The Morningstar folks are on top of monitoring and reporting on investment trends, including embracing sustainable investing as a major trend to track. They acquired the Sustainalytics ESG ratings firm and over the years have rated hundreds of sustainability-labeled mutual funds and ETFs. For the 2023 celebration of Earth Day, which was first held in 1970.
In our Top Story below, Morningstar’s Tom Kuh looked at six pioneering funds that launched as much as a half-century ago and reports on where they are now.
Early societal movements in the United States in the late 19th and early 20th centuries focused on preserving and protecting natural resources (forests), open land (leading to today’s national and state parks), and ocean treasures (coral reefs). This was first labeled as “conservation” but that evolved over time to include “environmental protection” as American and European industries liberally poured waste and toxins into land, air, and bodies of water.
The first Earth Day was organized by U.S. Senator Gaylord Nelson of Wisconsin, to raise public awareness of the significant damage being done to our environment. An estimated 20 million people attended events on April 22, 1970, which was shortly after President Richard Nixon in his first term exerted pressure to help the 91st Congress pass the National Environmental Policy Act of 1969 (becoming the law of the land on January 1, 1970).
“NEPA” created the U.S. Environmental Protection Agency (EPA) and the Council on Environmental Quality (“CEQ”) within the White House. The legislative momentum paved the way for passage of significant legislation such as the Clean Water Act and the Clean Air Act. This wave of 1970s legislative and administrative action helped to raise public awareness of the importance of environmental protection. Savvy, prescient players in the investment community responded by creating investable products that initially addressed environmental issues.
The Morningstar analysis of early mutual funds categorized as “socially responsible investments” (SRI), evolving over time to “sustainable and responsible” and then to “impact” investments. SRI was new in the early 1970s and the pioneer funds were small in comparison to where they are today.
The six pioneering mutual fund complexes analyzed by Morningstar are:
- Pax World Funds (now, Impax Asset Management);
- Calvert Research and Management (now part of Eaton Vance Management);
- Parnassus Investments;
- Domini Impact Investments;
- Trillium Asset Management (founder Joan Bavaria was one of the founders of Ceres);
- Boston Trust/Walden Asset Management.
As Tom Kuh points out, “the firms stand out as authentic, staying true to their purpose at a time when investors are alert to the potential for greenwashing.” Although Earth Day 1970 began “with an exclusive focus on the environment,” Kuh points out, “we can view sustainable investment as the investment legacy of Earth Day.”
These funds stayed true to their original purpose. Many more mutual funds and ETFs and other investable products (green bonds are an example) have come to market. While claims of “greenwashing” are sometimes made, the SEC has standards and rules in development for the asset managers of climate-related investment products.
Of value for us: Tom Kuh explains the comprehensive process that Morningstar uses to help guide investors seeking sustainable portfolios with such resources as its Sustainable Investing Framework, Morningstar Sustainable Ratings, and ESG Commitment Level. The G&A team closely follows the ESG ratings firms and will continue to keep you updated on trends in sustainable investing.