SUSTAINABILITY CHARACTERISTICS FAQ

  • We are committed to providing investors with transparency in order to enable them to make informed investment decisions. A growing number of investors are interested in understanding the sustainability profiles of their investments and we strive to provide our clients access to this information. The inclusion of sustainability characteristics on funds demonstrates our latest commitment to investor progress.

  • Leveraging MSCI ESG Ratings and research coverage, MSCI ESG Research creates ESG ratings and metrics for approximately 32,000 multi-asset class Mutual Funds and ETFs globally. MSCI ESG Fund Ratings aims to provide fund-level transparency to help clients better understand and measure the environmental, social and governance characteristics of a portfolio, and rank or screen funds based on a diverse set of ESG exposure categories.

  • To be included in MSCI ESG Fund Ratings, a fund must pass the following three criteria:

    • High coverage thresholds: 65% or more of the fund’s underlying holdings (excluding cash positions) are covered by MSCI ESG Research.
    • Updated Holdings Data: Fund holdings date must be less than one year old.
    • Portfolio Holdings Minimum: Fund must have at least ten securities.

    For newly launched funds, sustainability characteristics are typically available 6 months after launch.

  • The overall MSCI Fund ESG Rating and MSCI Fund ESG Quality Score measure the ability of underlying holdings to manage key medium- to long-term risks and opportunities arising from environmental, social and governance factors. The MSCI Fund ESG Quality Score is provided on a 0-10 scale, with 0 and 10 being the respective lowest and highest possible fund scores. The MSCI Fund ESG Quality Score corresponds to an MSCI ESG Fund Rating based on the scale below. The MSCI ESG Fund Rating is provided on a AAA-CCC scale, with AAA and CCC being the respective highest and lowest possible fund ratings. MSCI rates underlying holdings according to their exposure to 37 industry specific ESG risks and their ability to manage those risks relative to peers. These issuer-level ESG ratings correspond to an issuer-level ESG score.

    ESG quality score scale

  • ESG % Coverage is defined as the percent by weight of a fund’s holdings (excluding cash positions) that have ESG data.

  • The MSCI Weighted Average Carbon Intensity (tCO2e/$M sales) measures a fund's exposure to carbon intensive companies. It is calculated as the sum of security weight (normalized for corporate positions only) multiplied by the security Carbon Intensity. This allows for comparisons between funds of different sizes.

    Bar chart representing weighted average carbon intensity

    For illustrative purposes only. This example does not represent the results of a specific investment product.

  • A percentile rank (1-100) that measures how the fund’s ESG Quality Score ranks relative to other funds in the same peer group. Peer groups are defined by the Lipper Global Classifications.

    Chart scale peer group percentile ranking

    The following criteria must be met for a fund to receive a Peer Rank:

    • The fund must be categorized by the Lipper Global Classification scheme.

    • The peer group must contain at least 30 funds.

    • The standard deviation of the Fund ESG Quality Score within the peer group must be greater than, or equal to, 0.1. This variation creates a systematic ranking system for the funds within the peer group.

    For illustrative purposes only. This example does not represent the results of a specific investment product.

  • Funds within one Lipper Global Classification (LGC) sector invest in the same financial markets or specific segments of those markets but may adopt different investment strategies or styles to achieve their investment objectives. As a general rule a fund must hold a prevalent exposure with a threshold set at 75% of its portfolio in order to meet an LGC requirement. Since temporary changes in strategic asset allocation with divergences from the historical pattern may be possible, it is essential to look at historical data to meet the specific classification requirement.

  • The number of funds used to calculate the MSCI ESG Quality Score – Peer Rank. This is based on the Lipper Global Classification and reflects the funds that are in the MSCI ESG Fund ratings coverage universe.

  • The ESG Quality Score is calculated using an enhanced holdings-based methodology that incorporates the following:

    • the underlying holdings’ Weighted Average ESG Score.
    • the fund’s ESG Momentum, including the fund’s exposure to holdings with an improving ESG rating trend (positive) and the fund’s exposure holding with a worsening ESG rating trend (negative).
    • the fund’s exposure to ESG Tail Risk, specifically holdings with CCC and B ESG Ratings.

    The net exposure of positive trend, negative trend and tail risk are applied as a multiplier to the weighted average score to calculate the ESG Quality Score. The MSCI Fund ESG Quality Score is then converted to a letter rating that ranges from AAA-CCC based on the scale shown below.

    "ESG

    For illustrative purposes only. This example does not represent the results of a specific investment product.

  • The range, and average, of Fund ESG Quality Scores varies widely across peer groups. Many factors, such as regional concentrations, can contribute to peer group differentiation. While a particular peer group may tend to have high, or low, Fund ESG Quality Scores, the peer group percentiles signal how each fund ranks within its group.

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Want to learn more about sustainable investing?

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Information about MSCI ESG Fund Ratings is sourced from MSCI. For more information please visit the MSCI ESG Fund Ratings methodology available here.