As MSCI moves to expand its sustainability research capability to emerging markets, its global head of index and ESG research, Remy Briand, has urged investors to dramatically improve their reporting standards to make good on their ESG cause.The broadening of MSCI’s environmental, social and governance (ESG) research into emerging markets would enable investors benchmarked to global indexes, such as the MSCI All-Country World Index, to better incorporate ESG risks in their portfolios, Briand said.
MSCI already runs a series of 23 ESG indexes for the MSCI World index, plus various countries and industries. But its acquisition of RiskMetrics, including governance specialist ISS Proxy and sustainability researcher Innovest Strategic Value Advisors, gave it a foothold in the ESG ratings market.
It has since learned that while asset owners are pressuring funds managers to take ESG risks into account, many were not fulfilling their part of the deal by providing detailed ESG reporting at the portfolio level, Briand said.
“They ask managers to manage ESG, but they’re not looking at how they’re doing.”
Reporting by asset owners provided crucial feedback for managers and stakeholders, Briand said. Without it, claims that ESG risks are taken seriously ring hollow.
As a research provider, MSCI saw reporting as important because it helped improve their offering.
“We need to understand how people are integrating ESG, because it’s not necessarily done systematically,” Briand said.
Worldwide, a shift in the ESG movement was underway, he said. Investors were moving from a “value-based” approach – in which certain industries, such as weapons manufacturing or pornography, were strictly off-limits – to an “integration” approach that took ESG risks into account – but did not set hard-and-fast rules about which companies were forbidden.