Low Carbon Designation is the name of the new rating, issued by Morningstar. Avanza claims to be world-first in applying it so that retail clients can filter funds by it on its web site.
Data from company level
The rating process does not require administration on the side of the fund companies.
It builds on data from insight company Sustainalytics, which assesses thousands of corporations globally by various carbon dioxide-related factors, and aggregate these into risk scores.
Weighed by portfolio share
Morningstar, in turn, has statistics on the funds’ investments in each of those corporations.
By taking the risk score for each portfolio company, and weighing it by its share of the fund’s holdings, each fund is then tested against the limit for the Low Carbon Designation. Two thirds or more of a funds assets must be made up of stocks in companies covered by Sustainalytics, for the fund to be assessed for the designation.