MSCI unveils ‘Climate Action’ indices

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MSCI has introduced the MSCI Climate Action Indices, a new suite of equity indices designed to help investors align with the low-carbon transition.

The indices consist of companies that are taking measurable steps to reduce their emissions, selecting from across the economy using the 11 Global Industry Classification Standard (GICS) sectors.

At launch, the suite consists of 12 indices covering global, global developed, developed ex-North America, developed ex-US, developed ex-Canada, US, Japanese, European, eurozone, emerging markets, Asia ex-Japan, and Indian equities.

Each index is constructed from an MSCI parent index providing broad exposure to large and mid-cap stocks within the respective universe.

MSCI’s Climate Action methodology first screens out issuers embroiled in severe ESG-related controversies, companies with very high carbon emission profiles, and firms involved in controversial weapons, tobacco, thermal coal mining, oil sands, and nuclear weapons.

The remaining companies are then assessed relative to their sector peers based on their emissions intensity, emissions reduction commitments, climate risk management, and revenue from greener businesses.

The indices then select 50% of the companies from each GICS sector, choosing those with the most favourable climate action profiles based on the above assessment.

The weighting process involves re-normalizing the parent index weights of chosen constituents to 100%. Additionally, any single stock is capped at 5% and the deviation in any GICS sector weight relative to the parent index is limited to 5%.

According to MSCI, the indices are aimed at equity investors who want sector-balanced, broad market exposure while utilizing a bottom-up stock selection approach based on both current and forward-looking climate indicators.

The indices may be used as performance benchmarks for actively managed climate-conscious portfolios or may serve as the underlying reference for new investment products such as ETFs.

Melissa McDonald, Head of ESG and Climate Indices at MSCI, commented: “At a time when the climate crisis must be tackled head-on, the decarbonization of investment portfolios is a critical first step. The MSCI Climate Action Indices help investors looking to fulfill that aim by gaining exposure to the companies that are making meaningful progress towards net zero in the real economy and addressing the systemic risks of climate change.

“This launch demonstrates our ongoing commitment to ensure that investors have the information and tools they need to develop portfolios that meet their net-zero commitments, integrate climate considerations, and fulfill their investment objectives.”

The full list of MSCI Climate Action Indices is outlined below:

MSCI ACWI Climate Action Index
MSCI World Climate Action Index
MSCI EAFE Climate Action Index
MSCI World ex USA Climate Action Index
MSCI World ex Canada Climate Action Index
MSCI USA Climate Action Index
MSCI Japan Climate Action Index
MSCI Europe Climate Action Index
MSCI EMU Climate Action Index
MSCI Emerging Markets Climate Action Index
MSCI AC Asia ex Japan Climate Action Index
MSCI India Climate Action Index