Morningstar - Q1 2021 - 56

Investors

Shareholders vs. Stakeholders
Morningstar researchers debate the best
way to profit and promote social good.

		

	

Undiscovered Manager

62	Expanding ESG

		

Sector Rap

	66	

Not Dead Yet

	

	

	70	

User Profile

Digging for Responsible Growth

MORNINGSTAR CONVERSATION

Haywood Kelly

Analysis of environmental, social, and
governance risk is critical to long-term investment
success. In 2020, Morningstar completed its
acquisition of Sustainalytics, a leader in ESG
ratings and research, and began integrating ESG
risk into the cash flow forecasts and economic
moat and uncertainty ratings for the 1,500plus stocks we cover. Our analysis begins with the
building blocks of Sustainalytics' company-level
ESG Risk Rating, focusing our efforts on the
most material issues, thereby factoring in the most
valuation-relevant risks. By capturing these
factors in our intrinsic value estimate and our
required margin of safety, we afford ESG
a central role in our methodology in a way that
aligns with our valuation focus and longterm orientation.1
Hand in hand with our ongoing work analyzing
investments and developing new intellectual
property lies a core commitment to independent
thinking. At Morningstar, we're proud
that not only do our research teams operate
independently, but our analysts are encouraged
to explore ideas and raise contrary viewpoints.
The enemy of any research organization is
groupthink. A research organization needs to hire
people who aren't afraid of challenging the status
quo, and we're always thinking about how
to foster a culture where people feel comfortable

speaking up and encouraging us all to think harder
and sharper. We debate just about everything:
Is the market overvalued? Should private equity be
allowed into retirement plans? What fund
categories are most suited to active investors?
How much should an annuity cost?
One of the hottest areas of debate these
days is whether ESG helps or hurts investing
performance and what ESG risks are truly
material to cash flows. What should be included
in our ESG ratings, with the field of sustainable investing evolving so rapidly? There's really
no facet that we don't debate.
We asked a group of researchers from across
Morningstar to represent opposing sides
of a debate that's taken center stage in 2020:
shareholder capitalism versus stakeholder
capitalism. One side is the view that companies
should focus exclusively on serving the
interests of shareholders, the owners of the stock
of the company. The other view is that
companies should consider the interests not
just of shareholders, but also other stakeholders,
such as customers, employees, suppliers,
and local communities.
Our debate focuses on the most famous
articulation of shareholder capitalism, an article
by economist Milton Friedman from
the University of Chicago, which appeared
in The New York Times Magazine in 1970.2
Friedman wrote:

1 Fleck A., Inton, K., Goldstein S., Makdad, M., & Fulop, T. 2020. " Integrating ESG Into Morningstar's Equity Research: A User's
Guide. " Morningstar. Oct. 22.
2 Friedman, M. 1970. " The Social Responsibility of Business Is to Increase Its Profits. " The New York Times Magazine, Sept. 13,
Section SM, P. 17.

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Morningstar - Q1 2021

Table of Contents for the Digital Edition of Morningstar - Q1 2021

Contents
Morningstar - Q1 2021 - Cover1
Morningstar - Q1 2021 - Cover2
Morningstar - Q1 2021 - 1
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Morningstar - Q1 2021 - Contents
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Morningstar - Q1 2021 - Cover3
Morningstar - Q1 2021 - Cover4
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https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20171201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20161011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20161201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20151011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20151201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20141011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20141201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20131011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20131201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20121011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120405
https://www.nxtbook.com/nxtbooks/morningstar/investorconference2012
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20121201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20111011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20111201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20101011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100809_lincoln
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100607_lincoln
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100405_lincoln
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20101201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20091011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008fall
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008summer
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2007spring
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2007fall
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2007summer
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008spring
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008catalog
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008winter
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