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Sustainability Characteristics FAQ

  • Why is iShares® providing Sustainability Characteristics for funds?

    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.

  • What are MSCI ESG Fund Metrics and what do they offer investors?

    Leveraging MSCI ESG Ratings and research coverage, MSCI ESG Research creates ESG scores and metrics for approximately 32,000 multi-asset class Mutual Funds and ETFs globally. MSCI ESG Fund Metrics 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.

  • Which Funds are included in MSCI ESG Fund Metrics?

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

    • High coverage thresholds: 65% or more coverage of the fund’s underlying holdings (excluding cash positions).
    • 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.

  • What is the MSCI Fund ESG Quality Score?

    The overall MSCI Fund ESG Quality Score measures the ability of underlying holdings to manage key medium- to long-term risks and opportunities arising from environmental, social, and governance factors. The MSCI ESG Quality Score is calculated as the weighted average of the underlying holdings’ ESG Scores. It is provided on a 0-10 scale, with 0 and 10 being the respective lowest and highest possible fund scores. 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.

    Table ESG score scale

    For illustrative purposes only. This example does not represent the results of a specific investment product. Source: MSCI ESG Fund Metrics, as of May 2017.

  • What is MSCI ESG % Coverage?

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

  • What is MSCI Weighted Average Carbon Intensity?

    The MSCI Weighted Average Carbon Intensity (tCO2e/$M sales) measures a fund's exposure to carbon intensive companies. This figure represents the estimated tons of carbon dioxide emissions per $1 million in sales generated across the fund’s holdings in a given year. 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. Source: MSCI ESG Fund Metrics, as of May 2017.

  • What is an MSCI ESG Quality Score – Peer Rank?

    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. Source: MSCI ESG Fund Metrics, as of May 2017.

  • What is the Fund Lipper Global Classification?

    The fund peer group is defined by the Lipper Global Classification, which separates the classification process into two steps. First, a fund's market capitalization is considered. Only afterward is the fund's style classification assigned. Style is based on the fundamental characteristics of each holding in the fund from the data Lipper receives from the fund companies themselves as well as independent data providers.

  • What is the Fund Lipper Global Classification Size?

    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 metrics coverage universe.

  • How is the MSCI Fund ESG Quality Score derived from underlying company scores?

    The top level fund factor is the MSCI Fund ESG Quality Score, and is calculated as the weighted average of the underlying holding’s overall ESG Quality Scores. The factor is provided on a 0-10 score, with 0 and 10 being the respective lowest and highest possible fund scores.

    The table below demonstrates how the MSCI Fund ESG Quality Score is calculated. Note that in this example, Security E does not have an ESG Score. Security E is therefore “dropped” from analysis, and the weights of the remaining securities are normalized to 100%. The normalized weights and ESG Scores are then used in a weighted average calculation to determine the Fund ESG Quality Score of 6.6.

     

    WeightMSCI ESG
    Quality Score
    Normalized
    Weight
    Normalized
    Weight x Score
    Security A 20% 4.0 25% 1.0
    Security B 40% 8.0 50% 4.0
    Security C 8% 7.0 10% 0.7
    Security D 12% 6.0 15% 0.9
    Security E 20% N/A 0% N/A
    Total100%100%6.6

    For illustrative purposes only. This example does not represent the results of a specific investment product. Source: MSCI ESG Fund Metrics, as of May 2017.

  • A fund with a low MSCI Fund ESG Quality Score ranks in the top of its peer group, why is that?

    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.

Want to learn more about sustainable investing?

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Want to learn more about sustainable investing?

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