One size does not fit all, so investors need to work harder on ESG strategies
Markets need more sophisticated measurement criteria to cope with the surge in demand for ESG integration.
Every investor wants environmental, social and governance (ESG) exposure, but only the largest have the resources to comprehensively assess this for themselves.
As the demand for standardized measurement grows, fixed income in particular has a lot of work to do to catch up.
In January, index provider MSCI launched a series of new fixed income ESG and factor indexes, a recognition that investor demand for ESG integration in fixed income is rapidly outpacing current offerings.
“The indices were launched to meet client demand,” explains Hitendra Varsani, factor strategist at MSCI. “Clients want to target fixed income exposures that align with their own objectives and many global asset owners are demanding ESG integration.
“There has been strong growth in equities, but the choice in fixed income is relatively more limited.”
MSCI has operated an ESG Leaders Index in the equity markets for several years and is now applying it to fixed income. It is also launching an ESG Universal Index for fixed income. These products apply ESG ratings from triple-A to triple-C; they incorporate ESG controversies consistent with international norms and screen businesses for involvement in certain activities.