MSCI has extended its roster of low carbon transition solutions with the introduction of the MSCI Fixed Income Climate Change Indexes.
The indices have been designed to help investors construct more climate-resilient portfolios.
The series consists of four indices initially which are derived from MSCI’s broad market corporate bond universes, comprising either investment-grade or high-yield securities denominated in US dollars or euros.
The methodology underlying the new indices is essentially the same as that of the index provider’s climate change equity indices which debuted in June 2019.
They have been designed as tools to help bond investors build more climate-resilient portfolios, protect investments from the worst effects related to climate change, and also help identify new, innovative low carbon investment opportunities within the fixed income sphere.
Index methodology
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The Indices MSCI USD IG Climate Change Corporate Bond Index MSCI USD HY Climate Change Corporate Bond Index MSCI EUR IG Climate Change Corporate Bond Index MSCI EUR HY Climate Change Corporate Bond Index |
The indices reflect the performance of an investment strategy that reweights securities based upon the perceived opportunities and risks associated with the transition to a lower carbon economy, while seeking to minimize exclusions from the parent universes.
The indices approach this in an holistic manner by targeting three dimensions: risk mitigation, stewardship promotion, and the capture of disruptive low carbon technologies.
The process first removes companies that are involved in controversial weapons from the universe.
Then the remaining constituents are reweighted based on MSCI’s Low Carbon Transition Score which measures a company’s exposure to low carbon transition risk, carbon emissions, and fossil fuel reserves, as well as its exposure to opportunities including alternative energy and clean technology.
The low carbon transition score is calculated based on two factors. The first is determined by grouping companies into one of five categories based on the predominant risks and opportunities firms in the same industry are most likely to face in the transition to a low carbon economy. The second is an industry-agnostic evaluation of each company’s position in the transition.
The indices are reconstituted and rebalanced monthly. This contrasts with the equity indices which are updated semi-annually.