universal spotlight: Mr Potok, how does MSCI calculate the ESG rating for securities issuers?
Leonid Potok: There are 38 ESG Key Issues that we use to determine the ESG rating. That said, when you are rating ESG factors, less is often more. So we limit ourselves to between three to eight thematic areas for each issuer, which are selected according to the materiality principle. For example, if a company has serious governance failings, that will be immediately apparent from the ESG rating. This is important information for investors – it can be worth money.
How does MSCI obtain the information needed to produce the ESG rating?
Our global team of 185 experienced research analysts assesses thousands of data points across 38 ESG Key Issues, focusing on the intersection between a company’s core business and the industry issues that can create significant risks and opportunities for the company. To assess companies’ exposure to and management of ESG risks and opportunities, we collect data from the following sources:
Macro data at segment or geographic level from academic, government, NGO datasets (e.g. Transparency International, US EPA, World Bank)
Company disclosure (10-K, sustainability report, proxy report, AGM results, etc.)
Government databases, 1600+ media, NGO, other stakeholder sources regarding specific companies
Companies are invited to participate in a formal data verification process prior to publication of their ESG Ratings report. At that time, companies have the opportunity to review and comment on the facts contained in their existing MSCI ESG Ratings report, as well as to provide MSCI ESG Research any additional ESG information if they wish. This process is also in accordance with the objective of frequently updating company reports with the latest available information as provided by companies. Issuers may request to see their reports and/or to provide updates or corrections at any time.
Do you use big data and artificial intelligence when evaluating the information?
Yes, we use technology and AI, to extract investment-relevant insights from unstructured data. Machine learning and natural language processing help us increase the timeliness and precision of data collection, analysis and validation to deliver dynamic content.
Does MSCI adjust its ESG reporting to reflect regulatory changes?
We are actively engaged with regulators: MSCI ESG Research was represented in the EU technical expert group. So when there is a proposal for a new regulation, such as the EU Taxonomy Regulation, we are well positioned to help our clients to deal with the new requirements. Which is what we do.
MSCI Interview as per January 2020
Author: Robert Bluhm
Date of issue: 2/7/2020
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