Morningstar Sustainability Rating Australia 2025: Guide for Ethical Investors

Australia’s appetite for sustainable investing is booming, but how do you separate the green from the greenwashed? The Morningstar Sustainability Rating provides a data-driven answer—helping you align your portfolio with your principles in 2025’s evolving market.

What Is the Morningstar Sustainability Rating?

The Morningstar Sustainability Rating is a globally recognised measure of how well investment funds manage environmental, social, and governance (ESG) risks and opportunities. In 2025, it’s become a key tool for Australian investors looking to avoid greenwashing and invest in genuine change.

Rated from 1 (Low) to 5 (High) globes, the system evaluates funds based on the ESG performance of their underlying holdings, using Sustainalytics data. It compares funds within their peer groups, making it easier to benchmark like-for-like and understand how your fund stacks up in responsible investing.

• 1 Globe: Poor sustainability compared to peers
• 3 Globes: Average sustainability
• 5 Globes: Leading sustainability practices

Morningstar’s methodology was updated in late 2024, placing extra emphasis on carbon risk and controversies—meaning the 2025 ratings are more attuned to climate action and corporate accountability than ever before.

Why the Rating Matters in Australia’s 2025 Investment Landscape

Australia’s regulatory landscape is shifting fast. The Australian Securities and Investments Commission (ASIC) increased its scrutiny of sustainable investment claims in 2024, and new ESG disclosure requirements came into effect for managed funds in early 2025. Funds overstating their green credentials now face fines, with several high-profile cases making headlines.

For investors, this means:

• It’s easier to identify funds that genuinely consider ESG risks
• Funds with higher Morningstar Sustainability Ratings are less likely to be greenwashing
• Lower-rated funds may face pressure from regulators and investors to improve their ESG practices

For example, the Australian Ethical Diversified Shares Fund retained its 5-globe rating in 2025 after divesting from companies linked to fossil fuel expansion. Conversely, several mainstream index funds slipped to 2 or 3 globes due to exposure to carbon-intensive sectors or ESG controversies.

How to Use the Rating in Your Investment Decisions

The Morningstar Sustainability Rating isn’t a standalone investment recommendation—it’s a lens to view your options. Here’s how savvy investors are using it in 2025:

• Screening Funds: Filter superannuation or managed funds for high globe ratings before digging deeper into their strategy and fees.
• Comparing Peers: Assess how your fund performs on ESG relative to similar options, especially if you’re comparing within a sector (e.g., Australian equities).
• Tracking Improvements: Monitor rating changes over time to spot funds genuinely improving their sustainability credentials versus those lagging or facing controversies.

Morningstar’s ratings are also informing adviser recommendations, with many platforms now including globe icons directly in their fund comparison tools. Combined with the new Australian Sustainable Finance Taxonomy launched in 2025, investors have more clarity than ever on what ‘sustainable’ really means.

The Bottom Line: Ratings as a Springboard, Not a Shortcut

While the Morningstar Sustainability Rating is invaluable for navigating the ESG landscape, it’s most powerful when used as part of a broader due diligence process. Look beyond the globes—read fund reports, check for recent controversies, and consider your own values and financial goals. In 2025, the combination of robust ratings, tighter regulation, and greater transparency means Australian investors are better equipped than ever to invest for both returns and impact.