Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics, discusses how the company's pioneering research is enabling actionable insights in relation to regulatory developments in sustainable finance.

Environmental Finance: How have Morningstar Sustainalytics' research capabilities evolved? What has driven this?

Hortense Bioy: Over the past eight years working with ESG data, I have witnessed a continuous expansion of our datasets as markets evolved and investor expectations grew.

Whenever there are new regulatory developments, we add data points and analytics to help our clients make informed decisions. When the EU's Sustainable Finance Disclosure Regulation (SFDR) was introduced in March 2021, we were the first in the market to collect the related data and provide actionable insights.

Likewise, with the introduction of the EU ESG Template in 2022 – designed to help financial market participants comply with SFDR – we were able to collect the most relevant data and make it accessible across our platforms.

The more significant step in Morningstar's ESG evolution came with Morningstar's acquisition of Sustainalytics in 2020. This integration has enabled us to broaden the datasets available to our platform users.

EF: How does your research draw on Sustainalytics' expertise and broader Morningstar data, and how does that combined approach strengthen your insights?

HB: Our research leverages Morningstar's market-leading fund data alongside Sustainalytics' issuer-level ESG data. This combination enables us to deliver more comprehensive analyses of investments and market trends, providing deeper and broader insights.

Data is just one part of the equation. To produce our thought leadership papers, my team also draws on the expertise of analysts and subject-matter specialists across the organisation.

EF: What processes or methodologies ensure the rigour and credibility of your research, and how do they contribute to decision-useful outcomes for investors?

HB: Our datasets are built on robust, transparent methodologies developed with a deep understanding of the market and potential use cases. These methodologies undergo regular reviews to ensure they remain fit for purpose and are continuously enhanced to keep pace with regulatory developments and market expectations.

EF: How do you adapt your research and analytical frameworks in response to evolving regulatory environments, such as recent SFDR updates?

HB: We maintain constant engagement with the market – particularly with asset managers, who must comply with this regulation – as well as wealth managers and financial advisers – who rely on the data to make informed investment decisions. This allows us to stay on top of what's happening, the challenges stakeholders face, and the diverse practices emerging across the industry.

We also provide forward-looking insights, predicting how the market may respond to regulatory changes and what the future state of play could look like. These predictions are grounded in rigorous data analysis, deep market knowledge, and investigative research. Transparency is key: we clearly outline the assumptions, frameworks, and data behind our work so clients can understand our approach, replicate the research, and even explore it further.

I see us as a research lab. We bring data to life, test new data points, create new datasets, and share the results with the market. Take the research that earned us this award as an example: we were the first to deliver SFDR insights to the market back in March 2021 and have since developed new datapoints and datasets to provide fresh perspectives.

Every quarter brings new developments we aim to quantify. For instance, at the end of 2022, a wave of fund reclassifications occurred. We not only measured the scale but also analysed the implications for asset managers, distributors, and investors. Just last week, we published an impact analysis of SFDR 2.0 – demonstrating how we stay ahead of market evolution.

For more information, see: www.sustainalytics.com/esg-research or www.sustainalytics.com/