MSCI expands its range of climate indexes to help investors navigate and measure the investment opportunities and risks associated with the transition to a low carbon economy. As a part of the holistic toolkit, the new MSCI Climate Change Indexes help investors build more climate resilient portfolios and integrate climate risk considerations in their global equity investment process.
The indexes re-weight securities based on MSCI’s Low Carbon transition score, which consistently measures a company’s exposure to low carbon transition risk, carbon emissions and fossil fuel reserves, and its exposure to opportunities including alternative energy and clean-technology. These indexes can be used as a stand-alone index or act as an overlay to an overall ESG strategy.
The new Climate Change Indexes would be added to MSCI’s existing range of climate indexes that aims to meet the needs of institutional investors to address climate change in their investing portfolios, which would include the MSCI Low Carbon Indexes and the MSCI Global Environmental Indexes.
It is expected that the MSCI Climate Change Indexes could increase exposure to the companies providing solutions to address climate change, with a double of the exposure to clean technology companies when compared to the underlying benchmark. The indexes also help to reduce exposure to stranded assets with 50 percent lower exposure to thermal coal and four times less exposure to companies with carbon intensive products the underlying index.
Remy Briand, Head of ESG at MSCI, stated that “While there are transition risks associated with taking early actions, there is a growing body of evidence to show that earlier action will ultimately mean a less costly adjustment.”
EDF, the French utility company, has adopted the MSCI Climate Change Indexes as part of the company’s €28.1billion dedicated assets fund. Bernard Descreux, Director of the Asset Management division at the EDF, a French utility company, as he said “As a responsible asset manager, we firmly believe that enabling the transition to a low carbon economy is crucial to the development of a sustainable financial system.”
The indexes are applicable to investors through: acting as an investment policy benchmark to guide strategic asset allocation, acting as the underlying index for passive products including the ETFs and mutual funds, as a benchmark to measure performance of asset managers and a tool to understand the impact of climate related risks on the risk and return drivers of portfolios, as a scalable way to engage with companies to improve ESG performance, since the Indexes do not exclude securities based on their climate performance, therefore supports long-term engagement with companies.
