MSCI Socially Responsible Investing (SRI) Indices are a global benchmark that exclude companies with involvement in specific business activities that investors may wish to avoid and includes companies with very high ESG ratings relative to their sector peers.
The MSCI Global SRI Indices exclude companies that are inconsistent with specific values-based criteria. The indices target companies with high Environmental, Social and Governance (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 MSCI Global Sustainability Indices target the highest ESG rated companies, making up 50% of the free float adjusted market capitalization in each sector in each region of the MSCI World Index. Only companies with an ESG rating of "B" or above are eligible for inclusion in the MSCI Global Sustainability Indices. This choice of universe ensures that only the best-of-class ESG companies in each region and sector are included in the MSCI Global SRI Indices.
Currently, MSCI constructs MSCI Global SRI Indices for the Standard size-segment in all Developed Markets. The indices are free float-adjusted market capitalization weighted. 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).