We present an attribution framework for Principal Adverse Impact (PAI) indicators to help investors assess whether year-on-year changes within portfolio PAIs are within the influence of the portfolio manager or driven by factors outside their control.  

From the effects of China’s stimulus to the power of sustainability on portfolio performance and companies cost of capital, our panel dissects the latest market drivers and where investors may be focused for the rest of 2024.

Today is the last part of a three-part series we've done for ESG now: we examine whether investors should care about incorporating environmental data into equity analysis. In previous episodes we discussed the social pillar and the governance pillar, now it’s on to the environmental pillar of our ESG ratings model. We look at the environmental pillar as a whole and the themes that build it and tell you whether companies that scored well on each theme performed better than their lower scoring peers.

Companies with high climate-change risk scores have consistently outperformed, underscoring the value of integrating carbon data into equity analysis. Incorporating environmental opportunities into portfolios has been less straightforward, though the outlook is more optimistic.  

Expanding opportunity and a supportive policy environment suggest transition funds may continue to grow. While no one can be certain, understanding the market can help investors determine the best way forward, and how they can work to stand out.  

The social pillar has often been maligned as the ignored step sibling of the ESG acronym. In its essence, the social pillar is a measurement of how a company, its employees, its products, and the community it operates in are supported and often challenged. For this episode, we show you why that all matters for measuring a company’s market performance.

What goes into an analysis of financially material social risks and opportunities? And what does it mean for a company’s market performance? Our analysis found that scoring on social-risk themes was a key indicator of performance. 

Good governance is foundational to effective capital markets, promoting accountability, transparency and sound decision-making aligned with investor interests. But how do those potential benefits translate into market performance? Well today, we answer that question for you! We answer the question: does governance even matter.

Good governance is foundational to effective capital markets, promoting accountability, transparency and sound decision-making aligned with investor interests. But how do those potential benefits translate into market performance? 

MSCI Implied Temperature Rise (ITR) can be used to assess the temperature alignment of companies and portfolios with global climate goals. Here, we offer an attribution framework to understand what causes a portfolio’s ITR to change over time.

Assessing the carbon footprint of a portfolio is the first step in addressing the investment implications of climate change. But in a complex and fast evolving landscape, which are the best metrics and underlying inputs to use?  

A bright spot in an often-tumultuous 2023 was the ability of the MSCI ESG and Climate Indexes to meet or exceed their stated objectives, which ranged from maximizing ESG score to reducing carbon emissions.  

We take a deep dive into the financed-emissions intensity of the MSCI Climate Action Indexes by isolating the effect of various decarbonization drivers to offer a comparative perspective against their parent indexes.

Understanding ESG risks and opportunities from the perspective of investors could be invaluable for issuers. We examine how investors think about ESG factors and how they incorporate them into their investment processes. 

Assessing the carbon footprint of their lending and investment activities is crucial for banks to achieve stated net-zero targets. Using a fictious bank’s balance sheet, we show how MSCI Total Portfolio Footprinting can help calculate financed emissions.

Measuring financed emissions is crucial for climate disclosure, but not always straightforward. Proper data alignment and timeliness are essential to help investors make informed decisions and contribute to effective climate action.

We analyze the index-level carbon emissions of the MSCI ACWI, ACWI ESG and Socially Responsible Investing Indexes, in terms of both financed emissions and emissions intensities, to see what the trends are and what’s driving them.

Our previous research discussed a framework for investors to attribute changes in equity portfolios’ emissions to their primary drivers. We now adapt it to identify and analyze two approaches to tracking a multi-asset-class portfolio’s carbon footprint. 

How did our flagship climate and ESG indexes fare versus the broader market in the second quarter? And how much did constituent companies decarbonize since the quarter before? We delve into the specifics.

Several factors can drive the changes in a corporate-bond portfolio’s emissions. Our framework helps disentangle these variables and provides investors with greater clarity into their climate-aware strategies. 

Tracking a portfolio’s carbon footprint can be challenging given the multiple drivers of changes in emissions. Our framework attributes these changes to their primary drivers, including changes in issuers’ emissions, ownership and financing structure.

We present a framework that allows investors to understand to what extent changes in a portfolio’s carbon footprint are due to companies’ real-world decarbonization efforts, a portfolio manager’s investment decisions or changes in companies’ financing.

Our analysis of ESG factor performance in 2022 suggests that time horizons, as well as specific sectors and regions, may be significant in assessing the return characteristics of ESG portfolios. 

While the energy crisis has boosted the energy sector overall, individual company performance has varied markedly. Our analysis shows that businesses with above-average strategies to manage a low-carbon transition outperformed.

Could equity managers have maintained their energy exposure during the sector’s recent outperformance while also reducing carbon emissions? We find that they could have lowered emissions but with some trade-offs during our study period. 

There have been several dynamics that have influenced climate-index performance in the third quarter and first nine months of 2022. We examine the impact of macroeconomic and financial conditions on risk, return and sectors. 

In this article published in the Journal of Financial Data Science, coauthors from MSCI and MIT develop and describe a data-driven system using AI tools to capture market perception and, in turn, group companies into peer clusters.