients. We deliver tools for almost every function; we regularly discuss with investors from across the globe the manner in which they are able to leverage these tools to adhere to PRI Principles.

SG 07.2 Highlight whether there are any ways that your organisation would like to engage further with the PRI. [OPTIONAL]

Morningstar's intention is to engage more deeply with the PRI organization in 2020. Our plans include hosting the PRI's US-Midwest meeting on June 2, our participation in PRI In Person, and more consistent interaction with our new relationship manager, based in Chicago. We are discussing the offerings of PRI Academy and the manner in which PRI research and outreach efforts can help Morningstar shape our services to PRI signatories. We plan to conduct an ESG survey of private equity investors using our Pitchbook platform and would welcome the opportunity to engage with PRI further on that activity. Morningstar would also like to discuss with PRI participation on advisory committees related to credit ratings, stewardship, and private equity.

SG 08 Mandatory Public

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SG 08.1

Indicate which of the following actions your organisation has taken to promote responsible investments during the reporting year, independently of collaborative initiatives.

Provided or supported education or training programmes for clients, investment managers, legal advisers or other investment organisations

Provided financial support for academic or industry research on responsible investment

Encouraged better transparency and disclosure of responsible investment practices across the investment industry

Spoken publicly at events and conferences to promote responsible investment

Written and published in-house research papers on responsible investment

Encouraged the adoption of the PRI

Written and published articles on responsible investment in the media

Policy engagements and other interactions

Other, specify

None of the above


SG 09.1 Indicate which of the following long-term trends are addressed in your product outputs.

Changing demographics

Climate change

SG 09.2 Explain how this long-term trend affects your product outputs.

In 2019 and 2020, Morningstar provides 80 fund-level metrics on global portfolios under coverage, designed to indicate the extent to which companies held in the portfolios are prepared to transition to a low-carbon economy. These include data points that pertain to carbon risk, carbon intensity and fossil fuel exposure.

Morningstar also provides 55 fund level metrics on ESG risk, controversy and ESG pillars, as well as 12 high-level company metrics on ESG risk and company controversy.

Additionally, Morningstar provides 45 fund level metrics on product involvement (expressed primarily as a percent of revenue) and 92 company level metrics.

Finally, the firm provides 32 fund level Sustainable Attributes data points, designed to indicate the intentional nature of portfolio level strategies. Some, though not all, of these attributes are associated with climate change strategies.

Resource scarcity

Technology developments

Other, specify (1)

Other, specify (2)

None of the above


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SG 11.1 Describe how you typically align your organisation’s philosophy and approach to ESG/RI with your investor clients’ goals.

Describe

Morningstar's mission is to empower investor success; making sustainable investing and ESG (environmental, social, and governance) measures clear and meaningful for investors is integral to that mission. Our aim is to be the leading voice for ESG investors.

Morningstar believes that all investors, no matter their size or influence, have the right to know all the facts about their investments. Today, access to the facts means access to ESG data. This enables investors to understand the full range of ESG risks of their investments. Companies must manage ESG risks just like any other risk, and Morningstar provides the tools investors need. ESG risks are relevant to every investor regardless of personal belief or preferences. Our work also enables investors to align their sustainability preferences with their investment decisions. We empower investors to find investments that line up with their values. For example, for investors who want to focus on climate-friendly investments or invest in companies with greater workplace diversity, Morningstar helps them find those investments.

Morningstar is incorporating ESG measures in the investment process because it is critical in creating long-term investment strategies for individual investors and the professionals that serve them across the financial services industry.

This is not relevant for my organisation


SG 12.1 Describe what steps you take, if any, when your ESG recommendations are not in line with your investor clients’ goals.

Describe

This is not relevant for my organisation


SG 13.1 Indicate whether you seek feedback from clients on your RI/ESG services and product offerings

Yes

SG 13.2 Describe how you use this feedback in your RI/ESG services and product offerings.

Morningstar regularly enhances and develops all of its methodologies, software, tools, and research. This commitment to improvement supports our mission to empower investor success.

On an annual basis, we conduct a proprietary NPS survey across our software, data, and research product lines, collecting feedback on client use of our tools. On a regular basis, we obtain feedback from clients, conduct user testing, and incorporate client responses into our development efforts. In 2020, we have added an explicit reference to our ESG tools and services to our NPS survey.

Additionally, our clients provide regular feedback through our client support software, which is deployed consistently across the globe, and managed by a large, client-service team. This client support data is consumed by our institutional-quality data services team and informs our product roadmaps.

Morningstar meets regularly with the world's largest asset managers, asset owners, and advisory firms, loyal clients for the past 35 years. Ours is an iterative, high-touch client service model; no portion of this model is outsourced. Product managers and product strategists have every-day access to this feedback and use it regularly to inform product development roadmaps and plans for the future.

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No


SG 14.1 Indicate whether your organisation has a policy for managing potential conflicts of interest.

Yes

SG 14.2 Describe how you manage potential conflicts of interest.

Morningstar maintains a robust internal Ethics Policy digital location and an Ethics Hotline and, in addition, the firm works with an outside provider to ensure that employees have access to a series of global compliance resources, available digitally. Our handbook and internal employee-resource guides employees through the identification and reporting processes for potential conflicts of interest. Additionally, Morningstar's outside provider delivers employees a systematic, safe framework for managing potential conflicts of interest that they prefer to manage outside of the company. Internal and external resources summarize processes and standard operating procedures for employees who become aware of conflicts of interest, including the process for outcome and complaint resolution.

SG 14.3 Describe how you ensure that company employees do not derive any personal gain from the use of information collected during your work process.

On an annual basis, all Morningstar employees must review and confirm their adherence via signature, to the Morningstar Code of Ethics. The document stipulates that employees must avoid situations where their personal interests or other business interests could conflict with the interests of Morningstar or could be perceived by others as doing so. This document is published externally, here: https://shareholders.morningstar.com/investor-relations/governance/code-of-ethics/default.aspx.

Additionally, Morningstar's board members are expected to comply with the obligations described in the Conflicts of Interest section of Morningstar's Corporate Governance Guidelines.

No

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Morningstar, Inc


Public version


PRI disclaimer





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Product level

RDP 01 Mandatory Public

RDP 01.1 Indicate your product type. Tick all that apply.

Analysis

Benchmarking reports

ESG ratings

Credit ratings

ESG indices

Raw data

Second party opinion on green or social bonds

Surveys

Other, specify

RDP 01.2 Indicate whether you make any of your products publicly available.

Yes, all products

Yes, some products

No, we do not

Research/process level

RDP 02 Mandatory Public

RDP 02.1 Indicate the types of sources you use for research and/or ratings of companies/sectors/geographies or similar. Tick all that apply.

Your organisation`s independently collected data from public sources

Regulatory sources

Information from NGOs and other stakeholders

In-person meetings or calls with company or industry representatives

Primary data (self-reported from companies or other organisations)

Secondary data (from other research provider databases)

Other, specify (1)

Other, specify (2)

Other, specify (3)

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RDP 02.2 Indicate how ESG factors are incorporated into your research and/or rating methodology

Identifying exposure and risk to ESG factors

Considering responses to self-assessment questions on ESG

Assessing current and future capacity to manage or mitigate ESG risks

Assessing past and potential future performance on ESG factors

Assessing alignment and compliance to different policies and regulations

Assessing alignment and compliance explicitly to the Sustainable Development Goals (SDGs)

Assessing current and future positive ESG impacts

Other, specify (1)

Other, specify (2)

Other, specify (3)

RDP 02.3 Describe how you define materiality and how this is captured in your research and/or rating methodology as well as final product.

Morningstar works with Sustainalytics, an independent, global ESG research provider to deliver sustainable investment research, data, software and tools. Sustainalytics, which provides our underlying company research, adheres to the International Financial Reporting Standards' definition of materiality: “Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the nature and amount of the item judged in the particular circumstances of its omission or misstatement.” Sustainalytics applies this materiality framework to its ESG company assessments, which are aggregated in Morningstar's asset-weighted portfolio calculations for the Morningstar Sustainability Rating and its other fund-level designations. These aggregated portfolio metrics are delivered through Morningstar's data, research, and software products, rendering the materiality definition adopted by Sustainalytics relevant across Morningstar's business lines.  In addition, Morningstar evaluates and considers 17 significant ESG risk factors within its credit analysis, spanning multiple sectors (Governments, Financial Institutions, Corporate Finance, and Structure Finance).

RDP 04 Mandatory Public Descriptive

RDP 04.1

Indicate how you ensure that your ESG assessment of companies/ sectors/ geographies or similar is up-to-date and that new information is incorporated or new assessments are conducted at reasonable intervals.

Regular update cycles (annual or more frequent)

Allowing assessments/ ratings to be adjusted at any time by your organisation

On-going alerts systems in place for new events and information that might have implications on the original assessment/ ratings

On-going monitoring of possible controversies and compliance to conventions, regulations and similar

Providing tools for companies/ sectors or others to update the researcher, rating agency or data provider with new information

Other, specify (1)

Other, specify (2)

Other, specify (3)

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RDP 05.1

Indicate how you typically ensure a balanced approach to your research methodology and assessing/rating of companies/sectors/geographies or similar. Tick all that apply and explain your approach to each option.

Type of indicators

Balancing quantitative and qualitative indicators

Balancing management/process oriented indicators and performance indicators

Balancing reference to past and current performances, such as whether the rating object’s performance is improving or deteriorating

Explain your approach

The Morningstar Sustainability Rating is a measure of the financially material environmental, social, and governance, or ESG, risks in a portfolio relative to a portfolio's peer group. The rating is an historical holdings-based calculation using the company-level ESG Risk Rating from Sustainalytics, a leading provider of ESG research. It is calculated for managed products and indexes globally using Morningstar’s portfolio holdings database. The Morningstar Sustainability Rating is the result of a three-step process. First, we calculate the Morningstar Portfolio Sustainability Score for every portfolio reported within the trailing 12 months, overweighting the most recent portfolios. Second, we use these scores to calculate a portfolio's Morningstar Historical Portfolio Sustainability Score. Third, we assign a Morningstar Sustainability Rating for a portfolio based on its Morningstar Historical Portfolio Sustainability Score relative to its Morningstar Global Category. In this way, the historical sustainability profile of the portfolio influences its current rating.

Balancing environmental, social and governance indicators

Explain your approach

Morningstar works with Sustainalytics, a leading provider of ESG research, to product the Morningstar Sustainability Rating, a measure of the financially material environmental, social, and governance (or ESG) risks in a portfolio. Sustainalytics company level ESG-risk ratings are designed to help investors identify and understand financially material ESG-related risks within their investment portfolios and how they might affect long-term investment performance. Supported by a robust materiality framework, Sustainalytics’ ESG Risk Ratings provide a quantitative measure of unmanaged ESG risk. Identified material risks often encompass factors associated with E, S, and G simultaneously, offering a holistic picture of company risk. At the same time, Sustainalytics maintains separate E, S, and G indicators for certain portions of its company coverage list, which allows investors to understand the influence of E, S, and G factors on certain companies. Morningstar’s research and ratings efforts, which are produced by our manager research, equity research, and quantitative research organizations, incorporate Sustainalytics data and ratings in their approach to investment analysis. Our credit research and ratings organization, which includes the 2019 acquisition of DBRS, considers ESG risk in credit ratings, identifying 17 ESG Risk Factors, making a distinction between the environmental, social, and governance factors as they pertain to different sectors. The credit research and ratings group incorporates ESG risk into its assessment over the life of the transaction.

Balancing self-reported and public data

Other, specify (1)

Other, specify (2)

None of the above


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RDP 06.1 Describe the control processes in place to ensure quality of research.

The Morningstar Research organization has adopted guidelines in the Morningstar Compliance Policy Manual for Morningstar Research Services LLC, a 62 page document that outlines the Research organization’s commitment to comply with Morningstar’s Code of Ethics, Advertising, Business Continuity, Advisory, Books and Records, Cybersecurity, Electronic Communications, and Client Complaint agreements. Additionally, it formalizes policies that pertain to the Research organization, such as investment processes, research processes, new services, and political contributions. It strengthens guidelines pertaining to Analyst Registration, use of social media, and social networks, and supervision. It references the Investment Advisors Act of 1940 and the Securities Exchange Acto of 1934, explicitly identifying policies pertaining to Supervised Persons in addition to the responsibilities of managers overseeing Supervised Persons.

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Morningstar, Inc


Public version

Confidence building measures

PRI disclaimer





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Documents

RI TRANSPARENCY REPORT