With over 40 years of expertise in index construction and maintenance, MSCI aims to set new standards for ESG indices - allowing clients to more effectively benchmark ESG investment performance, issue index-based ESG investment products, as well as to manage, measure and report on their compliance with ESG mandates.
The MSCI ESG Indices are grouped into the following main categories:
MSCI Global Sustainability Indices
MSCI Global Sustainability Indices represent the performance of the investment opportunity set (‘ESG beta’) of companies with high ESG ratings relative to their sector peers. They cover both global developed and the US markets. The indices target the highest ESG-rated companies making up 50% of the adjusted market capitalization in each sector of the underlying index, subject to the limitation that only companies with an ESG rating of ‘B’ or above are eligible for inclusion. They are reconstituted annually at the May Quarterly Index Review and rebalanced at the August, November and February Quarterly Index Reviews.
The MSCI Emerging Markets (EM) ESG Index, a member of the MSCI Global Sustainability Indices, is a capitalization weighted index that provides exposure to companies with high ESG performance relative to their sector peers. MSCI EM ESG consists of large and mid cap companies across 21 Emerging Markets (EM) countries. The Index is designed for investors seeking a benchmark comprised of companies with strong Sustainability profiles and relatively low tracking error to the underlying equity market. Constituent selection is based on data from MSCI ESG Research.
MSCI SRI Indices
The MSCI Global SRI Indices exclude companies that are inconsistent with specific values-based criteria. The indices target companies with high ESG ratings relative to their sector peers, to ensure the inclusion of the best-of-class companies from an ESG perspective. Further, they target sector weights that reflect the relative sector weights of the underlying MSCI Global Investable Market Indices to limit the systematic risk introduced by the ESG selection process. The MSCI Global SRI Indices target coverage of 25% of the underlying index. The selection universe for the MSCI Global SRI Indices is defined by the constituents of the MSCI Global Sustainability Indices. The composition of the indices is reviewed on an annual basis in May to coincide with the annual index review of the underlying MSCI Global Sustainability Indices. Ratings used for the annual index review are taken as of the end of April.
The MSCI KLD 400 Social Index includes 400 (large, mid and small capitalization) companies with high ESG ratings relative to the constituents in the MSCI USA Investable Market Index, while maintaining sector weights similar to the MSCI USA IMI. In addition, the index excludes companies with significant business activities involving alcohol, tobacco, firearms, gambling, nuclear power or military weapons. The index was launched in May 1990, and is one of the first SRI indices to market. The MSCI KLD 400 Social Index is set to 400 companies at each Quarterly MSCI Index Review (February, May, August and November).
MSCI Ex Controversial Weapons Indices
MSCI Ex Controversial Weapons Indices represent the performance of the investment opportunity set of companies that comply with global norms of corporate behaviour. The indices exclude a limited number of companies that violate these norms, such as producers of controversial weapons or companies involved in serious human rights abuses.
MSCI ‘Environmental’ Indices
The MSCI Global Environment Indices represent the investment opportunity set of companies that derive substantial revenues from environmentally beneficial products and services in five key environmental themes: Alternative Energy, Sustainable Water, Green Building, Pollution Prevention and Clean Technology. The MSCI Global Environment Indices are benchmarks for investors seeking exposure to companies whose primary source of revenues increase the efficient use of scarce natural resources or mitigate the impact of environmental degradation. The MSCI Global Climate Index is an equal weighted basket of 100 companies that are leaders in mitigating the causes of climate change. Index constituents are selected for their involvement in three key environmental themes: Renewable Energy, Clean Technology & Efficiency, and Future Fuels.
Custom MSCI Sustainability Indices
Custom MSCI Sustainability Indices are calculated using ESG criteria specified by clients and applied across Developed and/or Emerging Markets countries or regions. Custom MSCI Sustainability Indices integrate ESG analysis into the index construction process. An example is the Human Rights Custom Index on MSCI ACWI.
Barclays MSCI ESG Fixed Income Indices
The Barclays MSCI ESG Fixed Income Indices comprise more than 500 standard and bespoke ESG fixed income indices representing the most widely used ESG strategies and investment objectives across three categories:
- Barclays MSCI Socially Responsible (SRI) Indices exclude issuers that engaged in particular businesses activities that may be restricted for certain investors and are intended for those whose investment selections are governed by values-based policies.
- Barclays MSCI Sustainability Indices apply a best-in-class methodology to select issuers (sovereign, corporate, and quasi-sovereign) with high ESG ratings relative to their peers. These indices are intended for investors who place a premium on companies’ sustainability strategies and believe ESG criteria can be applied to identify companies that are more effective in managing the ESG risks unique to their industry.
- Barclays MSCI ESG Weighted Indices use ESG ratings to systematically over- and under-weight issuers within a bond index using an objective rules-based approach. These indices are targeted toward universal owners whose investment strategies express a view on the financial impact that ESG factors will have on their investments.