Intro - ESG Integration Research Overview
ESG integration, or the inclusion of ESG factors into the investment process, has evolved over time. For example, some investment managers actively pursue strategies that exclude stocks with poor ESG characteristics while others focus on only selecting stocks with better ESG characteristics. While there is a robust set of ESG data and metrics to analyze portfolios, many investors want to know how much their ESG strategies are contributing to overall portfolio risk and return.
MSCI has performed extensive research to assess the risk and performance characteristics of MSCI ESG Ratings and MSCI ESG Indexes — it is detailed in the research papers listed below underneath each section.
At a high level, our research looked at stock and fundamental (earnings) performance, systematic risks and idiosyncratic risks. Here, we answer some commonly asked questions, presenting key findings and links to the full blog posts or reports for greater detail.
Video - ESG and Financial Performance
ESG and Financial Performance
In the ever-evolving landscape of investing, ESG Ratings have been criticized both for being too focused on ethical considerations and not focused enough on these issues. The true goal of MSCI’s ESG Rating methodology is to provide investors with a tool for assessing corporate risks as they work to build better portfolios.
Did a company's ESG performance affect its stock price?
ESG pure factor return
This chart shows the performance of investments based purely on ESG factors in MSCI risk models over time. The fluctuations in returns highlight the varying impact that ESG factors can have on investment performance.
Learn more: Factoring in ESG
Source: MSCI. Data from 31 December 2012 till 31 May 2023. The chart shows the cumulative performance of MSCI ESG factor (defined as the z-score of MSCI ESG Industry-adjusted ESG score) in the MSCI Global Equity Factor Model + ESG (GEMLTESG) model.
Cumulative performance of quintile 5 – quintile 1 portfolios in MSCI ACWI Index
This chart details the performance of the MSCI ACWI Index Quintile (highest rated quintile minus lowest rated quintile). Additionally, the performance of individual E, S, and G pillars is also displayed, providing a more detailed understanding of the impact of each ESG component on portfolio performance.
Source: MSCI. Data from 31 December 2012 till 31 May 2023. Quintiles are created every month based on adjusted scores: pillar scores are first z-scored by Global Industry Classification Standard (GICS®) sector and region (North America, Europe, Pacific and EM sub-indices of MSCI ACWI) then size adjusted. ESG score is only z-scored by region, then size adjusted. The next month’ performance (in local return) of the quintiles is calculated. The graph shows the cumulative difference between the top and bottom quintiles’ performance.
Further related content:
What is the fundamental performance of MSCI ESG Ratings?
What is the company-specific risk profile of MSCI ESG Ratings?
How does a company's ESG profile impact its exposure to systematic risk?
What is the long-term performance of MSCI ESG Indexes?
final - ESG Integration Research Overview
MSCI ESG Ratings, research and data are produced by MSCI ESG Research LLC, a subsidiary of MSCI Inc. MSCI ESG and Climate Indexes are products of MSCI Inc. that utilize information from MSCI ESG Research LLC. MSCI Indexes are administered by MSCI Limited (UK).
Information containing any historical information, data or analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. Past performance does not guarantee future results.
FOR PROFESSIONAL CLIENTS ONLY
The content of this web page is research for informational purposes only and is intended for institutional professionals with the analytical resources and tools necessary to interpret any performance information. Nothing herein is intended to promote or recommend any product, tool or service.