Sustainable Investment: Morningstar defines a strategy as a "Sustainable Investment" if it is described as focusing on sustainability; impact; or environmental, social, and governance, or ESG; factors in its prospectus or other regulatory filings. At the next level of granularity, "Sustainable Investment" funds are categorized into three distinct groupings. "ESG Funds" prominently focus on incorporating ESG factors into the investment process. "Impact Funds," in addition to financial return, seek to deliver a measurable impact on specific issues or themes like gender diversity, low carbon, or community development. "Environmental Sector Funds" are strategies that invest in environmentally oriented industries like renewable energy or water.
Basic Needs: This theme concerns the basic needs of humans with a particular focus on individuals in need. Basic needs include access to food, housing, essential healthcare concerning major and neglected diseases, clean water, and energy for underserved populations. It also addresses human safety, including safe workplaces and communities. Examples of strategies to be found in this category include those that target themes such as affordable drinking water, affordable electricity, clean water and sanitation, food security, safe working conditions, and human rights.
Climate Action: Climate Action covers thematic investments related to climate change. This theme includes strategies focused on investing in companies or projects that contribute broadly to the transition to a low-carbon economy. It also includes green energy and clean tech strategies that invest in companies or projects that facilitate the transition to renewable energy. Examples include strategies focused on wind, solar, hydro, tidal, and geothermal power and those focused on green infrastructure and energy storage. Subthemes to be found under this broad theme include, but are not limited to, carbon transition, decarbonization, greenhouse gas emissions, climate change adaptation and mitigation, and climate solutions.
General ESG Investment: General ESG Investment strategies use ESG criteria as a central focus or binding factor in their security-selection and portfolio-construction process. Strategies that incorporate ESG factors typically have explicit sustainability criteria that invested companies must meet. These strategies may use ESG criteria to help them limit risk, identify investment opportunities, and engage with companies. They may also apply certain exclusions. These strategies endeavor to promote sustainability and minimize negative impact, without focusing on a specific theme or area of action.
Healthy Ecosystems: This theme is concerned with safeguarding ecologically sound environments on land, air, and water. It includes strategies that invest in companies operating in industries that positively impact the environment, such as companies that reduce pollution or perform remediation activities. It does not include water or greenhouse gas emissions/climate-change-related subthemes, as these are covered under other themes. Examples of subthemes found in this category include biodiversity, deforestation, life under water, natural ecosystems, planetary boundaries, planetary health, and sustainable agriculture.
Human Development: This theme is concerned with enhancing human capabilities and promoting social progress. The theme includes measures that support education, equality, employment opportunities, and reduced inequalities. Strategies focusing on social themes such as diversity, equity and inclusion, education, or micro-finance may be found under this theme. Other examples in this category include financial inclusion, equal opportunities, decent work and economic growth, and sustainable cities and communities.
Resource Security: This theme is concerned with efficient use of resources and circular economies. Resources include water, timber, metals, minerals, gases, and all types of manufactured materials. Investments that target sectors related to any of these biological resources or that focus on subthemes such as sustainable water and wastewater, eco-efficient and/or circular economy adapted products, waste management, and recycling, are included under this theme. Additional examples of strategies in this group include investments that promote action in areas such as responsible production and consumption, land use, food waste, water consumption, water depletion, or forest conversion.
