IHS Markit and MSCI have announced a collaboration in which IHS Markit will apply MSCI’s environmental, social, and governance (ESG) expertise to a broad range of fixed income and credit indices.
Sophia Dancygier, Head of Indices at IHS Markit.
Within the indexing space, IHS Markit is best-known for its iBoxx and iTraxx bond and credit index families.
Sophia Dancygier, Head of Indices at IHS Markit, commented, “Investors have a growing appetite for exposure to ESG funds, creating a need for indices that integrate these principles while accurately representing the underlying market and continuing to deliver strong returns.
“In recognizing the importance of sustainable investing and following the successful launch of our Global Carbon Index, we are excited to collaborate with MSCI as we expand our ESG coverage in iBoxx and iTraxx indices.”
Eric Moen, Head of ESG Products for MSCI ESG Research, added, “As investors continue to evaluate opportunities to incorporate ESG considerations into their portfolios, we are pleased to be working with IHS Markit to apply MSCI’s ESG ratings and research data to their suite of fixed income and credit indices. MSCI ESG Research covers 650,000 equity and fixed income securities globally, which provides quality insights into ESG risks and opportunities within multi-asset class portfolios.”
More than $130 billion in assets under management are currently held in ETFs linked to iBoxx and iTraxx indices. Introducing ESG versions of the most widely followed indices is a natural step for IHS Markit as more and more asset owners align their investments with ESG principles.
The iBoxx series tracks bond markets globally using transparent, rules-based methodologies while maintaining minimum levels of liquidity. The series includes a wide range of sub-index granularity by sector, rating, maturity, and size.
The iTraxx series tracks the credit default swap markets in Europe, Australia, Japan, and Asia Pacific ex-Japan. The indices allow investors to express their bullish or bearish sentiments on credit as an asset class, while the selection methodology ensures that the indices are replicable and represent the most liquid, traded part of the market.
By moving to incorporate an ESG dimension within the iBoxx and iTraxx series, IHS Markit is positioning itself to cater to the growing demand for investments that have a positive (or at least not negative) societal impact. According to a recent survey from Brown Brothers Harriman, investors ranked ESG as the number one strategy they would like to see more of in ETF format.
As a first phase of the collaboration, IHS Markit has introduced ESG versions of iBoxx indices that cover the short maturity segments of the US dollar, euro, and pound sterling corporate bond markets. These indices include the iBoxx MSCI ESG USD Liquid Investment Grade Ultrashort Index, the iBoxx MSCI ESG EUR Liquid Investment Grade Ultrashort Index, and the iBoxx MSCI ESG GBP Liquid Investment Grade Ultrashort Index.
Each new index screens its parent iBoxx index to exclude issuers with business activities in certain non-ESG-friendly sectors, as well as firms that are not in compliance with the United Nations Global Compact principles or have an MSCI ESG rating below ‘BBB’ (average).