Morningstar rapped over alleged nuclear weapon investments

ASIC has issued two infringement notices to Morningstar for alleged exposure to controversial weapons investments, including nuclear weapons.

Morningstar has paid $29,820 in complying with the infringement notices, which relate to ASIC alleging its investor funds were exposed to controversial weapons investments.

This was despite Morningstar’s ESG policy which claimed such investments would be excluded.

In particular, its Morningstar International Shares (Unhedged) Fund’s product disclosure statement stated it would exclude certain securities or sectors based on environmental, social or governance factors, as listed in the ESG Policy. 

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However, the fund had direct exposure to securities in weapon companies for short periods of time. These were:

• Honeywell International Inc;
• General Dynamics Corp;
• Leidos Holdings Inc;
• Northrop Grumman Corp;
• Raytheon Technologies Corp.

Morningstar Sustainalytics, its ESG research arm, has recognised that these firms have been involved in controversial weaponry. This specifically includes the development or production of nuclear weapons, or providing core components for them.

In particular, the fund was exposed to Honeywell International from 2 November to 18 November 2022, being the date the shareholding was divested after Morningstar had become aware of it.

It also had exposure to General Dynamics, Leidos Holdings, Northrop Grumman and Raytheon Technologies securities from 31 May 2023 to 13 June 2023 on subsequent occasions. 

Morningstar reported the incidents to ASIC and paid the infringement notices on 30 November. 

However, payment of an infringement notice is not an admission of guilt or liability, ASIC stated.