MSCI announced today its methodology decisions that will be incorporated into the new MSCI ESG Indices. The implementation of the methodology changes will coincide with the MSCI August 2010 Index Review that will be implemented as of the close of August 31, 2010 (effective on September 1, 2010).

As a reminder, MSCI announced on July 1st its plan to transition the FTSE KLD Indices, which are used by investment managers to integrate Environmental, Social and Governance criteria into their investment decisions for performance benchmarking and for asset allocation, to a newly created family of MSCI ESG Indices. The following indices will be part of this new family:

• MSCI World ESG Index (from FTSE KLD Global Sustainability Index)
• MSCI World ex US ESG Index (from FTSE KLD Global Sustainability ex US Index)
• MSCI EAFE ESG Index (from FTSE KLD Europe Asia Pacific Sustainability Index)
• MSCI North America ESG Index (from FTSE KLD North America Sustainability Index)
• MSCI Europe ESG Index (from FTSE KLD Europe Sustainability Index)
• MSCI Pacific ESG Index (from FTSE KLD Asia Pacific Sustainability Index)
• MSCI USA ESG Index (from FTSE KLD US Large-Mid Cap Sustainability Index)
• MSCI USA Large Cap ESG Index (from FTSE KLD US Large Cap Sustainability Index)
• MSCI USA Mid Cap ESG Index (from FTSE KLD US Mid Cap Sustainability Index)
• MSCI USA Small Cap ESG Index (from FTSE KLD US Small Cap Sustainability Index)
• MSCI USA SMID ESG Index (from FTSE KLD US Small-Mid Cap Sustainability Index)
• MSCI USA IMI ESG Index (new)
• MSCI USA Broad ESG Index (from FTSE KLD US All Cap Sustainability Index)
• MSCI USA ESG Select Index (from FTSE KLD Select Social Index) 
• MSCI KLD 400 Social Index (from FTSE KLD 400 Social Index) 
• MSCI USA Catholic Values Index (from FTSE KLD Catholic Values 400 Index) 
• MSCI Global Climate Index (from FTSE KLD Global Climate 100 Index)

The following methodology changes will be implemented as part of the transition of the FTSE KLD Indices:

• As announced on July 1, 2010, the new MSCI ESG Indices will be based on the MSCI Global Investable Market Indices and will follow the regular MSCI Index Review schedule.  The ESG criteria for stock selection remain unchanged.
• For the purpose of the construction of the MSCI World ESG Index, Canada and the USA will be treated separately, rather than as a combined North America region as is currently done.   The methodology for the MSCI World ESG Index will target 50% sector coverage as is currently the case.
• The target sector representation will be reduced from 65% of the parent index market capitalization to 50% for the MSCI USA ESG Indices to bring the MSCI USA ESG Indices in line with the design used for the MSCI World ESG Index.  This change aims to make the MSCI USA ESG and MSCI World ESG Indices more comparable and in line with the best in class objective.

Following client feedback, the decrease in the target sector representation of the FTSE KLD US All Cap Sustainability Index will occur in steps. At the August 2010 Index Review, the Index will be renamed MSCI USA Broad ESG Index. The index will be constructed by targeting 65% sector coverage of both the MSCI USA Index and the MSCI USA Small Cap Index. At the MSCI November 2010, February 2011 and May 2011 Index Reviews, the same methodology will be applied targeting 60%, 55% and 50% sector coverage respectively.

In addition, a new index named MSCI USA IMI ESG Index, which will directly implement the final methodology of targeting 50% sector coverage, will be calculated from September 1st 2010. This index will be constructed by targeting 50% sector coverage of both the MSCI USA Index and the MSCI USA Small Cap Index. The constituents of the MSCI USA Broad ESG Index and the MSCI USA IMI ESG Index will converge at the time of the May 2011 Index Review.

The MSCI USA ESG Index, MSCI USA Large Cap ESG Index, MSCI USA Mid Cap ESG Index, MSCI USA Small Cap ESG Index and MSCI USA SMID ESG Index will be subsets of the MSCI USA IMI ESG Index.

• The MSCI USA ESG Select Index will be optimized using the Barra Open Optimizer and the relevant Barra Equity Model for index construction, instead of the current optimizer and risk model used currently in the FTSE KLD Select Social Index.
• For ongoing index maintenance, new additions to the MSCI Global Investable Market Indices due to corporate events will not be added simultaneously to the MSCI ESG Indices, but will be considered for inclusion at the following Index Review. Constituents of the MSCI ESG Indices that are impacted by corporate events will be reviewed on a quarterly basis for compliance with the MSCI ESG Index Methodology. Any resulting deletion due to non-compliance with the MSCI ESG rating framework will be implemented at the following regular MSCI Index Review. However, constituents deleted from the MSCI Global Investable Market Indices following corporate events will be deleted simultaneously from the MSCI ESG Indices.

The MSCI ESG Indices Methodology Books will be publicly available as of July 23, 2010 on MSCI's website at www.msci.com.

As a reminder, all FTSE KLD Indices will continue to be calculated, maintained and delivered as per the current process until the transition to the MSCI ESG Indices Methodology is completed on September 1, 2010.

An Indicative list of MSCI ESG Index constituents is available to clients upon request. MSCI will provide to clients a refreshed list on August 10, 2010 upon request. This refreshed list will reflect the annual review changes as well as the methodology changes. It will not reflect potential additions and deletions to the underlying MSCI Global Investable Market Indices resulting from the upcoming August 2010 Quarterly Index Review.

The final list of constituents will be available on August 25, 2010. From that day onwards, MSCI will start distributing the MSCI ESG Indices on a daily basis to subscribing clients via the MSCI Integrated Client File (ICF).