MSCI's New Framework Assesses Company Decarbonization

In a bid to provide investors with better tools to target companies adhering to environmental, social, and governance principles, MSCI has developed the first-of-its-kind framework to assess companies’ decarbonization and net-zero climate targets.

MSCI revealed a new planned framework to assess a company’s decarbonization targets against its net-zero goal through its new MSCI Target Scorecard, which will allow institutional investors to make direct comparisons between a company’s climate commitments and ascertain which companies have realistic decarbonization targets, according to a press release.

“The proliferation of decarbonization and net-zero targets is a positive development, however it is also one that can leave investors and other stakeholders confused,” Oliver Marchand, Global Head of ESG Research and Models, said in a note.

“Looking under the hood of companies’ targets, we found a high degree of heterogeneity even where targets first appeared to be comparable. This makes it difficult for institutional investors to assess the potential impact targets could have, if achieved, on the environment or on companies’ climate-risk profiles. The MSCI Target Scorecard addresses this issue, allowing institutional investors to make comparisons between companies’ climate commitments.”

About 35% of the MSCI ACWI Index, which covers 3,000 large- and mid-cap stocks across 23 developed and 27 emerging markets, has set a decarbonization or net-zero target for between 2021 and 2100.

The MSCI Target Scorecard will help investors evaluate a company’s climate goals across three key dimensions, including comprehensiveness, ambition, and feasibility.

The comprehensiveness component would examine how much of the total emissions of a company are covered by the published targets. This would also include emission scopes that are covered by the targets, and the activities and geographies covered by the target.

Ambition includes analyzing how much and how quickly a target aims to reduce emissions. This would include analysis on emissions reductions and timeline to draw a company-level trajectory of future emissions, providing investors with an overview of how a company’s trajectory may deviate from targets set on 2030 and 2050 from the path required to achieve net-zero emissions.

Lastly, feasibility will assess how feasible a given target is and how much confidence investors have in achieving the target. A company’s track record will be compared to its expired original target emissions and the reported emissions in the target year. Benchmarking companies’ latest emissions against the target’s projected trajectory will also be assessed.

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