Global index provider MSCI has added further weight to the environmental, social and governance (ESG) bandwagon with a new range of fixed income factor-based benchmarks catering to the trend.
In a release last week, MSCI revealed the launch of 15 new fixed income indices that combined both factor tilts and ESG integration.
Peter Zangari, MSCI global head of research and product development, said in the statement: “Building on our four decades of experience, this next generation of indexes brings increased clarity to the traditionally opaque fixed income asset class to support ESG and Factor based fixed income strategies.”
MSCI already has a range of ESG-filtered standard fixed income benchmarks produced in association with Bloomberg.
Launched in 2017 the MSCI Bloomberg ESG fixed income indices come in four basic flavours covering ESG score-weighted, sustainability, socially responsible and green bond.
An MSCI booklet published at the time say there “has been increased recognition that ESG issues are a cross asset consideration”.
While ESG overlays have traditionally been associated with equity markets, the principles were “growing in acceptance and formal usage for the fixed income asset class as well”, MSCI says.
“With the size of the fixed income market far exceeding that of the equity market and a much more diverse set of issuers to evaluate, the overall volume of assets managed with ESG consideration is expected to grow considerably from this migration to fixed income alone,” the 2017 publication says.
Rival index providers such as FTSE Russell and S&P have also bulked up on ESG-style benchmarks across multiple asset classes although the MSCI bond-factor-ESG concoction may be a first.
Every index firm tackles the market differently with MSCI, for example, leaning on its bespoke rating system that ranks companies based on their “exposure to industry-specific ESG risks and their ability to manage those risks relative to peers”.
The MSCI methodology ranks companies on a seven-point scale ranging from AAA (or leaders) to CCC (laggards).
According to the index giant, the ESG process covers “6,400 companies (11,800 total issuers including subsidiaries) and more than 400,000 fixed income securities globally, including over 95% by market value of the Bloomberg Barclays Global Corporate Bond Index”.