MSCI, a leading provider of indices to the exchange-traded funds industry, has reported record revenue growth in its environmental, social and governance (ESG) research and indexing business. The record growth highlights the emerging importance and increasing adoption of values-based investing, an investment philosophy that considers factors such as ethics, society, faith and the environment alongside financial objectives.
MSCI has reported record growth in its ESG business.
The firm’s ESG business, the world’s largest by both indices and linked assets under management, grew revenues by 33% over 2015 to $38m. Across its product range, the firm now serves 47 of the top 50 by AUM, global asset managers.
Earlier this month it announced the expansion of its ESG fund metrics offering to include coverage of 21,000 mutual funds and ETFs. The metrics evaluate ESG factors of all holdings within an ETF and assign an overall rating for the fund based on the weighted-average characteristics of its constituents. The metrics consider a diverse set of factors including sustainable impact, values alignment and ESG risks, and are designed to offer wealth managers greater insight into the ESG profile of their portfolios.
Eric Moen, Managing Director of MSCI ESG Research, commented: “Controversies like the Volkswagen scandal are a wakeup call to investors who may have previously overlooked ESG research and analysis. We believe this is a tipping point for ESG integration and we’re committed to delivering the quality and innovation that institutional investors expect as they implement these strategies.”
MSCI’s clients in the ESG space include names such as Allianz, BMO, Legal & General, M&G, Manulife, Mercer, Merrill Lynch, Morgan Stanley, Nomura, Northern Trust, PIMCO and RBC, among others. Firms such as these are progressively integrating ESG considerations into their investment approach. Many have commented on its increasing prominence:
Andreas Gruber, Chief Investment Officer of Allianz Group: “When investing our customers’ money, we focus on attractive returns that remain stable over the long term. In this respect, it is becoming increasingly important to take environmental and social risks into consideration early on. With our new approach, we can achieve greater transparency and ensure that our investment strategy will become even more sustainable in the future.”
Douglas Hodge, Chief Executive of PIMCO: “In today’s changed world it is essential for investors to understand how ESG risks can impact companies, capital and returns, and look at ways to embed ESG analysis in their long- term decision making. PIMCO has embraced ESG analysis as intrinsic to its strategy.”
Kai Sotorp, President & CEO, Manulife Asset Management: “Manulife Asset Management was an early adopter of ESG practices, having managed sustainable investment strategies in timber and farmland for many years. We will continue to seek ways to enhance our ESG analysis in order to meet the needs of our clients and to help them better understand ESG risk exposures.”
Audrey Choi, CEO of Morgan Stanley’s Institute for Sustainable Investing: “Increasingly, investors are seeking to understand how environmental, social and governance issues can have material impact on investment performance. As a result, demand for investments that take into account ESG factors continues to increase. At Morgan Stanley, we believe in building tools that enable our clients to know what they own and align their portfolios to address the sustainability issues that matter most while seeking market rate returns.”
Mamadou-Abou Sarr, Managing Director, Global Head of ESG Investing, Northern Trust Asset Management: “With the tremendous growth of ESG assets globally investors are switching their focus to ensuring that their performance objectives are aligned with their ESG values. At Northern Trust Asset Management we do believe that investors do not need to compromise their ESG values to get good long-term investment performance. We expect investor focus in this area to continue in 2016 and beyond.”