MSCI is diversifying sources for sustainability-related information to go beyond company disclosures/Bloombergby Bloomberg
Responsible investing is going to be big—so much so that MSCI expects its environmental, social and governance (ESG) indexes to eventually get more following than its traditional benchmark offerings.
Remy Briand, the Head of MSCI’s ESG research, sees more money tracking such benchmarks than the market-value weighted ones over time. Assets under management following the company’s ESG gauges will likely double in 2020, continuing last year’s trend, said Briand.
According to the Global Sustainable Investment Alliance, “do good” investing has picked up globally, with at least $30.7 trillion held in sustainable or green investments in 2018. This has proved to be a lucrative business opportunity for index providers, with MSCI’s ESG benchmark revenue likely growing between 60 and 65 per cent to $38 million in 2019.
MSCI stated that its operating revenue for the overall index business was $921 million in 2019, up 10 per cent from 2018.
Several studies have shown that more sustainable companies tend to outperform over the long term. The MSCI ACWI ESG Leaders Index has surged more than 50 per cent in the past five years, beating the advance of about 35 per cent in the MSCI All-Country World Index.
Tech and finance shares have the biggest weightings in both, accounting for more than a third of the gauges.
Index compilers typically make money by providing investment firms with access to data and licencing benchmarks for the creation of financial products.
Asset managers such as BlackRock have faced activist anger for not doing enough, and hedge funds have been slow to adopt the strategies, citing inconsistent data and a shortage of expertise.
Interest from European and American wealth-management firms is on the rise, while take-up of ESG indexes among Asia-headquartered private banks has been slower, he said, adding that between 80 per cent and 90 per cent of the assets under management tracking MSCI indexes still follow its market-value-based gauges.
Briand said MSCI is now diversifying sources for sustainability-related information to go beyond company disclosures to proxies such as government fines, product reports and news coverage. About 45 per cent of the input that goes into the ratings is not coming from company disclosures, according to Briand.