MSCI drives many of the indices and measures investors use to track markets and gain exposure to certain asset classes. The organization has set out steps investors and advisors should take to make ESG ideas a reality.
Morgan Stanley Capital International, or MSCI, the global market index provider, is spelling out steps investors can take to bake environmental, social and governance concepts into how they manage money.
The move comes as global leaders such as Donald Trump, business chiefs and opinion-formers, including climate activist Greta Thunberg, debate climate change and geopolitics in the Swiss alpine resort of Davos for the annual World Economic Forum.
MSCI said that it has published The MSCI Principles of Sustainable Investing, which it calls a framework designed to illustrate specific, actionable steps that investors can and should undertake to improve practices for ESG integration across the investment value chain.
The framework includes three main elements: 1, Investment strategy (asset owners should integrate ESG considerations into their processes for establishing, monitoring and revising their overall investment strategy and asset allocation); 2, portfolio management (portfolio managers should incorporate ESG considerations throughout the entire portfolio management process, including security selection, portfolio construction, risk management, performance attribution and client reporting); and 3, investment research (analysts assessing companies and issuing investment recommendations to portfolio managers should integrate ESG considerations into how they view firms.
“The world is rapidly evolving due to dramatic environmental, social and governance shifts, including the effects and implications of climate change and the move to a low carbon economy, which will significantly impact the pricing of financial assets and the risk and return of investments, and lead to a large-scale re-allocation of capital over the next few decades,” Henry Fernandez, chairman and chief executive at MSCI, said.
“The need for a set of guidelines that will help all investment institutions around the world manage emerging opportunities and inherent risks associated with ESG considerations in pursuit of long-term, sustainable investment performance has never been greater,” he said.