Morningstar has paid $29,820 to comply with two infringement notices issued by ASIC in which ASIC alleged its investor funds were exposed to controversial weapons investments, despite Morningstar’s Environmental, Social and Corporate Governance (ESG) Policy stating that such investments would be excluded.

The Product Disclosure Statement for the Morningstar International Shares (Unhedged) Fund stated that it would exclude certain securities or sectors based on environmental, social or governance factors, as listed in the ESG Policy. The ESG Policy said the Fund would not have exposure to investments in controversial weapons companies.

The Fund was directly exposed for short periods of time to securities in the following weapons companies:

Honeywell International Inc;
General Dynamics Corp;
Leidos Holdings Inc;
Northrop Grumman Corp;
Raytheon Technologies Corp.
Morningstar’s ESG research arm, Sustainalytics, identifies that the above companies are involved in controversial weapons, specifically the development or production of nuclear weapons or providing core components for them.

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. On a subsequent occasion, the Fund was exposed to General Dynamics, Leidos Holdings, Northrop Grumman and Raytheon Technologies securities from 31 May 2023 to 13 June 2023.

Morningstar reported the incidents to ASIC.

Morningstar paid the infringement notices on 30 November 2023. Payment of an infringement notice is not an admission of guilt or liability.