“We’re doing this to protect capitalism”

Market index and information provider MSCI yesterday published “The MSCI Principles of Sustainable Investing,” in an effort to build ESG awareness in the investing community, and to promote widespread adoption of ESG integration into the investment process.

Best known for its Index and Analytics solutions, MSCI is also a leader in providing information for ESG investing, including ratings for more than 15,000 companies based on ESG criteria.

Outlining data that identifies meaningful links between ESG and financial performance at the company level, the MSCI principles call for ESG considerations to be adopted at every step of the investment process, including investment strategy, portfolio management and investment research. The guideline also outlines various approaches to ESG investing, including:

Values-based investing aims to align investments with an organization’s or individual’s ethical values by expressing preferences for what industries and companies they invest in. These preferences may take the form of values-driven exclusions, whereby these investors avoid companies involved in business activities that conflict with their ethical, religious, environmental, social or other values-based convictions. Values-driven exclusions are not implemented for financial reasons.

Impact investing targets investments to generate positive social or environmental impacts in line with the investor’s views or mission. These strategies sometimes put the positive impact at par or ahead of financial returns and, therefore, may not seek to provide superior risk-adjusted returns.

ESG integration aims to assess long-term financial risks and opportunities related to ESG issues as a core component of building a resilient and sustainable portfolio for the specific purpose of enhancing long-term risk-adjusted returns.

Source: The MSCI Principles of Sustainable Investing

Urgent warning to investors

In a CNBC interview following the release of the principles, MSCI CEO Henry Fernandez declared a sharp warning to investors:

“We are sounding the alarm bells that if you are an investment institution and you’re not embracing this and taking it into account, it’s going to be at your own peril because your portfolios are going to underperform dramatically because there’s a common repricing and common reallocation of assets around the world according to the ESG criteria.”

Mr. Fernandez described the release of the MSCI principles as an urgent calling to investors to embrace the principles of ESG investing more fully into their portfolios.

“This is not a fad,” continued Mr. Fernandez, “this is a permanent change in the way capitalism works.”