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MSCI ESG indices outperformed in 2021 despite oil and gas resurgence

All but one ESG index outperformed the MSCI ACWI index last year

Theo Andrew

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A range of MSCI ESG indices outperformed their non-ESG parent index in 2021 despite a surge in energy stock prices, according to new research from the index provider.

Despite last year’s resurgence of oil and gas prices – following half a decade of weak performance – MSCI’s ESG indices, with a lower weight to high-carbon emission industries, were resilient.

MSCI took the performance of the flagship MSCI All County World (ACWI) index with more than 2,900 large and mid-cap stocks and evaluated its performance with five ESG versions of the index.

Four of the five outperformed in 2021, apart from the MSCI ACWI ESG Focus index, while all five beat the parent index over three and five years.


Source: MSCI

MSCI’s ESG indices use a sector-inclusive methodology, selecting companies with higher ESG ratings than their peers, rather than excluding whole sectors, which helps mitigate the influence of individual sectors on returns.

However, the performance drag of lower weightings to oil and gas stocks on the flagship MSCI ACWI ESG indices was marginal, while the ESG indices had a higher weighting to sectors including semiconductors which outperformed last year.

The average reduction in exposure to oil and gas relative to the parent index was 0.92%. The MSCI ACWI SRI index had the lowest exposure to oil and gas and -2.41% compared to the parent index.

Furthermore, it had lower weights in airlines, aerospace and defence, which underperformed, compensating for the lower exposures to oil, gas and consumable fuels in 2021.

The main driver of ESG returns last year was stock selection, with Microsoft among the top performers, MSCI noted.

Yuliya Plyakha Ferenc, vice president of MSCI research, said: “The COVID-19 pandemic caused major changes in everyday life leading to significant changes in consumer demand, supply chains and workforce productivity.

“Companies that were able to navigate these new trends successfully performed well in 2021.”

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