MSCI is a financial data provider that is also a market leader in ESG ratings. MSCI scores attempt to measure material environmental, social, and governance (ESG) risks for various companies. They seek to identify industry leaders and laggards according to their exposure to ESG risks and how well they manage those risks relative to peers.
Their ESG Ratings range from leader (AAA, AA), average (A, BBB, BB) to laggard (B, CCC). They rate stocks and bonds, loans, mutual funds, ETFs, and countries. MSCI ratings are used by the largest ESG ETFs, such as ESGU and SUSA, and by many asset management firms.
MSCI focuses on 37 key issues for each industry. For example, the environmental bucket includes carbon emissions, product carbon footprint, climate change vulnerability, raw material sourcing, biodiversity & land use, toxic emissions and waste, and opportunities in renewable energy. The social bucket includes labor management, product safety, privacy, and data security. The governance bucket includes corporate governance – which carries weight in every industry – and corporate behavior, such as business ethics. MSCI also factors in opportunities – possible positive impacts – in ESG.