MSCI Introduces Factor-Based ESG Benchmarks

MSCI Inc. (NYSE: MSCI), one of the largest providers for indexes for use by issuers of ETFs, introduced a series of MSCI Factor ESG Target Indexes on Thursday.

Environmental, Social and Governance (ESG) strategies are increasingly popular in the indexing and ETF industries as investors look to apply their values to investment portfolios.

MSCI already provides indexes for ESG ETFs, such as the iShares MSCI EAFE ESG Optimized ETF (NASDAQ: ESGD), iShares MSCI EM ESG Optimized ETF (NASDAQ: ESGE) and the iShares MSCI USA ESG Optimized ETF (NASDAQ: ESGU).

MSCI’s “new indexes are based on MSCI’s leading Factor Indexes; Minimum Volatility, Quality, Value and Multi-Factor indexes and use the award winning MSCI ESG Ratings, provided by MSCI ESG Research,” according to a statement from the issuer.

MSCI’s new ESG indexes are:

  • MSCI Minimum Volatility ESG Target Indexes
  • MSCI Quality ESG Target Indexes
  • MSCI Value ESG Target Indexes
  • MSCI Multiple-Factor ESG Target Indexes

Historical data has shown that investing in sustainability has usually met and may exceed the performance of comparable traditional investments. The potential outperformance is attributed to better governance practices, along with the exclusion of poison-pill anti-takeover provisions, transparency about executive pay and policies that favor shareholder rights.