Interactive Assets
- Intro
- ESG Milestones
- 30 Years of Performance
- Dominant Issues
- Growth of Market
- ESG Data
- Climate Change
- The Future
Exploring 30 Years of ESG Indexes
The evolution of MSCI ESG Indexes begins with the launch of the world's first socially responsible index in 1990. Today, we have more than 1,500 equity and fixed income ESG and Climate Indexes designed to help institutional investors more effectively benchmark ESG investment performance and manage, measure and report on ESG mandates.
Explore the chapters in this interactive experience and click on the icons to learn more about the origins of ESG and the evolution of this nascent idea into a concept now widely embraced by the global financial community.
Click on the pulsing dots throughout the timeline to view more information about the related topic.
ESG Milestones
Commemorating the first ESG index
1990
KLD Research & Analytics launches the first socially responsible investment index.
1 index
KLD Research & Analytics launched the first socially responsible investment index, the Domini 400 Social Index (now the MSCI KLD 400 Social Index), made up of 400 of the largest 3,000 U.S. companies selected for positive ESG criteria, excluding those with business activities like tobacco and firearms.
Learn more about the MSCI KLD 400 Social Index
Sources
According to KLD in 2008, the Domini 400 Social Index was launched on May 1, 1990.
KLD Research & Analytics launched the first socially responsible investment index, the Domini 400 Social Index (now the MSCI KLD 400 Social Index), made up of 400 of the largest 3,000 U.S. companies selected for positive ESG criteria, excluding those with business activities like tobacco and firearms.
Learn more about the MSCI KLD 400 Social Index
Sources
According to KLD in 2008, the Domini 400 Social Index was launched on May 1, 1990.
0 ETFs
The first U.S. listed exchange traded fund would not come onto the market for another three years as S&P Depository Receipts Trust Series 1, or "SPDRs": Ticker: SPY launched in 1993.
Sources
https://www.etfguide.com/the-history-of-exchange-traded-funds/
Sources
https://www.etfguide.com/the-history-of-exchange-traded-funds/
Socially conscious investors
Investors consider ESG criteria primarily across three use cases:
- Portfolio investors manage holdings within social or ethical guidelines or screens.
- Shareholder activists apply direct pressure to corporations to improve performance in specific areas.
- Community development investors address critical societal needs through 'direct' or 'targeted' or 'high social impact' investments, which often take the form of loans or deposits in financial institutions at below mark rates of return.
Sources
Investing for Good, 1993
https://www.amazon.com/Investing-Good-Making-Socially-Responsible/dp/0887305652
- Portfolio investors manage holdings within social or ethical guidelines or screens.
- Shareholder activists apply direct pressure to corporations to improve performance in specific areas.
- Community development investors address critical societal needs through 'direct' or 'targeted' or 'high social impact' investments, which often take the form of loans or deposits in financial institutions at below mark rates of return.
Sources
Investing for Good, 1993
https://www.amazon.com/Investing-Good-Making-Socially-Responsible/dp/0887305652
Governance by committee
The index governance of the KLD 400 was historically maintained by a committee that balanced ESG, size, and sector weighting considerations. In addition, it considered how investors' perspectives on ESG issues were evolving and whether new issues warranted consideration.
Sources
https://www.ishares.com/us/literature/whitepaper/an-evolution-in-esg-indexing.pdf
https://www.sec.gov/Archives/edgar/data/851680/0000922326-95-000055.txt
Sources
https://www.ishares.com/us/literature/whitepaper/an-evolution-in-esg-indexing.pdf
https://www.sec.gov/Archives/edgar/data/851680/0000922326-95-000055.txt
1990
In the last 30 years, ESG indexes have become widely accepted as benchmarks for investment strategies that integrate environmental, social and governance (ESG) factors.
1500 indexes
MSCI has developed more than 1,500 MSCI ESG equity and fixed income indexes to meet investor preferences. The Indexes are based on MSCI ESG Research ratings and data to support ESG integration, screening and impact objectives*. Market and policy benchmarks are essential tools to enable asset owners to identify and explain their strategic investment objectives and evaluate the performance of their investment strategy. Approximately USD $270 bn has been allocated to investments tracking or benchmarked to MSCI ESG equity & fixed income indexes since 2014.**
Learn more about MSCI ESG Indexes
Sources
MSCI Inc. as of April 2020
* MSCI ESG Indexes utilize information from, but are not provided by, MSCI ESG Research LLC. MSCI Indexes are products of MSCI Inc. and are administered by MSCI Limited. **As of May 2020. Based on publicly available information or press releases published from 2014 to date.
Learn more about MSCI ESG Indexes
Sources
MSCI Inc. as of April 2020
* MSCI ESG Indexes utilize information from, but are not provided by, MSCI ESG Research LLC. MSCI Indexes are products of MSCI Inc. and are administered by MSCI Limited. **As of May 2020. Based on publicly available information or press releases published from 2014 to date.
268 ESG ETFs
In the last decade, the number of ESG-specific exchange traded funds has grown to more than 268 globally, with 182 linked to MSCI ESG Indexes, totalling more than $37 bn in assets, as of March 2020.
Sources
Data based on Refinitiv universe as of Mar 2020; only primary listings and not cross-listings.
Sources
Data based on Refinitiv universe as of Mar 2020; only primary listings and not cross-listings.
Mainstream investors
There are more than 3,000 signatories to the UN Principles for Responsible Investment (PRI), including many of the world's largest asset owners and investment managers, who have committed to incorporating ESG in the investment process and reporting on progress. MSCI groups the common approaches that investors have used to achieve distinct ESG objectives into three categories:
- values-based investing
- impact investing, and
- ESG integration.
Sources
https://www.unpri.org/signatories/signatory-directory as of May 24, 2020.
- values-based investing
- impact investing, and
- ESG integration.
Sources
https://www.unpri.org/signatories/signatory-directory as of May 24, 2020.
Quantitative rules-based methodology
Today, instead of relying on a committee, the MSCI KLD 400 Social Index is regularly reviewed and updated according to a transparent set of quantitative rules that incorporate ESG ratings, ESG controversy scores, values-based exclusions, targets for relative sector representation, and corporate event-related maintenance. It is rebalanced quarterly and constituents are market capitalization weighted.
Learn more about the KLD 400 Methodology
Sources
https://www.msci.com/eqb/methodology/meth_docs/MSCI_KLD_400_Social_Index_Methodology_May2018.pdf
Learn more about the KLD 400 Methodology
Sources
https://www.msci.com/eqb/methodology/meth_docs/MSCI_KLD_400_Social_Index_Methodology_May2018.pdf
30 Years of Performance
1990
The MSCI KLD 400 Index was designed at launch to help socially conscious investors weigh social and environmental factors in their investment choices.
1990
While the methodology and some of the key inputs have changed over time, the index objective has remained the same, focusing on companies with outstanding ESG ratings while excluding those whose products have negative social or environmental impacts. The MSCI KLD 400 Social Index offers us a window into how ESG has played out over 30 years as an index-based approach.
MSCI KLD 400 Social Index vs MSCI USA Index
The MSCI KLD 400 Social index has, since inception, generated a total return of 10.43% compared to 10.07% for the MSCI USA Index, a 36 basis points (bps) difference. This spread has also been maintained during the last 5 years, as the MSCI KLD 400 Social Index outperformed the MSCI USA Index 10.37% vs 9.84%, a 53bps difference.
Sources
MSCI. Data as of May 2020. Informational purposes only. Past performance is not indicative of future results.
Sources
MSCI. Data as of May 2020. Informational purposes only. Past performance is not indicative of future results.
Source: MSCI. Data as of May 2020. Informational purposes only. Past performance is not indicative of future results.
Dominant ESG Issues & Trends
ESG and climate emerge as investment risks
1990
'Socially conscious' investors around this time were largely focused on topics such as human rights and pollution; the idea that there could be a link between ESG and financial performance was just emerging.
South Africa Divestment Movement
In the '80s, college endowments, followed by pension funds, led the movement to divest the assets of companies with operations in South Africa from their portfolios. In 1986, U.S. Congress enacted economic sanctions and, by 1990, more than 200 U.S. companies had ceased operations with South Africa. Later, state-level sanctions would restrict state pension fund investment in Sudan and Burma, among others.
Sources
Paul Hastings "Stay Current" June 2007,
https://www.paulhastings.com/docs/default-source/PDFs/710.pdf
https://www.investopedia.com/articles/economics/08/protest-divestment-south-africa.asp
https://www.latimes.com/archives/la-xpm-1990-07-01-mn-907-story.html
In the '80s, college endowments, followed by pension funds, led the movement to divest the assets of companies with operations in South Africa from their portfolios. In 1986, U.S. Congress enacted economic sanctions and, by 1990, more than 200 U.S. companies had ceased operations with South Africa. Later, state-level sanctions would restrict state pension fund investment in Sudan and Burma, among others.
Sources
Paul Hastings "Stay Current" June 2007,
https://www.paulhastings.com/docs/default-source/PDFs/710.pdf
https://www.investopedia.com/articles/economics/08/protest-divestment-south-africa.asp
https://www.latimes.com/archives/la-xpm-1990-07-01-mn-907-story.html
Strategic Value Creation
In 1995, Innovest Strategic Values Advisors was founded to unlock hidden value for investors by quantifying the correlation between companies' environmental performance ("eco-efficiency") and their competitiveness and financial performance, whether measured as ROI, ROE, or total stock market return. The firm's EcoValue21 Ratings, peer-based ratings on a AAA to CCC scale, form the basis of today's MSCI ESG Ratings.
Corporate Codes of Conduct
1990 marked the beginning of U.S. companies, followed by Europe in the mid-90s, introducing corporate codes of conduct that outlined business principles and responsibility for certain social and environmental impacts in the global value chain.
1990
Pressing global challenges including the COVID-19 pandemic, climate change and human rights issues bring new ESG risks and opportunities for investors.
#BlackLivesMatter Movement
The international human rights movement for equal rights and diversity around the world continues. In June 2020, the world saw Black Lives Matter related demonstrations and rallies for justice, and against police brutality and racism, in the wake of the killings of George Floyd and Breonna Taylor and others. We recognize that the racial diversity data landscape has its challenges. We anticipate more growth in this area as investors focus more on equal rights and diversity in the investment decision-making process.
Sources
https://blacklivesmatter.com/
Photo credit: https://www.flickr.com/photos/gotovan/49958360216
Sources
https://blacklivesmatter.com/
Photo credit: https://www.flickr.com/photos/gotovan/49958360216
COVID-19 Global Pandemic Fallout
We anticipate that the unprecedented global crisis will deliver new concerns for investors and companies. Many are not backing down in the wake of market volatility – instead they are rising to the occasion to seek opportunity, innovating, and finding unique value. Key ESG issues such as cyber vulnerabilities, corporate board preparedness, global supply chains, and labor management are top of mind.
Learn more at our Coronavirus and financial markets research hub
Sources
MSCI ESG Research LLC.
Learn more at our Coronavirus and financial markets research hub
Sources
MSCI ESG Research LLC.
ESG & investment risk
A substantial body of empirical research has identified examples of meaningful links between company ESG characteristics and financial performance. We understand today, better than ever before, how ESG and climate considerations can impact long-term risks and opportunities in financial markets. Many of the world's largest investors now seek to add value to their investment process and improve the risk profile of their portfolios by considering the ESG characteristics of their holdings.
Climate Change
An extensive body of scientific evidence has established that anthropogenic factors are driving climate change on our planet. The reality of a changing climate highlights the economic and investment risks and opportunities associated with the world's transition to a low carbon economy. For more information on climate change, click through to the climate section.
View the Climate Change section
Sources
IPCC Climate Change 2014 Synthesis Report Summary for Policymakers.
MSCI Principles of Sustainable Investing.
View the Climate Change section
Sources
IPCC Climate Change 2014 Synthesis Report Summary for Policymakers.
MSCI Principles of Sustainable Investing.
Growth of the ESG Investing Market
1990
$639 billion
(1995, US only)
$30.7 trillion
(2018, Global)
1990
ESG Data
From too little data to too much data?
1990
Before the advent of the internet and rapid global dissemination of information, ESG data collection was a manual process.
Clipping for controversies
The KLD Research & Analytics team conducted research through the manual process of clipping and filing ESG-related company controversies from major newspapers.
The KLD Research & Analytics team conducted research through the manual process of clipping and filing ESG-related company controversies from major newspapers.
650 companies
KLD Research & Analytics covered 650 companies in 1990: the Domini Social 400 Index constituents and the S&P 500.
Limited transparency
Prior to the advent of the internet, data transparency and disclosure was minimal. Corporate data moved online for the first time in 1994 with SEC Edgar.
1990
Today, MSCI leverages alternative data sources and AI (artificial intelligence) to uncover undisclosed data, which informs MSCI ESG Ratings — a key input into the MSCI ESG Indexes.
ESG data today
We collect, clean, standardize and model ESG data from thousands of sources. We use technology and artifical intelligence (AI), combined with our 250+ strong team of ESG research analysts around the world, to extract investment-relevant insights from unstructured data. Machine learning and natural language processing help us increase the timeliness and precision of data collection, analysis and validation to deliver dynamic content. Approximately 45% of data comes from AI and alternative data sources (as opposed to company disclosures).
Sources
MSCI ESG Indexes utilize information from, but are not provided by, MSCI ESG Research LLC. MSCI Indexes are products of MSCI Inc. and are administered by MSCI Limited. Data based on 2,434 constituents of the MSCI ACWI Index as of November 30, 2017.
Sources
MSCI ESG Indexes utilize information from, but are not provided by, MSCI ESG Research LLC. MSCI Indexes are products of MSCI Inc. and are administered by MSCI Limited. Data based on 2,434 constituents of the MSCI ACWI Index as of November 30, 2017.
8,700 companies
MSCI ESG Research provides broad ESG Ratings coverage of more than 8,500 companies (14,000 issuers including subsidiaries) and more than 680,000 equity and fixed income securities globally.
Sources
MSCI ESG Research LLC as of June 2020, coverage subject to change
Sources
MSCI ESG Research LLC as of June 2020, coverage subject to change
Greater transparency
We are living in an information economy. In addition to company disclosure, more and more information for investors is public, including, for example, MSCI ESG ratings and profiles for tens of thousands of companies, funds and indexes.
Climate Change
The greatest challenge of our times
1990
Countries meet to discuss human impact on climate, while socially conscious investors consider pollution, ozone-depleting chemicals, fossil fuels, and other environmental risks.
The Valdez Principles
In 1989, the Exxon Valdez tanker spilled 11 million gallons of oil into Alaska's Prince William Sound.
The spill catalyzed Joan Bavaria to mobilize an investor coalition to create a new code of conduct for companies, the Valdez Principles (now the Ceres Principles).
Sources
https://www.ceres.org/news-center/blog/30-years-later-investors-still-lead-way-sustainability
Sources
https://www.ceres.org/news-center/blog/30-years-later-investors-still-lead-way-sustainability
Global Warming
The first Intergovernmental Panel on Climate Change (IPCC) Report stated that the world had indeed been warming and suggested the trend would continue.
Sources
https://history.aip.org/climate/timeline.htm
https://www.ipcc.ch/report/climate-change-the-ipcc-1990-and-1992-assessments/
Sources
https://history.aip.org/climate/timeline.htm
https://www.ipcc.ch/report/climate-change-the-ipcc-1990-and-1992-assessments/
United Nations Earth Summit, Rio de Janeiro
The United Nations Environment Programme's Finance Initiative (UNEP FI) is established. Following the UN Conference on Environment and Development (the Earth Summit) in Rio de Janeiro in 1992, UNEP FI expanded its role to engage a broad range of financial institutions on sustainable development. The Earth Summit also saw adoption of the United Nations Framework Convention on Climate Change (UNFCCC) international environmental treaty.
Sources
https://www.unepfi.org/about/background/
https://unfccc.int/about-us/about-the-secretariat
Sources
https://www.unepfi.org/about/background/
https://unfccc.int/about-us/about-the-secretariat
1990
With climate change now widely recognized as the greatest challenge we face, the investor focus has shifted to climate solutions at the portfolio-level.
Investor coalitions today
Today, institutional investors participate in a wide ranging number of initiatives and organizations to address climate-related risks in their portfolios, such as Climate Action 100+, the Montreal Carbon Pledge, the Ceres Investor Network on Climate Risk, UN Principles for Responsible Investment (PRI), Global Sustainable Investment Forums (SIFs), UNEP FI, Institutional Investors Group on Climate Change (IIGCC), and many others.
Climate Solutions & Indexes
With climate change a reality, the focus is now on the tools necessary to build more climate resilient portfolios, protect assets from the worst effects related to climate change, and also help identify new, innovative low carbon investment opportunities. Investors are taking steps to analyze exposure to climate risk, identify opportunities in a low carbon future, and report on climate strategy at the portfolio level.
Learn more:
MSCI Climate Solutions
MSCI Climate Change Indexes
Sources
MSCI ESG Research LLC as of as of April 2020, coverage subject to change
Learn more:
MSCI Climate Solutions
MSCI Climate Change Indexes
Sources
MSCI ESG Research LLC as of as of April 2020, coverage subject to change
Task Force on Climate-Related Disclosures
The G20 Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD) released recommendations in June 2017, which highlighted the importance of using scenario analysis to assess climate change-related impacts within the financial sector. It calls for the assessment of both the risk and opportunity side of transition and physical climate change impacts, and creates a reporting framework that allows institutions to prepare themselves for upcoming regulations.
Sources
https://www.fsb-tcfd.org/
TCFD-based Reporting: A Practical Guide for Institutional Investors, MSCI ESG Research.
Sources
https://www.fsb-tcfd.org/
TCFD-based Reporting: A Practical Guide for Institutional Investors, MSCI ESG Research.
The Future
The convergence of factors such as climate change, social attitudes, institutional governance, and technological innovation will significantly impact financial assets and the risk and return of investments and lead to a large-scale re-allocation of capital over the next decades.
Learn more about our thinking: 10 ESG Questions for the next decade.
Sources: From MSCI ESG Research LLC
