Another major boost for ESG investing

MSCI rolls out principles of sustainable investing

The sustainable investing movement got another boost Tuesday when global research and data provider MSCI challenged the entire investing community to step up its game when it comes to supporting environment, social and governance causes.

MSCI’s announcement, which follows a recent proclamation by BlackRock that it is ramping up its ESG focus, includes a sustainable investing framework that identifies three core pillars for full integration: Investment strategy, portfolio management and investment research.

“What we
really wanted to highlight is the pressing need for action,” said Remy Briand,
MSCI’s head of ESG.

“There are still
a lot of investors treating the ESG topic as something they can wait on,” he

As Mr.
Briand explained it, waiting will put investors and financial advisers at a
disadvantage in terms of both ESG impact and investment performance.

“We feel there is a convergence of societal, regulatory and investor demands that make ESG a topic that has to be central to the investing process,” he said.

In terms of
the three pillars identified in MSCI’s research, the investment strategy
element calls for asset managers to integrate ESG considerations into their
processes for establishing, monitoring and revising their overall investment strategy
and asset allocation.

The portfolio management element wants ESG factors to be incorporated throughout the portfolio management process, including security selection, portfolio construction, risk management, performance attribution and client reporting.

The investment
research element also wants to see ESG considerations applied across the
research and analysis process, including when issuing recommendations.

Next-level focus

Andrew Behar, chief executive of As You Sow, a platform that analyzes and grades investments based on their ESG profiles, praised MSCI for pushing its focus to the next level.

“This is
good stuff that they’re doing,” Mr. Behar said. “For decades financial advisers
that wanted to focus on ESG investing have been saying this is a better way to
do investment management because it minimizes risk.”

The next step for MSCI will be to launch a fund-screening tool that will show the ESG characteristics of up to 10,000 funds, Mr. Briand said.

The expanded
focus by MSCI follows a statement last week by BlackRock CEO Larry Fink, who said
the $7 trillion asset manager will be making “sustainability an integral part of
portfolio construction.”

The BlackRock announcement drew both praise for the general direction and criticism for the asset manager’s history of contradictory proxy voting and for planning to continue managing broad index funds that don’t incorporate ESG factors.

“Those are
wonderful, great words coming from BlackRock, but we want to see actions,” said
Mr. Behar. “How will they be voting on climate change and CEO pay issues?”

Even though
he is less celebratory of the BlackRock move, Mr. Behar views it as progress
for ESG investing.

“Both announcements state that ESG works,” he said. “This is part of a long-term trend that has been a long time coming.”

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