MSCI, the world’s second largest provider of indices to exchange-traded funds (ETFs), has launched two new environmental, social and governance (ESG) indices – the MSCI Emerging Markets ESG Index and the MSCI ACWI ESG Index.
MSCI has launched new environmental, social and governance (ESG) indices for the emerging markets and ACWI regions.
The new indices, which have been designed to act as benchmarks for actively managed funds or underlyings for index-linked products such as exchange-traded funds (ETFs), reflect an increased emphasis among investors to incorporate ESG practices into their investments.
This is in part a reaction to the spiralling financials costs that ESG lapses can incur, as demonstrated by the colossal damage claims imposed on BP following its oil spill in the Gulf of Mexico and the fines levied on HSBC and Standard Chartered for alleged money laundering.
Globally, there is already $13.6 trillion of assets under management (AUM) in strategies that incorporate at least some ESG concerns into their investment selection and management process, according to Global Sustainable Investment Alliance. This figure is expected to grow as clients ascribe a greater weight to ESG matters and the tools to implement such strategies – including investable indices and analytics – become more widespread.
Remy Briand, Managing Director and Global Head of Index and ESG Research at MSCI, said: “Sustainability best practices are increasingly becoming part of the corporate agenda as socially responsible investing gains importance. Our new MSCI ESG Indices are in response to growing demand in the market for sustainability indices that cover the global equity universe.”
The indices form part of the MSCI Global Sustainability Indices family and aim to capture securities with high ESG rankings which are derived from in-depth analysis across a spectrum of ESG factors. The methodology targets sector weights that reflect the relative sector weights of their MSCI parent indices, helping to limit systematic risk introduced by the ESG selection process. Generally, each MSCI ESG Index targets coverage of 50% of its respective parent index.
Currently, only a fraction of ESG-related AUM resides in ETFs. However, some of this sits in products linked to MSCI ESG indices, including the Pax MSCI North America ESG Index ETF (NASI) and Pax MSCI EAFE ESG Index ETF (EAPS) from ESG Shares, and the iShares MSCI Select Socially Responsible ETF (KLD) from iShares.
The expansion of MSCI’s ESG index range comes just days after S&P Dow Jones, the MSCI’s largest competitor, itself expanded its ESG offering with the launch of the Dow Jones Sustainability Emerging Markets Index family in partnership with RobecoSAM.
(ACWI stands for All Country World Index)