Understanding MSCI ESG Indexes: Methodologies, Facts and Figures

The growth of ESG investing has led to a proliferation of ESG strategies, both active and passive. This reflects a more diverse set of investor objectives and improved technical capability to implement more-tailored solutions, as well as the increased breadth and quality of available ESG data. To cater to these needs, MSCI has developed a range of ESG indexes which incorporate values and constraints through exclusionary screens and apply techniques for ESG ratings integration that allow broader market exposure. This paper explains the different methodologies that can be used to integrate ESG considerations into a benchmark. We also assess the differences of these approaches in terms of the financial and ESG characteristics of the indexes to understand potential trade-offs.

MSCI ESG Indexes and their application

All of the above MSCI ESG Index methodologies apply certain exclusion screens (based on controversies and business-involvement screens) marked in red. Light blue indicates companies that are not selected for the index due to low MSCI ESG Ratings. Gradient fills denote indexes that use optimization techniques. Source: MSCI