MSCI ESG & Climate Indexes

Description of Characteristics:

Investor-Focused: MSCI’s ESG and Climate Indexes are designed to help investors integrate ESG considerations into their investment portfolios and decision-making processes.
Rules-Based and Transparent: MSCI utilizes transparent methodologies and rules-based index construction to identify companies with strong ESG performance or specific climate-related characteristics.
Industry-Specific: MSCI ESG Ratings are tailored to industry-specific factors, recognizing that material ESG issues vary across sectors.
Data-Driven: MSCI leverages its extensive ESG research and data to inform the index construction and selection process.
Global Coverage: MSCI’s indexes cover a wide range of markets and geographies, providing investors with global investment opportunities.
Rating Scale: MSCI ESG Ratings use a seven-point scale ranging from leader (AAA, AA) to laggard (B, CCC).

Targeted Audience:

The primary target audience for MSCI ESG Ratings and related products are institutional investors such as asset managers, pension funds, insurance companies, and sovereign wealth funds.
These investors use MSCI’s ESG data and analytics to inform their investment decisions, manage risk, and engage with companies on ESG issues.
While the primary focus is on investors, MSCI’s products and services can also be valuable to corporations seeking to understand their ESG performance relative to peers and identify areas for improvement.

Specific Criteria:

ESG Indexes (35 Key ESG Issues):
- MSCI ESG Leaders Indexes: Select companies with high ESG ratings relative to their sector peers.
- MSCI ESG Universal Indexes: Integrate ESG ratings into broad market indexes.
- MSCI ESG Focus Indexes: Overweight companies with strong ESG performance relative to their sector peers.
- MSCI SRI Indexes: Select companies based on a combination of ESG ratings and values-based screens.
Climate Indexes:
- MSCI Climate Paris Aligned Indexes: Aim to reduce carbon emissions in line with the Paris Agreement goals.
- MSCI Low Carbon Target Indexes: Target specific carbon emission reduction levels relative to the parent index.
- MSCI Climate Change Indexes: Consider both the risks and opportunities associated with the transition to a low-carbon economy.

Reporting Principles:

Data Collection and Analysis: MSCI collects and analyzes data related to the 35 key ESG issues for each company.
Rating Calculation: MSCI’s rules-based methodology assigns scores to each key issue and calculates an overall ESG rating.
Rating Publication: MSCI publishes ESG ratings for thousands of companies globally, making them readily available to investors and other stakeholders.
Transparency: MSCI provides detailed methodologies and index construction rules for each of its ESG and Climate Indexes.
Data Quality: MSCI emphasizes the importance of high-quality ESG data and conducts rigorous research to inform its ratings and index selection.
Objectivity: MSCI aims to maintain objectivity and independence in its ESG research and index construction process.

Reporting Process:

Not directly applicable: MSCI’s ESG and Climate Indexes are not reporting frameworks themselves, but rather tools for investors to construct ESG-focused portfolios. Companies included in these indexes are still expected to comply with relevant ESG reporting standards.

Connections to Other Frameworks:

Complementary to other ESG frameworks: MSCI ESG Ratings can be used in conjunction with other frameworks, such as GRI and SASB, to gain a comprehensive understanding of a company’s sustainability performance.
Alignment with TCFD: MSCI Climate Metrics support TCFD-aligned reporting by providing data on climate-related risks and opportunities.
Integration with Investment Products: MSCI ESG Ratings and data are used in a wide range of investment products, such as ESG indexes and ETFs.

Challenges:

Data Reliance: MSCI’s ratings are based on publicly available information and company disclosures, which can vary in quality and completeness.
Subjectivity in ESG Ratings: While MSCI strives for objectivity, ESG ratings inherently involve some level of subjectivity, which can lead to different interpretations and outcomes.
Focus on Listed Companies: MSCI’s primary focus is on publicly listed companies, limiting its applicability to private companies and other organizations.

Compliance Guidance:

MSCI ESG Ratings Methodology: Provides a detailed overview of MSCI’s approach to ESG ratings.
MSCI ESG Research Reports: Offer in-depth analysis of companies’ ESG performance.

Usability Evaluation:

Level of Global Adoption: Widely used by institutional investors for constructing ESG-focused investment portfolios.
Ease of Use: MSCI provides clear methodologies and data, making it relatively easy for investors to understand and use its indexes.
Focus Areas: Focuses on integrating ESG and climate considerations into investment strategies.
Data Availability: MSCI ESG Research provides extensive ESG data and ratings on thousands of companies globally.

SyncFrame Compatibility:

Complementary Assessment: SyncFrame can be used alongside MSCI ESG Ratings to provide a more holistic assessment of ESG performance, including factors beyond financial materiality.
Data Integration: SyncFrame’s data collection and analysis tools can be used to track and report on the ESG metrics that are relevant to MSCI’s indexes.
Investor Communication: Companies can leverage SyncFrame’s reporting capabilities to communicate their ESG performance to investors in a clear and transparent manner, aligning with the transparency requirements of MSCI’s indexes.

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