How MSCI Is Working to Drive Climate Progress

Every industry has a unique role to play in helping the world reduce greenhouse-gas (GHG) emissions, but some roles are more obvious than others. As CEO of a financial-services company, I find that many people still do not understand why our particular industry is so important to the net-zero revolution.

The simplest explanation is that achieving net-zero emissions will require the largest reallocation of capital and repricing of assets in world history. Indeed, clean-energy investments must increase to more than $4 trillion per year by 2030 to achieve net-zero by 2050, according to the International Energy Agency (IEA).

Meeting that target will demand nothing short of a global economic transformation — which means it will also demand a massive increase in both the quantity and the quality of climate-related data, models and analytics.

At MSCI, we are providing the high-quality tools investors need to accelerate the decarbonization of their portfolios. Such tools can help market participants assess the carbon impact of different investments, set better baselines for emissions targets, and develop more comprehensive low-carbon-transition plans. All of this can boost momentum for net-zero progress across industries.

MSCI now compiles and creates climate data on more than 4 million financial securities, more than 60,000 companies and issuers with subsidiaries, and around 55,000 ETFs and other funds.

Beyond data, we create climate equity and fixed-income indexes, climate value-at-risk models, and other net-zero solutions, such as our Implied Temperature Rise metric, which illustrates how companies align with different global-warming scenarios. We are determined to do everything we can to support the world’s low-carbon transition.

Over the past several months, MSCI has reached a number of climate-related milestones spanning our indexes, our measurement and compliance tools, our research and thought leadership, and our external partnerships. For example, since June of 2022 alone:

Climate Indexes

• The California State Teachers’ Retirement System — one of America’s largest pension funds — announced that 20% of its public-equity assets would be benchmarked to the MSCI ACWI Low Carbon Target Index.

• The New Zealand Super Fund — a sovereign wealth fund that supports the country’s social-security program — moved about 40% of its total investment portfolio to a pair of MSCI benchmarks: the MSCI World Climate Paris Aligned Index and the MSCI Emerging Markets Climate Paris Aligned Index.

• We introduced MSCI Climate Action Indexes, which measure the performance of companies across industries that are taking concrete steps to reduce their emissions and reimagine their businesses for a net-zero world.

• Ilmarinen — the biggest private-pension fund in Finland — said it would adopt MSCI Climate Action Indexes as a benchmark for all internal equity portfolios.

• Singapore Exchange announced that it would license MSCI Climate Action Indexes for listed futures contracts.

• We launched MSCI?Fixed Income Climate Transition Corporate Bond Indexes, which exceed the minimum requirements of the European Union’s Climate Transition Benchmark.

Measurement and Compliance Tools

• We rolled out our Total Portfolio Footprinting tool, which provides emissions data not only on corporate issuers of equity and fixed-income securities, but also on roughly 1.9 million securitized products, 1.1 million municipal bonds, and other financial instruments.

• We released a solution that can help financial institutions align with the European Banking Authority’s ESG Pillar 3 prudential framework, which requires them to disclose climate-related risks.

• We introduced tools that can help investors screen companies for biodiversity and deforestation risks, which are closely related to climate risk. (Forests, wetlands and oceans collectively absorb billions of tons of carbon dioxide every year.)

• We launched MSCI Corporate Sustainability Insights, a solution that allows companies to measure and compare their ESG and climate data against those of their peers.

• Our Implied Temperature Rise metric was named “ESG assessment tool of the year” for “investment decisions and insights” by Environmental Finance.

• We made publicly available the Implied Temperature Rise data for MSCI indexes and more than 56,000 equity and fixed-income funds.

Research and Thought Leadership

• We released our latest Net-Zero Tracker, which shows that as of August 31, the world’s listed companies were emitting greenhouse gases at a rate that would increase global temperatures to 2.9 degrees Celsius above pre-industrial levels by the end of this century.

• We published our eleventh annual report on ESG and climate trends, exploring some of the most important sustainability issues that could shape the global investment landscape in 2023.

• A paper by MSCI researchers Afsaneh Mastouri, Rohit Mendiratta and Guido Giese on “Corporate Bonds and Climate Change Risk” was voted one of the most “outstanding articles” published in the Journal of Portfolio Management last year.

• We hosted climate events at our New York offices with the U.N.-backed Principles for Responsible Investment and with White House National Climate Advisor Ali Zaidi, who delivered an off-the-record briefing for our clients and executives.

External Partnerships

• We established a strategic partnership with Google Cloud to build a data-acquisition and data-development platform, which will help enhance our climate capabilities in areas such as geospatial and location data.

• We expanded our strategic partnership with Microsoft to support our new MSCI ONE technology platform, which underpins many of our climate offerings.

• We created a partnership with Carbon Risk Real Estate Monitor that will strengthen both our emissions data and our climate analytical capabilities.

• We joined with other members of the Glasgow Financial Alliance for Net Zero (GFANZ) to launch a proposal for a new climate-data public utility.

• We participated in several GFANZ-organized panels and roundtables at the COP27 climate summit in Sharm el-Sheikh, Egypt, while also attending the COP15 biodiversity summit in Montreal.

No matter the issue, MSCI always tries to practice what we preach. That is certainly true when it comes to climate change.

In 2021, we committed to reach net-zero GHG emissions across our operations before 2040. This past November, we announced an updated series of commitments that have been approved by the Science Based Targets initiative.

More specifically, we pledged to achieve an 80% reduction in absolute Scope 1 and 2 emissions and a 50% reduction in absolute Scope 3 emissions by 2030, compared with a 2019 baseline. (For comparison, our previous targets were a 50% reduction in absolute Scope 1 and 2 emissions and a 20% reduction in absolute Scope 3 emissions by 2035.)

To help meet these targets, MSCI also pledged that by 2025 we will:

• Reduce absolute Scope 1 and 2 emissions by 60%, compared with 2019.

• Power our operations with 100% renewable electricity, up from 94% today.

• Increase to 60% the share of our suppliers (as measured by spending) that have set science-based emissions targets, up from 36% today.

All of these commitments, described in our Climate Transition Plan, align with a global temperature rise of 1.5 degrees Celsius.

Amid a worldwide energy crisis, many people fear that climate progress will stall, or perhaps even go in reverse. Yet the IEA recently declared that “the global energy crisis has triggered unprecedented momentum behind renewables, with the world set to add as much renewable power in the next five years as it did in the past 20.”

Now is the time to harness that momentum and use it to advance low-carbon solutions across industries. Our window of opportunity for avoiding the worst climate impacts is closing, and the task will only get harder the longer we postpone it. Younger generations are asking global leaders — including business leaders — for concerted actions and meaningful results. MSCI has vowed to maximize our contributions, and we look forward to partnering with institutions of all stripes in the race to net-zero.