MSCI, a leading provider of indices to the ETF industry, has unveiled ratings for 32,000 funds and ETFs based on their exposure to long-term Environmental, Social and Governance (ESG) risks and opportunities.
Remy Briand, MSCI Head of ESG.
The MSCI ESG Fund Ratings, which are generated using data from the index provider’s specialist research arm MSCI ESG Research, cover ETFs from both the equity and fixed income universes and are based on the weighted-average score of a fund’s underlying holdings.
ETFs are assigned one of seven ratings: ‘AAA’ and ‘AA’ represent ETFs that are considered ESG leaders; ‘A’, ‘BBB’, and ‘BB’ correspond to funds with average ESG ratings; while ‘B’ and ‘CCC’ represent ESG laggards.
The ESG leaders are considered to be the most resilient to disruptions arising from ESG events.
MSCI also provides insight into the ESG momentum of an ETF which indicates its exposure to holdings with a positive rating trend or worsening trend year-on-year.
Finally, MSCI reviews the ESG tail risk to understand a fund’s exposure to holdings with worst-of-class ESG ratings of ‘B’ and ‘CCC’.
Remy Briand, MSCI Head of ESG, commented, “The MSCI ESG Fund Ratings is designed to provide investors with greater transparency to better understand the ESG characteristics of fund and ETF components of their portfolios.
“As the number of ESG funds proliferate and ESG-orientated investment options and ESG strategies are being adopted by wealth and fund managers, we strive to provide the tools and solutions to help these investors better understand ESG risks.”
The ratings can be used as part of investors’ ESG fund research, product selection, portfolio construction, and portfolio reporting processes across asset classes.
“Through the MSCI ESG Fund Ratings we are providing our clients with an intuitive rating to assist their risk management and investment decision processes and to power better investment decisions,” added Briand.
The ratings build on the success of MSCI’s ESG Fund Metrics which launched in March 2016. The ESG Fund Metrics provide over 200 measures by which investors can gain further insight into the ESG profile of an ETF. These metrics include carbon footprint, water exposure, governance risk, exposure to sustainable impact themes, and proportion of SRI exclusions, among others.