Morningstar - Q4 2022 - 35

-0.39
-5
EXHIBIT 2
10
Comparable Performance Sustainable funds' returns have been similar to category averages over various time periods.
07/01-
12/31
2017
01/01-
06/30
2018
07/01-
12/31
2018
01/01-
06/30
2019
Large-Value Morningstar Category
Average Sustainable Large-Value Fund
10%
-10
-20
-30
-40
Q3
Yearto-Date
3-year
Source:
Morningstar Direct. Data as of 09/30/2022.
5-year
07/01-
12/31
2019
01/01-
06/30
2020
07/01-
12/31
2020
01/01-
06/30
2021
07/01-
12/31
2021
01/01-
06/30
2022
Large-Blend Morningstar Category
Average Sustainable Large-Blend Fund
10%
-10
-20
-30
-40
Q3
Yearto-Date
3-year
5-year
Large-Growth
Morningstar Category
Average Sustainable Large-Growth Fund
10%
-10
-20
-30
-40
Q3
Yearto-Date
3-year
5-year
SustainableFund
Flows
they have lagged broad indexes, partly because
of the strong performance of fossil-fuel-based
energy. Meanwhile, inflation hit growth stocks,
particularly the tech and internet giants.
As many of these companies perform well on
measures of how they handle material
ESG issues, they tend to be overweight in many
sustainable equity fund portfolios.
However, when compared against other
funds with similar overweights, these funds are
holding up well in this year's bear market.
Large-growth funds in Morningstar's U.S.
Sustainable Funds Landscape lost 30.8% for the
year to date through September, compared
with 32.1% for the large-growth Morningstar
Category average ( EXHIBIT 2 ).
8 More Shareholders Are Voting
Sustainable funds are showing, through
engagement and proxy voting, that they can help
create positive ESG outcomes. " This is
the great untold, and still unfolding, story of
sustainable investing, " Hale says.
Consider Costco COST: In an overwhelming defeat
for Costco's management, 70% of shareholders
voted in January for the megaretailer to adopt
a more wide-ranging plan to slash the greenhouse
gas emissions that cause global warming
by trapping heat in the atmosphere. The retailer
previously advised the shareholders to turn down
the proposal at its annual proxy vote.
" With this vote, investors are demonstrating that
they expect Costco to align with its peers by
accelerating work to reduce the climate impact of
its supply chains and raising the level of
ambition of its emissions reduction goals, " Leslie
Samuelrich, president of Green Century, the
investment firm that made the successful proposal,
said in a press release.
Many investors don't realize how much
active ownership activities are being undertaken
by many sustainable funds. In the year
to June 2022, company boards opposed more
than 250 environmental and social shareholder
resolutions, versus 145 in the same period
last year, according to Lindsey Stewart,
director of investment stewardship research
at Morningstar.
Expect more investors to participate. Already,
BlackRock BLK is allowing more institutional
clients and individuals to vote their index fund
shares. That removes a giant rubber stamp on
corporate management's decisions. Direct
indexing will also give individuals the opportunity
to vote their underlying shares. But more than that,
it's becoming easier to vote one's values.
For example, Behar says that As You Sow and
Proxy Impact, a proxy-voting firm based
on ESG principles, have made their voting slate
available on the Broadridge institutional
voting platform.
Meanwhile, social media is also changing the
dynamic for younger investors. This year,
electric truck maker Nikola NKLA drummed
up support to increase its number of authorized
shares-a move opposed by the company's
founder and largest shareholder, who
faced federal fraud charges-by targeting retail
shareholders on Reddit and other outlets.
These actions, as well as increased flows into
funds using ESG information, are having an
impact on corporate behavior. " I'd say any dollar
put into ESG investments is contributing to
this idea that companies are pursuing " greater
sustainability, Hale says.
9 Countering the Broad Consensus on ESG
Would Be Difficult
Reversing ESG's momentum would take a
herculean effort at this point. " There would have to
be a view that in fact ESG issues are not material, "
says Tom Kuh, Morningstar's global head of
ESG strategy for indexes. " A lot of effort has already
been put into answering that question. There
seems to be pretty broad consensus that, yes, ESG
issues are indeed material. "
morningstar.com/products/magazine
35
Return
Organic Growth R
Estimated Net Flo
Return
Return
https://www.morningstar.com/stocks/xnas/nkla/quote https://www.morningstar.com/stocks/xnys/blk/quote https://www.morningstar.com/stocks/xnas/cost/quote http://www.morningstar.com/products/magazine

Morningstar - Q4 2022

Table of Contents for the Digital Edition of Morningstar - Q4 2022

Contents
Morningstar - Q4 2022 - Cover1
Morningstar - Q4 2022 - Cover2
Morningstar - Q4 2022 - 1
Morningstar - Q4 2022 - 2
Morningstar - Q4 2022 - Contents
Morningstar - Q4 2022 - 4
Morningstar - Q4 2022 - 5
Morningstar - Q4 2022 - 6
Morningstar - Q4 2022 - 7
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Morningstar - Q4 2022 - Cover3
Morningstar - Q4 2022 - Cover4
Morningstar - Q4 2022 - S1
Morningstar - Q4 2022 - S2
Morningstar - Q4 2022 - S3
Morningstar - Q4 2022 - S4
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Morningstar - Q4 2022 - S12
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Morningstar - Q4 2022 - S15
Morningstar - Q4 2022 - S16
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