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How can sustainability data improve risk management and be additive to an investment process?

 

Our extensive datasets and analytical tools support investors to manage risks, identify opportunities and enable them to work towards their financial goals. Sustainability data can enable investors to go beyond traditional financial metrics and offer even deeper insights to strengthen decision-making processes, more effectively manage risks and create long-term value for stakeholders.


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How can I use MSCI’s data to enhance my fundamental analysis?

We provide insight into company operations and performance beyond traditional financial statements so investors can compare companies across industries, focusing on key performance indicators.

Our research-based models are designed to help identify the metrics most closely linked to better corporate fundamentals, lower risk and equity market outperformance across regions and sectors over the past 12 years.

 

Cumulative performance of highest- vs. lowest-rated ESG quintiles in MSCI ACWI Index

Cumulative performance of highest- vs. lowest-rated ESG quintiles in MSCI ACWI Index
Quintiles are created every month based on adjusted scores in MSCI ACWI index. Scores are first standardized by the Global Industry Classification Standard (GICS®)* sectors, region (North America, Europe, Pacific and EM sub-indexes of the MSCI ACWI Index), and then size adjusted. The next month’s performance (in USD return) of the quintiles is calculated. The graph shows the cumulative difference between the top and bottom quintiles’ performance. Data from Dec. 31, 2012, to Dec. 31, 2024. Source: MSCI ESG Research. *GICS is the global industry classification standard jointly developed by MSCI and S&P Global Market Intelligence.

 

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How can I incorporate supplemental data into portfolio construction?

Sustainability data provides insights into companies typically not accessible as part of the quantitative portfolio management process, which focuses on metrics such as valuation, momentum and quality.

The low correlation of sustainability data with existing, well-known signals and characteristics is an opportunity for investors to extract new, independent information and help build better portfolios. The exhibits below illustrate how statistical methods such as factor models can accomplish the extraction of new information, and then used to analyze risk and returns of portfolios. For example, new risk and return-related information can be found in a company’s management of social risks, and looking at carbon efficiency can bring insights on earnings growth.

 

Cumulative factor return of MSCI Social pillar score by region

Cumulative factor return of MSCI Social pillar score by region
The chart shows the cumulative performance of MSCI Social pillar score when integrated into the MSCI Global Equity Factor Model. Data from Dec. 31, 2012, to Dec. 31, 2024. Source: MSCI ESG Research

 

Faster earnings growth associated with more carbon efficient companies

Faster earnings growth associated with more carbon efficient companies
Quintiles are created every month based on adjusted scope 1+2 carbon emissions data. The values are negative log-transformed, standardized by GICS sector, and size-adjusted. The graph shows the cumulative difference between the top and bottom quintiles’ EPS growth per region. Data from Oct. 31, 2014, to Dec. 31, 2024. Source: MSCI ESG Research.

 

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How can I use data as part of benchmarking and asset allocation?

Indexes are integral to portfolio performance benchmarking, product creation, index-based investing and a range of other asset management use cases.

Asset owners use sustainability indexes to manage sustainability-related risks and opportunities in their asset allocation and portfolios either by replacing their existing policy benchmark with a sustainability index or by investing in sustainability index-based mandates.

MSCI offers sustainability indexes, used by both asset owners and asset managers, with up to 12 years of live track record, which has shown an outperformance over their market cap benchmark, even after controlling for industry, sectors and style factors.

 

Active performance of MSCI Sustainability Indexes versus MSCI ACWI

ctive performance of MSCI Sustainability Indexes versus MSCI ACWI
The MSCI Universal Index represents an ESG-weight-tilt approach; MSCI Selection Index uses a 50% best-in-class sector approach; MSCI SRI Index uses a 25% best-in-class sector approach; and MSCI Focus Index uses an optimized approach designed to maximize ESG exposure. The data shows the actual performance for each index plus back-tested performance for those indexes with less than 10 years of track record. MSCI ACWI Selection Index has been live since June 6, 2013; MSCI ACWI SRI Index since March 24, 2014; MSCI ACWI Universal Index since Feb. 8, 2017; MSCI ACWI Focus Index since June 25, 2018. Data from May 31, 2013, to Dec. 31, 2024. Source: MSCI ESG Research.

 

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How can I use data to improve and supplement credit analysis for corporate and sovereign bonds?

Investors can leverage quantitative and qualitative data to help assess creditworthiness, identify risks and make informed investment decisions as part of their corporate and sovereign bond credit analysis.

Higher MSCI ESG Ratings were associated historically with lower financing costs for both equity and corporate bonds, and significant rating changes signaled directional shifts in a company’s future cost of capital.

Companies with the highest ESG ratings had, on average, a lower cost of capital than those with the lowest ratings. This relationship holds when looking at the individual components of the cost of capital, with top-rated companies exhibiting lower costs of equity and debt.

 

Cost of capital across MSCI ESG Rating quintiles

Cost of capital across MSCI ESG Rating quintiles
Data period from August 2015 through May 2024. We divided the entire study sample (n = 4,319 unique issuers) into quintiles each month based on the ESG score, which determines the MSCI ESG Rating, and compared each quintile’s cost of capital monthly (106 observations). The difference between the top and bottom ESG score quintiles over the study period was significant at a 99% confidence level using the Mann-Whitney U test. Source: MSCI ESG Research

 

Cost of capital after a substantial MSCI ESG Rating change

Cost of capital after a substantial MSCI ESG Rating change
Data period from August 2015 through May 2024. We show the differences in the z-scores for the cost of capital (to neutralize the overall changes in the sample’s cost of capital) during the 12 months after a substantial change in the MSCI ESG Rating (+/- two or more notches) during our study period (106 monthly observations). We did not observe a strong pattern for small rating changes (+/- one notch). Source: MSCI ESG Research.

 

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How can I use data to identify and manage risks and opportunities in the context of the transition and a changing climate?

Physical risks—from extreme weather events to water stress and supply-chain disruptions—are already impacting asset values and economic stability. Meanwhile, the transition to a low-carbon economy is reshaping capital flows and industrial strategies. Investors who integrate both physical and transition risks can make more informed, forward-looking decisions, ensuring they mitigate downside risks while seizing new investment opportunities. By leveraging granular, geospatial, and forward-looking sustainability data, investors can better assess exposure, resilience, and market positioning in an increasingly interconnected global economy.

 

Faster earnings growth associated with more green revenue

Faster earnings growth associated with more green revenue
Quintiles are created every month based on adjusted green revenue data in selected sectors of MSCI ACWI Index. The values are log-transformed and then adjusted by region and size. The graph shows the cumulative difference between the top and bottom quintiles’ EPS growth. Data from Nov. 30, 2015, to Dec. 31, 2024. Source: MSCI ESG Research.

 

Cumulative factor return of MSCI LCT Score in MSCI ACWI Index

Cumulative factor return of MSCI LCT Score in MSCI ACWI Index
The chart shows the cumulative performance of MSCI LCT score when integrated into the MSCI Global Equity Factor Model.Data from Nov. 29 2013, to Dec. 31, 2024. Source: MSCI ESG Research.

 

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