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Building Better ESG Indexes: 30 Years On
May 27, 2020 Stuart DooleGlobal Investing , ESG Research
Learn MoreHow ESG indexes have evolved over the past 30 years: A Q&A with Stuart Doole, head of new index development at MSCI, about his conversations with investors since the COVID19 crisis started, the growth of ESG investing and how MSCI Research uses AI and machine learning in developing its ESG indexes.
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Five lessons for investors from the COVID-19 crisis
May 19, 2020 Dimitris MelasESG Research , Factors , Global Investing
Learn MoreCOVID-19 unleashed a torrent of sharp movements across global financial markets. We highlight five key lessons for investors regarding global investing, managing factors, active management, indexed investing and ESG investing.
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MSCI ESG Indexes during the coronavirus crisis
Apr 22, 2020 Zoltán Nagy , Guido GieseESG Research , Emerging Markets , Global Investing
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Green bonds: Growing bigger and broader
Apr 14, 2020 Meghna MehtaESG Research , Fixed Income , Global Investing
Learn MoreAs the green-bond market matures, it is developing offshoots. The types of projects financed, as well as the emergence of innovative types of bonds and loans linked to the ESG targets, is growing. These initiatives may broaden the market for green investment options.
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Corporate-bond performance by factors and ESG
Apr 14, 2020 Hitendra D Varsani , Rohit MendirattaESG Research , Factor Indexes , Fixed Income , Risk Management
Learn MoreThe volatility seen in equity markets was also present among investment-grade corporate bonds,. We use factors and ESG ratings to dissect these bonds’ performance over Q1 2020.
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For target-date funds, hindsight was 40/60
Apr 9, 2020 Anil RaoESG Research , Factor Indexes , Fixed Income , Risk Management
Learn MoreRecent market volatility has been especially unkind to those closest to and early in retirement, as the sequence of returns matters for retirement income. Would low-volatility and ESG investments have benefited target date funds during volatile periods?
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One challenge facing investors is how to quantify the impact ESG has had on their investment process. We analyzed top ESG funds to better understand the contribution of the ESG factor to their performance.
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Will coronavirus reduce emissions long term?
Apr 3, 2020 Oliver Marchand , Nathan FaigleESG Research , Global Investing
Learn MoreHas COVID-19 affected carbon emissions? Using satellite imagery from NASA and the European Space Agency, we examined the empirical data so far to understand the potential impact, and if there may be a decline in global greenhouse-gas emissions in 2020.
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Integrating ESG in emerging markets and Asia
Mar 18, 2020 Zhen WeiESG Research , Emerging Markets , Global Investing
Learn MorePreviously, we have examined the relationship between ESG characteristics and financial performance in developed markets. In this blog post, we explore whether ESG characteristics have had financially significant effects in emerging markets and Asia.
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Have corporate green bonds offered lower yields?
Mar 10, 2020 Zach TokuraESG Research , Risk Management , Fixed Income
Learn MoreGreen bonds tended to offer lower yields than comparable non-green corporate bonds. What could explain green bonds’ lower yields? And is there any relationship between green-bond issuers’ environmental scores and bond yields?
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The SEC has proposed reforms to the proxy process that would curb the number of proposals submitted by small shareholders. But such a change may disadvantage all shareholders, who have provided significant levels of support for these initiatives.
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ESG and the cost of capital
Feb 25, 2020 Ashish LodhESG Research , Global Investing , Emerging Markets
Learn MoreWe know a lot about the relationship between companies’ ESG characteristics and financial performance. But was there a correlation between ESG scores and cost of capital?
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How climate change may ‘flood’ global equities
Feb 5, 2020 David Lunsford , Boris PrahlESG Research , Emerging Markets
Learn MoreOf all the threats to the environment from climate change, sea-level rise may be one of the most devastating and permanent. The question for global equity investors is how coastal-flooding risks may affect their portfolios.
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2020 ESG trends to watch
Jan 13, 2020 Linda-Eling Lee , Meggin Thwing Eastman , Ric Marshall Learn MoreESG themes are long-term, but some can emerge with sudden force. We are watching five trends we believe will unfold in 2020 to catapult ESG investing into the new decade.
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Some large asset owners are increasingly coming to believe that many executive pay schemes don’t align the interests of CEOs and investors. There appears to be an increasing focus on pay plan simplicity and transparency.
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Retire in Monte Carlo? Simulating retirement outcomes
Oct 11, 2019 Anil RaoESG Research , Factor Investing , Models/Client Cases , Risk Management
Learn MoreDespite global equity performance, U.S. DC plan participants may be ill prepared to meet retirement-spending needs. We assessed four equity-allocation scenarios — including an equity multifactor allocation and integration of ESG views — to see which performed best.
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Looking in one’s backyard for human capital.
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Is climate-change risk all about fossil fuels? Think again.
Sep 19, 2019 Michael DisabatoESG Research , Global Investing
Learn MoreWhen it comes to reducing greenhouse gases, investors tend to focus on fossil fuels and power generation. But other companies also need to adapt to a lower-carbon world. We look at the implications for five types of companies.
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Underwater assets? Real estate exposure to flood risk
Sep 17, 2019 Gillian Mollod , Will RobsonESG Research , Real Estate Investing
Learn MoreReal estate investors are buying and leasing assets that might be jeopardized by a climate-changed world. A new analysis can help investors identify high-risk U.K. locations.
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Many investors want to stick to their values or beliefs, as well as meet certain financial objectives. How can ESG indexes help them address these goals?
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The last straw: Will plastic become the next stranded asset?
Aug 22, 2019 Samuel Block Learn MoreOil and gas companies are accelerating investment in plastics, in response to the shift away from fossil fuels. But is this pivot sustainable? Could plastic become the next stranded asset?
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Under the hood: Rating ESG funds
Jul 10, 2019 Michael DisabatoESG Research , Global Investing
Learn MoreNearly $31 trillion in assets under management were invested in funds that consider ESG issues in their investing process as of January 2018, a 34% increase from two years previously. Transparency is key to understanding what this expansion means.
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Is your portfolio ready for the transition to a low-carbon economy? Which companies, industries and sectors are positioned to benefit? Which ones entail greater risks? The answers are a lot more complicated than alternative energy is in and coal is out.
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Two companies, one highly disruptive business model, multiple big challenges looming. Few IPOs in recent memory have attracted more attention – or disappointed more decisively, initially – than the IPOs of ride-sharing groups Uber and Lyft. At the end of June 7, 2019, two months following its IPO, Lyft’s share price traded at 17.7% below its IPO price, while Uber’s ended that same day 1.9% lower. Could ESG considerations have played into investors’ thinking?
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Need a Lyft? Why the IPO blew a tire
Apr 10, 2019 Alan Brett , Matt MoscardiEquity Themes , ESG Research , Risk Management
Learn MoreA week into the highly publicized IPO for Lyft Inc., the ride-sharing company, it’s hard to say it went exactly as planned.
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Factors and ESG: the truth behind three myths
Mar 20, 2019 Guillermo CanoModels/Client Cases , ESG Research , Factor Investing
Learn MoreThere are misconceptions of the relationship between factors and ESG issues. We debunked three common myths about ESG, momentum, quality and smaller-cap stocks.
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What innovative companies and women on boards have in common
Mar 8, 2019 Meggin Thwing EastmanESG Research , Global Investing
Learn MoreWe examined constituents of the MSCI ACWI Index that had been recognized as innovators on one or more annual lists produced by Forbes, Fast Company, MIT Sloan and the Boston Consulting Group between 2015 and 2018.
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Historically, environmental, social and governance (ESG) investing was about excluding stocks of undesirable companies from portfolios — often because they violated one’s sense of ethics or values. ESG investing has since expanded to include consideration of ESG criteria alongside financial ones. ESG is growing in importance among institutional, wealth and retail investors. In recent years, institutional and high-net-worth investors’ adoption of ESG, along with the subsequent growth in ESG assets under management, has accelerated.
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2019 emerging real estate trends
Feb 5, 2019 Will RobsonESG Research , Real Estate Investing , Global Investing
Learn MoreFor real estate investors, 2019 may be a year of adjusting to rapid changes arising from a variety of sources, including environmental, social and governance-related (ESG) risks; geopolitical uncertainty; and disruptive technology.
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ESG投资者的漫漫长途已经开始，有很多人也开始支持这个长征1。我们2019年要关注的五个ESG趋势中的每一个，都包含可能被忽视的成本和机遇。
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The long haul many are bracing for has already started for ESG investors. Each of our five ESG trends to watch in 2019 contain potentially overlooked costs – and opportunities.
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California companies with no women on their boards are going to have to quickly up their diversity game.
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Aligning portfolios with UN Sustainable Development Goals
Dec 13, 2018 Meggin Thwing Eastman Learn MoreIs my money helping solve the world’s problems or making them worse? An increasing number of the beneficiaries of public funds, globally, are asking such searching questions about where and how their retirement funds are invested. Understanding how investments have an impact on societal issues can be much more complex and difficult to identify for institutional investors.
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Carbon-intensive industries have been the primary focus of attention for investors looking to reduce carbon-related risks in their portfolios. But these particular industries are only part of the picture. Institutional investors may want to look beyond the usual suspect carbon-intensive industries to better understand the end-to-end risks.
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Quitting tobacco stocks without going through withdrawal
Oct 15, 2018 Zoltán NagyModels/Client Cases , ESG Research
Learn MoreDespite strong headwinds, including renewed divestment pressure,1 the tobacco industry has proved quite resilient financially and outperformed the stock market over the past 18-1/2 years. So much so, that some institutional investors are now thinking of lifting tobacco bans in their investment policies. We found that most of the gains associated with holding tobacco stocks over this period were not specific to the tobacco industry, and could have been obtained in other ways. We also show it would have been possible to divest from tobacco without taking a hit to portfolio performance during our sample period.
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Corporate disclosure in a TCFD world
Sep 24, 2018 Laura NishikawaESG Research , Global Investing
Learn MoreIn June of 2017, the Task Force on Climate-related Financial Disclosure (TCFD) released climate-related disclosure recommendations to companies and investors that included a framework for better company disclosure and a request for climate scenarios as part of that disclosure. But for investors looking to incorporate environmental risk into their process, there might be a pretty big catch: We mapped over 140 MSCI ESG Research climate-related data points to the TCFD framework and found a significant gap between what investors need to know under these recommendations and what companies are telling them.
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Do Japanese companies and shareholders have a vested interest in working toward greater numbers of female managers and board members? Our analysis finds that, much like companies elsewhere, greater diversity improved performance at Japanese firms in recent years.
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As interest in ESG investing continues to grow, so does the number of actively managed strategies that integrate environmental, social and governance considerations into their investment processes. However, institutional investors and managers have been benchmarking many of these ESG-tilted strategies against standard market-cap-weighted indexes. While these indexes provide a broad basis for evaluating performance, they lack the ability to provide the insights that might be gained from ESG-focused benchmarks.
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“G” is just one part of the ESG story
Jun 26, 2018 Panos Seretis , Meggin Thwing Eastman Learn MoreWhen it comes to ESG (environmental, social and governance) investing, conventional wisdom holds that G is the only part that really matters, as a window into overall management quality and providing insights and value for investors. Our analysis suggests this has not been true; that the E and S aspects of ESG did help sort the truly outstanding firms from a group that already shares an array of robust financial traits.
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Now that China A shares have partially entered some mainstream MSCI indexes, institutional investors and other stakeholders are raising questions about Chinese constituents’ ESG track records and potential risks from these new exposures in their portfolios.
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Canaries in the data mine: GDPR and privacy regulation
May 24, 2018 Matt MoscardiESG Research , Global Investing
Learn MoreOn Tuesday May 22, Facebook CEO Mark Zuckerberg apologized to EU-based Facebook users for the firm’s failure to sufficiently combat “fake news.” As the EU’s data protection regulation, known as the General Data Protection Regulation (GDPR), kicks in on May 25, Facebook isn’t alone in facing compliance challenges.
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Our research shows how favorable ESG characteristics have historically had a positive impact on equity valuation, risk and performance. But many active managers may have concerns that using ESG data could disrupt their investment process and introduce unintended biases to the portfolio.
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Previously, we have asked whether the number of women on boards has a relationship to corporate financial performance. Research suggests that it has. But is that the whole story?
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Bigger, faster, more. Whether due to policy, technological or climatic changes, companies face an onslaught of challenges that are happening sooner and more dramatically than many could have anticipated.
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Are ESG characteristics tied to stock performance? Many researchers have studied the relationship between companies with strong environmental, social and governance (ESG) characteristics and corporate financial performance. A major challenge has been to show that positive correlations — when produced — explain the behavior. As the classic phrase used by statisticians says, “correlation does not imply causation.”
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As the world moves toward a low-carbon future, companies of many stripes are adopting renewable and clean-energy technologies. That, of course, has implications for stocks and the portfolios that hold them. How can asset owners understand the carbon-transition risks in their portfolios?
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Last year, we asked whether pay awards to U.S. chief executive officers reflected long-term shareholder returns, and found they did not. The bottom fifth of companies by equity incentive award outperformed the top fifth by nearly 39% on average on a 10-year cumulative basis.
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Integrating ESG criteria into factor index construction
Sep 27, 2017 Stuart DooleFactor Indexes , ESG Research , Factors , Factor Investing
Learn MoreInstitutional investors increasingly are moving toward integrating ESG criteria into their portfolios and their factor allocations, in particular. This shift is driven by their recognition of the financial relevance of ESG issues to their risk management and their focus on long-term sustainable investing.
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How Institutional Investors Are Responding to Climate Change
Sep 14, 2017 Manish ShakdwipeeEquity Themes , ESG Research , Fixed Income
Learn MoreHow are institutional investors tackling climate-change risk in their portfolios? Thanks partly to global initiatives such as the Montreal Pledge and the Portfolio Decarbonization Coalition, both launched in 2014, many institutional investors have moved quickly to understand the long-term portfolio implications of climate change and to adopt climate-risk management techniques.
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We see a growing number of institutional investors seeking to avoid financial risks associated with environmental, social and governance (ESG) factors, or even to enhance returns by investing in companies that have strong ESG track records. As we wrote in an earlier blog post, these investors are typically looking to limit the number of companies excluded from their portfolios, both to avoid sacrificing diversification and to be active owners able to engage with corporate management.
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Many of the world’s largest institutional investors are integrating ESG standards into their investment strategies. But they face a challenge: Excluding every objectionable firm or selecting only ESG (environmental, social and governance) leaders can slash the number of acceptable stocks by half while foreclosing on opportunities for dialogue and engagement. How can institutions implement ESG principles without sacrificing diversification or abandoning efforts to improve corporate conduct?
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As part of its “Abenomics” economic revitalization plan, the Japanese government has set out goals to increase women’s participation and promotion in the business world, including increasing the percentage of women in leadership roles to 30% by 2020, a major jump from 11.3% in 2014.
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「アベノミクス」と言われる経済振興策の一環として、企業及び政府における女性参画を強化するために、日本政府は2020年までにリーダーシップの地位における女性比率を30%にするというゴールを設定した。
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An Opportunity in Abenomics? Human and Physical Capital
Mar 30, 2017 Chin Ping ChiaESG Research , Factor Investing
Learn MoreSince Prime Minister Shinzo Abe took office in 2012, he has embarked on a series of economic revitalization policies aimed at jostling Japan out of its so-called “lost decades,” the long period of sluggish growth and recurring deflation that followed the collapse of the country’s 1980s bubble economy
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The USD 220 billion global tax gap: Implications for institutional investors
Mar 2, 2017 Linda-Eling Lee Learn MoreBuoyed by populist sentiment, regulators around the world are considering ways to close corporate tax loopholes and narrow the gap between the statutory tax rate and what companies actually pay. The effort could have significant consequences, both for corporations and for institutional investors who engage portfolio companies over the sufficiency of their tax-related disclosures with the goal of avoiding unforeseen risks.
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How to integrate ESG without sacrificing diversification
Feb 8, 2017 Laura NishikawaESG Research , Global Investing
Learn MoreAs institutional equity investors increasingly think about the long term, they may adjust their portfolios to accommodate environmental, social and governance (ESG) concerns in their investment decision-making processes. That can be particularly challenging for the largest investors, such as pension funds and endowments, whose portfolios span the entire equity market.
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It is widely documented that women, on average, earn less than men for comparable work, so it may surprise you to learn that female CEOs of large companies included in a key global MSCI index made more than their male peers in 2015. However, men received superior options packages in the decade through 2015, and came out ahead in terms of total compensation during that period.
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This year may ring the bell on a fundamental rethink for investors. Underlying all the major trends we identified for 2017 is a strategic decision point – do we change the way we think about investing, or is this business as usual in a new order?
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The tipping point: Women on boards and financial performance
Dec 13, 2016 Linda-Eling Lee Learn Moremsci women on boards 2016 A growing body of research shows that having three women on a corporate board represents a “tipping point” in terms of influence, which is reflected in financial performance. Our analysis from last year looked at a snapshot of global companies in 2015 with strong female leadership, finding that they enjoyed a Return on Equity of 10.1% per year versus 7.4% for those without such leadership.
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Over the past decade, many long-term institutional investors have incorporated Environmental, Social and Governance (ESG) considerations into their portfolios, by creating segregated ESG mandates or by incorporating ESG criteria across the entire portfolio.
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Institutional investors have several paths to reduce exposure to carbon risk in their portfolios — the risk of being exposed to assets that may lose their value prematurely because of efforts to limit climate change.
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Your portfolio’s carbon footprint may be smaller than you think
Sep 2, 2016 Linda-Eling Lee Learn MoreIn recent years, many institutional investors have committed to measure and lower exposure to carbon emissions in their portfolios. But that presents a challenge: how to estimate such exposure, given the lack of disclosure by most companies about their carbon emissions?
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Has CEO pay reflected long-term stock performance? In a word, “no.”.
Companies that awarded their Chief Executive Officer (CEOs) higher equity incentives had below-median returns based on a sample of 429 large-cap U.S. companies from 2005 to 2015. -
Two-thirds of the world’s population is expected to live in cities by 2050, up from 54% in 2014, according to the United Nations. Yet, as of the end of 2015, we found that housing for people in the middle of the income pyramid is unaffordable for most cities and countries that we studied.
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Companies that paid top executives far more than they paid their rank-and-file workers tended to be less profitable over time than those that had narrow gaps between worker and executive pay, research by MSCI ESG Research suggests.
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Incorporating sustainable impact in your investment process
Apr 12, 2016 Laura Nishikawa Learn MoreInstitutional investors increasingly are looking for ways to steer capital toward companies that help to address major social and environmental challenges.
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A new initiative by MSCI ESG Research is designed to allow asset managers to differentiate funds based on the environmental, social and governance (ESG) characteristics of the underlying investments.
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Environmental, social and governance concerns may play a growing role in investment matters in 2016. These trends reflect a softening economy, a long-term shift to a low carbon economy, a generational changeover and institutional forces.
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Global listed companies’ current carbon reduction targets fall well short of the proposed aggregate emissions target announced in the Paris climate deal, suggesting that countries may impose tougher regulations.
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Institutional investors concerned with excessive investor and corporate focus on short-term results are seeking to improve minimum corporate governance standards of their portfolio companies.
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Many institutional investors are increasingly focused on the gender composition of company boards, according to our research. Some studies show significant outperformance by companies with women on boards, though no one can show a direct link between the two.
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Just as the MSCI ACWI Index includes companies representative of a diversity of industries and equity markets, it also includes a diversity of ownership forms, ranging from fully controlled companies to those companies that are so widely held that their largest shareholder owns no more than 2% of shares.
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Interest in Environmental, Social and Governance (ESG) mandates has grown considerably over the past few years, but some institutional investors remain concerned that inclusion of ESG factors may come at the cost of weaker risk-adjusted returns. Our research shows that this is not necessarily the case.
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Regulatory authorities are now taking a much tougher approach to corporate tax rates. Since we explored the topic in December 2013 (The ‘Tax Gap’ in the MSCI World), the regulatory outlook has shifted substantially.
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Do entrenched boards help or hurt stock performance of publicly held companies? We found that the involvement of entrenched boards, particularly at family-dominated firms, was a positive attribute over the five-year period ending March 2015, in both the U.S. and emerging markets.
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Climate change presents one of the biggest economic and political challenges of the 21st century, and yet investors are only starting to explore the effect these changes could have on financial assets. A key concern is the potential effect on portfolios of “carbon stranded assets.”
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We head into the new year with the backdrop of swooning oil prices and (re)newed geopolitical fault‐lines, juxtaposed against a return to growth in the US and emergence of the next generation of tech darlings.
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