Minimum Volatility ESG Reduced Carbon Target Indexes

For many investment managers and product providers, the key challenge of combining factor and ESG into a single portfolio has been to construct an appropriate methodological framework to balance the desired factor exposure while meeting ESG considerations. MSCI is at the forefront of the integration of ESG into factor portfolios to enable investors to better manage key drivers of risk and return with an extensive set of risk factor models, ESG research and factor and ESG indexes.

The MSCI Minimum Volatility ESG Reduced Carbon Target Indexes are designed to represent the performance of a strategy that seeks systematic integration of environmental, social and governance (ESG) norms along with the minimum volatility factor. The Indexes are constructed by selecting constituents of a market capitalization weighted index (the ‘Parent Index’) through an optimization process that aims to minimize volatility risk, reduce the carbon-equivalent exposure to CO2 and other GHG as well as the exposure to potential emissions risk of fossil fuel reserves by thirty percent (30%) and improve the weighted-average industry-adjusted ESG score of the Index portfolio by 20% with respect to their respective underlying market capitalization weighted indexes (the ‘Parent Index’) under certain constraints.

 

Minimum Volatility ESG Reduced Carbon Target Indexes brochure

Minimum Volatility ESG Reduced Carbon Target Indexes methodology