Further clarifying the growing momentum behind sustainable investment strategies, MSCI Indexes revealed that it saw demand for environmental, social, and governance ratings and index products outpacing growth in its traditional indexing businesses.
Baer Pettit, chief operating officer of MSCI, explained that $200 million of the firm’s revenues are now “tied to ESG and climate,” and are growing “in the 30 percentages in this area,” Barron’s reports. “It’s growing dramatically, faster than even the second major closest category, the index business.” In comparison, the latter is growing “in the low teens.”
MSCI is one of the largest purveyors of ESG ratings and has enjoyed the rapid growth in sustainable investing. U.S.-domiciled sustainable investments have accumulated $17.1 trillion at the start of 2020, up 42% from two years earlier and about a third of total U.S. assets under management, according to US SIF data.
Indexers have benefited from the ESG boom as they generate revenue from creating and licensing benchmark indices to banks, fund companies, and other financial firms for the the use of investment products like exchange traded funds.
Additionally, MSCI sells its analytics services, and institutional investors have increasingly asked for customized ‘ESG-tilted benchmarks’ over traditional, market-cap weighted indices, according to Pettit. Executives have also expressed increasing interested in sustainability.
According to a recent MSCI survey of 200 institutional investors across the globe, 73% of participants revealed that they plan to increase ESG investment by the end of 2021. Among those managing over $200 billion in assets, respondents highlighted the pandemic as a critical factor that boosted ESG integration. Additionally, climate change is another critical risk, with over 50% showing they actively use climate data to manage risk.
“There’s a sense of precariousness for smaller funds with less staff and less infrastructure, a nervousness and fragility that’s very telling,” Pettit told Barron’s. “Unless we have perpetually wonderful markets, it will be more challenging.”
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