The MSCI ESG Fund Ratings will be based on the products’ exposure to long-term ESG risks and opportunities with each fund scaled from AAA (leader) to CCC (laggard).
Each rating is based first on the weighted average ESG score of the holdings and then subsequently MSCI’s research team assess the ESG momentum to gain insight into the fund’s ESG track record.
Finally, the index provider reviews the ESG tail risk to understand the funds exposure to holdings with worst-of-class ESG ratings of B and CCC.
The move is designed to offer investors insights into the ESG characteristics of products as well as provide additional information that may be used as part of clients’ ESG fund research, product selection, portfolio construction and portfolio reporting processes across asset classes.
Specifically, the firm said the MSCI ESG Fund Ratings can be used to screen for funds to align with client values, offer reporting on the sustainability of client investments, measure the positive impacts arising from investments or complement manager due diligence.
Remy Briand, head of ESG at MSCI, 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.”
James McManus, head of ETF research, Nutmeg, commented: "With interest in socially responsible investing increasing among consumers, we welcome this move to rate such a large proportion of the retail investment fund universe for ESG factors.
"In other aspects of their lives, people can clearly see how their choices align to their values – if they drive a hybrid car, choose a renewable energy provider or pick responsibly sourced food for example – but for far too long it is been too difficult for investors to see how their investments align to their values."