Sustainability Pathways

A monthly newsletter

Welcome to Sustainability Pathways,

Many investors consider how they can balance environmental and societal costs against financial returns, but for asset owners, it's a fundamental responsibility.

The impact of investment decisions on future generations is a critical dynamic of asset owner portfolios. And with sustainability expectations evolving quickly, navigating new regulations and research can be a material challenge. We developed MSCI's new 'Sustainability Pathways' newsletter to help asset owners stay up-to-date with the latest news and on target with sustainability best practices. Our goal is to help turn ESG ambitions into reality.

In the debut issue, we examine corporate climate commitments and disclosure requirements. Markets may take time to align regulations and goals, but in the meantime, climate change won’t wait. Read about practical actions that asset owners can take today before consistent transparency rules are in place.

The watch word for Asset Owners is credibility in climate commitments. What does credibility look like?

As more and more asset owners commit to transition their portfolios to net-zero emissions, the next frontier is climate target credibility. Investors have a critical and catalytic role to play in the transition to a net-zero world by encouraging portfolio companies to map out and pursue credible plans to transform their businesses for a net-zero world.

Companies are increasingly setting net-zero targets. Of the 9,238 constituents in the MSCI ACWI Investable Market Index (IMI) as of October 2022, 36% (3,306) have set climate targets.¹

However, “not all net-zero targets are created equal,” says MSCI’s Kenji Watanabe. Some targets aim to balance carbon emissions with carbon removal. Others plan to reduce direct emissions but not those from the company’s value chain. And some targets intend to simply boost the company’s use of energy from renewable sources.

Credible climate targets have three attributes:

1.	They set targets in accordance with 1.5°C-aligned decarbonization pathways as per the latest climate science
2.	They include the complete carbon footprint (Scopes 1, 2 and 3) across the value chain
3.	They are verified by a credible, independent arbiter, like the Science Based Targets initiative (SBTi)

Learn more →

¹See ESG Trends to Watch for 2023, page 57

The Coal Conundrum: Rethinking Divestment

News

Recent developments: Asset owners are moving to low carbon-aligned indexes.

•	California State Teachers’ Retirement System (CalSTRS), one of the world’s largest pension funds, will shift 20% of its public-equity assets to track the MSCI ACWI Low Carbon Target Index.
•	New Zealand Super Fund, a sovereign superannuation provider, moved about 40% of its total investment portfolio to track the MSCI World Climate Paris Aligned Index and the MSCI Emerging Markets Climate Paris Aligned Index.
•	Ilmarinen, Finland’s largest private pension company, changed its benchmark index for all internally managed listed equity investments to the MSCI Climate Action Index. Ilmarinen made the change to hasten progress to its carbon neutral target by the end of 2035 while maintaining investments in high-emitting sectors.

Tools for today

Scrutinizing the Growing Pool of Climate Metrics

Which measures should be in your investment toolkit?

Download Report →

MSCI Indexes

Learn more about how MSCI’s indexes can help incorporate new strategies within existing portfolios, evaluate investment performance and integrate with active or passive strategies.

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Key resources for asset owners

Consider these tools to help set and achieve net-zero targets, as well as support engagement with investee companies.

Net-zero ambitions

The UN High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities has practical recommendations to help asset owners identify companies that follow best practices around emissions reduction and improve visibility of their financial risks.

Leverage data for decisions

The Net-Zero Data Public Utility from the Climate Data Steering Committee can help you understand your impact by centralizing climate transition data to give all stakeholders a better view of climate commitments and actions.

Meet your targets

MSCI’s Climate Analytical Framework underpins all our climate indexes and aims to help you make immediate allocations to assets best suited to your objectives. Index rules can be modified to suit an organization’s unique exclusions, pace and rate of decarbonization, or error tracking. The flexibility means you won’t have to switch indices if investment objectives shift.

This free email subscription is separate from and does not impact any subscriptions to the MSCI Index Announcement Service and the monthly Barra Releases Notices or News and Re-Release notices.

If you have any questions, please let us know at MarketingTeam@msci.com

Attention: Marketing, MSCI Inc. 7 World Trade Center, 250 Greenwich Street, New York NY 10007, United States

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