Sustainable investment priorities, particularly related to climate, are critical to institutional investors, according to Morningstar’s most recent Asset Owner Perspectives Survey. Yet how investors measure progress in identifying companies successfully positioned to weather the climate transition lacks consistency, according to new insights from Morningstar Indexes and Morningstar Sustainalytics.
“The wide range of approaches to measuring progress against climate transition goals is evident in the two net zero frameworks used most by financial institutions today,” said Alicia White, director of climate and nature solutions with Morningstar Sustainalytics. “The FINZ Standard, from the Science Based Target Initiative, takes a top-down approach to measuring company progress toward meeting net zero commitments by evaluating the financial institutions holding the companies, while NZIF 2.0 from the Institutional Investors Group on Climate Change takes a bottom-up approach, assessing climate readiness on a company level.”
To better understand these theoretical frameworks and the practical benefits and challenges for investors using them, Morningstar mapped both against the Morningstar Global Target Market Exposure Index, representing the performance of large- and mid-cap stocks in developed and emerging markets, using the Sustainalytics Climate Transition Toolkit.
The analysis identified a number of notable insights including:
- Just 6.7% of the index qualifies as "aligned to a net zero pathway," with no constituents below a 1.5°C Implied Temperature Rise.
- Stated climate targets don’t reflect real-world progress: 28.6% of index weight scores below 2°C on ambition.
- Energy is the weakest sector under both frameworks, with no constituent reaching "aligned" status under NZIF, even though it's the sector where engagement and transition financing carry the most influence.
Energy Remains Climate “Hot Spot” According to Morningstar
Source: Morningstar Sustainalytics. Data as of June 3, 2026.
“Regardless of what framework investors use to analyze the climate transition readiness of their portfolio, combining empirical data and real-world performance ensures a more realistic assessment,” added Maggie Stafford, director of product management with Morningstar Indexes. “Our analysis identifies the complementary nature of combining a top-down and bottom-up approach to measuring climate transition readiness while identifying how far we still need to go in addressing the climate transition gap.”
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