DBS-24-01｢Assessing the
MSCI ESG Ratings Model｣
Jaeeun Jung, Graduate School of Business (MBA 2023), Doshisha University
Philip Sugai, Professor of Marketing, Graduate School of Business, Doshisha University

June, 2024

Abstract
This report outlines the results of mapping the MSCI (Morgan Stanley Capital International) ESG
Ratings against the Value Model, a model that has aggregated and synthesized more than 45 of theworld’s top ESG and sustainability reporting frameworks into a 7-stakeholder, 27-theme, 81-goalmodel for value creation and measurement. To do so, our research team investigated a set of MSCI’s
ESG Ratings methodology documents, especially its 33 ESG Key Issues methodologies designed by
MSCI ESG Research LLC from February to March 2024, and subsequently analyzed all the submetrics to be assessed for scoring the 33 Key Issues from the documents against our Value Model
based on the same 5 step process that were followed for the integration of all other similar
frameworks in our previous research. Overall, MSCI ESG Ratings covers all 7 stakeholders (100%),
24 of 27 themes (89%), and 58 out of 81 goals (58%) within the Value Model.

Keywords: value, value measurement, ESG, sustainability, MSCI, sustainability reportDBS Discussion Paper Series supported by the OMRON Foundation.DBS

Executive Summary
This report outlines the results of mapping the MSCI (Morgan Stanley Capital International) ESG
Ratings against the Value Model, a model that has aggregated and synthesized more than 45 of theworld’s top ESG and sustainability reporting frameworks into a 7-stakeholder, 27-theme, 81-goalmodel for value creation and measurement. To do so, our research team investigated a set of MSCI’s
ESG Ratings methodology documents, especially its 33 ESG Key Issues methodologies designed by
MSCI ESG Research LLC from February to March 2024, and subsequently analyzed all the submetrics to be assessed for scoring the 33 Key Issues from the documents against our Value Model
based on the same 5 step process that were followed for the integration of all other similar
frameworks in our previous research. Overall, MSCI ESG Ratings covers all 7 stakeholders (100%),
24 of 27 themes (89%), and 58 out of 81 goals (58%) within the Value Model.
This result shows overall coverage of all 7 stakeholders and a wide coverage of themes, nearly 90% of
the Value Model. Nevertheless, our research team found 5 notable concerns for MSCI ESG Ratings asfollows:
1) Takeaway 1: Complex and Convoluted ESG Ratings Process
We found the MSCI ESG ratings to be complex and convoluted by design, a clear indicator of value
washing. Because such complexity exists, the MSCI ESG Ratings can be abused as a tool for
subjective ESG scoring due to the barriers it for outsiders to independently check and access results.
For example, in order to score the key issue, “Biodiversity and Land Use”, more than 5 sub-indicators
should be considered such as 1) Management score, 2) Exposure score, 3) Business exposure score, 4)Business segment exposure score, and 5) Geographic Exposure score, and each sub-indicator also
needs to be calculated by applying different formulas. This complicated approach almost guarantees
that results will be calculated differently depending on the analyst, and bars assurance by outside
independent auditors. This in turn creates a new market for consultants who are paid to help
companies score better. However, a high score is not necessarily correlated with greater value creation
nor improved sustainability outcomes for the company itself or its stakeholders.
2) Takeaway 2: The High Potential for Value Washing
Although MSCI was found to address a wide range of topics related to all stakeholders and many
themes within the Value Model, we were surprised to find that 82% of the MSCI impact
measurements (72 out of 88) received only 2 points and another 18% (16 out of 88) only achieved 3
points on our 5-point impact measurement quality ratings scale. Even more concerning was that we
found none of these 88 scored 4 or 5 points. In our impact measurement quality ratings, higher points
represent that sustainability indicators are devoid of value washing potential, where lower scores open
more opportunities for businesses to value wash their sustainability efforts. Therefore, their belowaverage scores warn that their impact measurements may result in an incomplete understanding ofcorporate sustainability efforts while claiming to effectively do the opposite.
3) Takeaways 3: The Mishmash of Requirements and Missing Goals Required in Existing
Frameworks.
In addition to the risk of the value washing, we found MSCI’s sub-indicators below each of MSCI’s
33 Key Issues failed to effectively measure corporate sustainability topics. On one hand, MSCI often
and repeatedly focused on one sustainability topic from multiple viewpoints, but on the other, fail tomention 42% (34 out of 81) of Value Model goals. For example, MSCI did not include topics such asliving wages and human rights reporting in the Employee stakeholder category nor the topic of local
employment in the Society stakeholder category, both of which are prominent in the GRI framework.
1

Combining these two limitations, MSCI’s ratings do not appear to offer a holistic view of a company’s
overall sustainability activities or impacts.
4) Takeaways 4: Single Materiality, Firm and Financial Performance Focused View.
MSCI’s impact measurements heavily emphasize the views of the Firm and its Shareholders, at theexpense of other important stakeholders. This can be seen in Figure 1 below where topics related tofirm (n=7, 88%) and shareholder value (n=1, 100%) were highly represented in the MSCI ratings
while goals related to other stakeholders such as Employees (n=6, 26%), Society (n=6, 50%), andPartners (n=6, 67%) were represented in far lower levels. These results suggest that the single
materiality view, when amplified through a ratings system such as this, has overlooked a number ofkey topics and goals related to stakeholder impacts and their outcomes.
5) Takeaways 5: Absence of the Standardized Metrics and End-goals.
Finally, MSCI does not provide common standard metrics that can be applied to each impact
measurements irrespective of industry or country, except for its governance topics. Thus, it is difficult
if not impossible to compare the sustainability performance of individual companies or industries
based on their MSCI ratings. Additionally, at no point in time does MSCI present a set of clear endgoals and then benchmark corporate performance against these. For example, while Biodiversity isclearly highlighted throughout the MSCI scoring, at no point is a Biodiversity end goal given and thenused to benchmark corporate performance against.

MSCI's Goal Coverage by Stakeholder
120%
100%

88%
73%

80%

67%
50%

60%
40%

100%
83%

26%

20%
Sh
ar
eh
ol
de
r

Pa
rtn
er

C
us
to
m
er

Fi
rm

So
ci
et
y

N
at
ur
e

Em
pl
oy
ee

0%

Figure 1. MSCI's Goal Coverage by stakeholder against VM

Since MSCI’s ESG Ratings service has been in existence since 1999, this model has great influenceon assessing the sustainability performance of companies in the ESG Rating market. However, for allof the ratings given, carbon emissions and negative biodiversity impacts have increased significantly
over this same time period. Because of this, we fear that MSCI ESG Ratings have become a platform
for widespread value washing by corporations, rather than a system to reduce impacts, increasesustainability performance outcomes and overall value creation across a company and its
stakeholders.

2

To understand what the MSCI ESG ratings actually measure across their 33 key issues and the overallvalue of this system to understand sustainability impacts and the value created from them, we havemapped these against the 7 stakeholders, 27 themes, and 81 goals of the Value Model.
It should be noted that this assessment has been conducted independently of any government,
corporation or outside third party, and funding for this research was generously provided by a
Doshisha University SDGs support fund from April 2023 – March 2024.
Introduction
MSCI Inc. is an American finance company that globally provides equity, fixed income, real estate
indices, multi-asset portfolio analysis tools, ESG and climate products. In line with their mission, “topower better investment decisions”, MSCI has over 50 years of expertise in research, data, andtechnology to analyze corporate risk and return for its global investment clients. In this context, MSCIESG Ratings provide expert insights on corporate management capabilities on critical ESG-related
financial risks and opportunities from an investor’s perspective.
This ESG rating system is built as a hierarchy, consisting of 3 pillars (Environmental, Social,
Governance), 10 themes, and 33 ESG Key Issues. According to its own ESG Ratings Methodology
documents, key features of the MSCI ESG ratings service include:
•

•

•

•

MSCI ESG Ratings are industry-relative measures, providing company ratings using a seven-band
scale from AAA (the highest rating) to CCC (the lowest rating) which are based on the relative
assessment results to a company’s industry peers.
Companies are assessed by their relevant key issues (ranging from 2 – 7) in Environmental andSocial areas, which are selected according to the company’s exposure to material risks determinedby industry and market specific factors.
Unlike the Environmental and Social areas, all companies are evaluated on the Governance Key
Issues through an absolute assessment and deduction-based scoring. If a deduction factor is found,a company can use up to 10 points from their total score.
To assess company ESG performance, MSCI collects raw data from various secondary sources suchas a company’s financial and sustainability disclosures, third-party data sets published bygovernments, academic journals, the media, and its own or outside analysts. MSCI rankings are
therefore not solely based on data provided by companies themselves.

The Value Model as a “Health Check” for Companies’ Sustainable Performance
The Value Model consists of 7 stakeholders, 27 themes, 81 goals with clear KPIs for value
measurement, and benchmarks sustainability performance across and between different companies.
Because it offers a goal-based approach to multistakeholder value measurement derived from morethan 45 of the world’s top ESG and sustainability reporting frameworks, it provides transparent,
objective guidance for businesses and their leadership team to (1) understand their overall stakeholder
impacts in context, and (2) create forward looking strategies for future value creation activities basedon these.
To conduct this analysis, we accessed MSCI ESG Ratings Methodologies documents from February
to March 2024 and mapped all the 33 MSCI’s Key issues presented in the ESG Ratings model andscored them in two ways. First, we assessed their coverage of Value Model stakeholders, themes andgoals, and second we then scored the quality of each of the MSCI Key Issues in terms of their ability
to remove value washing when used to score another company’s ESG and sustainability performance.
3Section 1. MSCI’s Overall Coverage against Value Model
MSCI ESG Ratings Coverage by Stakeholders
Beginning with the positive elements of our assessment, MSCI should be commended for its broad
stakeholder coverage, as its 33 Key Issues in aggregate spanned across all Value Model stakeholders,and a commendable 89% of Value Model themes. As outlined in Table 1 below, the detailed contentsof the MSCI Key Issues cover all seven stakeholders and 24 themes out of the Value Model’s 27(89%). In particular, themes within the Nature, Society, Firm, Customer, and Shareholder stakeholder
categories were found to be 100% covered, and the other two areas, Employee (n=4) and Partner(n=3) presented also highly respectable coverage results with 67% and 75% against the Value Model.
Such a broad coverage of stakeholders and themes by MSCI may be interpreted as a sign of its
holistic view of companies’ sustainable performances related to all 7 stakeholders’ value, andconversely helps once again confirm the alignment with the Value Model with global sustainability
frameworks, standards and ratings systems.
While MSCI should be applauded for these high-level results, when looking more closely within these
themes at the overall coverage of the 81 Value Model goals, unfortunately, they are still missing 34
goals (42%) out of the total 81 goals from the Value Model. As outlined in Table 1 below, MSCI
meets 58% or 47 goals in total against the Value Model and in particular, two stakeholders including
the Firm (n=7, 88%) and Shareholders (n=1, 100%) were found to cover approximately 90% or moreof the Value Model goals included within them. However, the goal coverage rates in other stakeholder
categories were found to have significant room for improvement, with coverage of Employee-related
goals only at 26% (n=6), Society at only 50% (n=6), and Partner at 67%. Details of MSCI’s overall
Value Model goal coverage is outlined in Appendix 1.

Theme Coverage
MSCI

Goal Coverage

VM

%

MSCI

VM

%

All Stakeholder

24

27

89%

47

81

58%

Employee

4

6

67%

6

23

26%

Nature

6

6

100%

16

22

73%

Society

4

4

100%

6

12

50%

Firm

3

3

100%

7

8

88%

Customer

3

3

100%

5

6

83%

Partner

3

4

75%

6

9

67%

Shareholder

1

1

100%

1

1

100%

Table 1. MSCI Overall Coverage against the Value Model

Missing Goals Required Reporting in Existing Frameworks
These results show that MSCI emphasizes two stakeholders, the Firm and its Shareholders above allothers, and despite its significant coverage achievement in these two areas, its overall coverage ofValue Model goals remains at only 58% (n=47). This unbalanced emphasis on the Firm and4

Shareholder should be noted because MSCI’s ratings do not currently measure a company’scomprehensive sustainability efforts across all stakeholders emphasized by many of the world’s top
ESG and sustainability reporting frameworks and standards. The examples in Table 2 below
demonstrate that MSCI neglects a number of important topics related to various Value Model goals.
We find these omissions surprising because Value Model goals are derived directly from existing
disclosure standards and frameworks suggesting that regulators and investors are not aligned in theirinterests within important sustainability topics. Using just the Global Reporting Initiative (GRI)
disclosure framework as an example, Table 2 below shows examples of this misalignment across a
few important topics:
Missing goal

GRI Indicator

E1-C: Gender Diversity and Equitybased policy

Disclosure 202-1
Ratios of standard entry level wage by gender compared to
local minimum wage.

E2-A: Transparent Reporting on
Employees

Disclosure 2-7 Employee
Disclosure 401-1 New employee hires and employee
turnover.

E3-C: Family/Medical Leave

Disclosure 401-3
Parental leave: Employees entitled to parental leave means
those employees that are covered by organizational policies,
agreements or contracts that contain parental leave
entitlements.
To determine who returned to work after parental leave
ended and were still employed 12 months later, anorganization can consult records from the prior reporting
periods.

E5-C: Freedom of Association

Disclosure 2-30: Collective bargaining agreements

E6-A: Human Rights Reporting

Disclosure 2-25: Process to remediate negative impacts

E6-B: Human Rights Corrective
ActionDisclosure 410-1
Security personnel trained in human rights policies orprocedures: can refer either to training dedicated to thesubject of human rights or to a human rights module within ageneral training program. Training can cover issues such as
the use of force, inhuman or degrading treatment or
discrimination, or identification and registering.

S3-A: Local Employment

Disclosure: 202-2
Proportion of senior management hired from the local
community

P1-A: Report on Stakeholder
Structure in the Supply Chain

Disclosure 2-29: Approach to stakeholder engagement
Disclosure 102-40: List of stakeholder groups
Disclosure 102-42: Identifying and selecting stakeholders.
Disclosure 102-43: Approach to stakeholder engagement
Disclosure 102-44: Key topics and concerns raised

Table 2. MSCI’s Missing goals required by GRI framework related to social domain stakeholders.
If MSCI Ratings are truly a proxy for a company’s sustainability practices, highlighting both risks andopportunities for investors beyond financial measures, it is clear that a number of key topics remain
hidden and out of view of investors, and such coverage gaps should be addressed in future iterationsof the MSCI Ratings.
5

Single Materiality Perspective: Firm and Shareholder Focused Indicators
MSCI’s ESG Ratings model has been created based on the Single Materiality view of sustainability
disclosure which dictate that ESG risks and opportunities should only be assessed in terms of how
these impact the company and its financial performance without integrating the additional view of
how businesses in turn impact their stakeholders, or the Double Materiality view.
This Single Materiality perspective underlying the MSCI’s key issues’ impact measurements can beseen across all Environmental, Social, or Governance issues in their ESG scoring approach. Table 3
shows how this difference of perspective affects data collected and disclosed. For example while
MSCI calls “Climate Change Vulnerability” an environmental topic, carefully reading the details of
the data that they collect and use to score this topic shows in fact that this is firm-specific dataaccording to the Value Model. This is because it only includes management’s views and actions
related to mitigating climate risks to the company (a Firm-specific view) rather than climate specificactions taken to reduce negative impacts on Nature (a Nature-specific view). Three other examples are
similarly shown for comparison and illustrative purposes.

MSCI Key Issue

MSCI Pillar

Related Text in the documents

The Climate Change
Vulnerability

Environmental

Financing
Environmental Impact

Environmental

Opportunities in
Nutrition & HealthSocialResponsible
Investment

SocialCompanies are assessed on the physical risk thatclimate change may pose to insured assets orindividuals.
Financial institutions are evaluated on theenvironmental risks of their lending andunderwriting activities and their ability to capitalize
on opportunities related to green finance.
Companies are evaluated on their positioning tomeet market demand for products with improved
nutritional or health profiles.
Companies are evaluated on their integration ofenvironmental, social and governanceconsiderations in the management of their own
assets or the assets they manage on behalf ofothers.

RelatedStakeholder
Firm

Firm, Nature

Firm,
Customer
Firm,
Shareholder

Table 3. The examples of Mistaken Labels
ESG Ratings based on Single Materiality can in fact help investors understand an organizations’sustainability efforts. But because this perspective prioritizes the interests and viewpoints of thecompany management or shareholders over its other key stakeholders, it creates the risk of value
washing the actual impacts that companies have. “Value washing” is defined as “actions taken byorganizations to misrepresent value outcomes for themselves or their stakeholders”, and manifested
through (1) the absence of clear goals, (2) the absence of objective measures of these goals, (3) the
absence of transparent reporting, (4) the absence of impartial, third party feedback loops, and (5) acomplexity of terms, systems or words used in sustainability reports (Sugai, 2021)1.
Based on these five elements of value washing, we next measured the quality of all 33 Key Issues
within MSCI’s rating system according to our impact data quality scoring approach, which ranges

1

Sugai, P. (2021). The Definition, Identification and Eradication of Value Washing. Journal of Creating Value, 7(2), 165-169.

6

from 0 points for highest value washing potential to 5 points for lowest value washing potential.
Scores are given as follows:(1) Does the impact measurement have clear goals (No = 0 points, Yes = 1 point)(2) Does the impact measurement show evidence that it can be objectively measured? (No = 0 points, Yes =1 point)(3) Does the impact measurement show evidence that it can be transparently confirmed by an independent
outside 3rd party? (No= 0 points, Yes, but no clear evidence it is currently being done = 1 point, Yes, withclear evidence it is currently being done = 2 points). For example, an impact measurement for plastic
pollution would typically score 1 point, as it “could” be independently verified by an outside 3rd party
but there is currently no trusted 3rd party that does this. While metric tons of carbon emissions would
receive 2 points as there are verified independent auditors who do this (for example, those certified by
the UNFCCC).
(4) Does the impact measurement use a scale variable rather than a binary, yes/no answer? (No = 0 points,
Yes = 1 point)7Section 2. Quality and Coverage of Impact Measurements in MSCIIn order to analyze the possibility of value washing potential embedded within MSCI’s impact
measurement system, we first collected the complete documentation for all of their 33 Key Issues
from the MSCI website. In our initial review, we found that within these 33 Key Issues, there were
multiple sub-issues mixed together, and for clarity in our own scoring of the MSCI ratings, we further
separated their 33 Key issues into 88 sub-issues. We then mapped these 88 sub-issues against the 7
stakeholders, 27 themes and 81 goals from the Value Model. Details of these 88 sub-issues identified
on the basis of our Value Model within the 33 key issues designed by MSCI presents in Appendix 2.
After mapping the 88 sub-issues within the 33 key issues against Value Model’s goals, we scored eachof these according to the scoring approach outlined above. Within each Key Issue, we found on
average that these included 3 representative Value Model goals, making our scoring difficult andcumbersome. To illustrate the complexity of scoring the MSCI ratings using a standardized approach,we have listed some Key Issues that included more than 3 value model goals in Section 3.
After scoring each of the impact measurements categorized by stakeholders against the Value Model,
we calculated a "total points" score by adding the points earned across all of them. We thendetermined a "total possible" score by multiplying each impact measurement by the maximum scoreof 5 points. By dividing the total points score by the total possible score, we arrived at the overall
score, which we presented as the percentage of total possible points that MSCI achieved.
Impact Measurement Quality Coverage by Stakeholder
Table 4 presents the quality coverage data across the 7 stakeholders against Value Model. Most of the
stakeholders’ quality coverage achievement lie between 40 and 50 % and even the two highest
stakeholders’ areas such as Firm and Shareholder achieved 50% (n=57) and 53% (n=8) of the full
impact measurement quality potential. This poor result is obviously due to the fact that 72 impact
measurements (82%) from the MSCI’s documents received 2 points and the other 16 impact
measurements (18%) scored 3 points out of the total possible score, 5 points. This remarkably low
quality of impact measurements shows the high potential for value washing with the MSCI Ratingssystem, which is in stark contrast to the wide coverage that they showed for Value Model stakeholders
and themes.
MSCI Quality Coverage by Stakeholder
Stakeholder

2 points

3 points

Total

VM

%

Employee

7

0

14

35

40%

Nature

25

0

50

125

40%

Society

8

2

22

50

44%

Firm

12

11

57

115

50%

Customer

9

0

18

45

40%

Partner

10

1

23

55

42%

Shareholder

1

2

8

15

53%

Total

72

16

192

440

44%

Table 4. MSCI’s impact measurement quality coverage by stakeholders
8Value Washing Possibility under the Guise of Assessment
As discussed earlier, while MSCI generally achieved wide coverage of topics related to thestakeholders, themes, and goals within the Value Model, we found it quite disappointing that 72
impact measurements (82%) received only 2 points and another 16 impact measurements (18%)
merely scored 3 points out of the total 5 points as shown in Table 5. Even more discouraging, none of
their impact measurements achieved 4 or 5 points (Figure 2), which shows high potential of value
washing in MSCI’s ESG ratings model. Here, higher points represent sustainability indicators that are
devoid of value washing potential, where lower scores open more opportunities for businesses tovalue wash their sustainability efforts.
Value Washing
Score

%
0%
0%
82%
18%
0%
0%
100%

0
1
2
3
4
5
Total

No. of impact
measurement
0
0
72
16
0
0
88

Table 5. Distribution of MSCI value washing score
To understand the severity of this finding, MSCI is of the most widely adopted and trusted
sustainability rating agencies in the world. Businesses globally hire teams of consultants to help them
improve their MSCI ratings and collections of high-scoring companies are bundled into portfolios andindices. However, with such high potential for value washing, the underlying risks of ratings being outof line with actual impacts is similarly high. Towards this end, and based on our assessment above, it
is difficult to conclude that a high MSCI ESG rating actually correlate with true value creation across
a company’s stakeholders. This result aligns with other academic articles (c.f. Pucker & King, 2022)
that have been dubious about the connection between ESG ratings and financial performance.2

MSCI Value Washing Possibility
100%

82%

80%
60%
40%
20%
0%

18%
0%

0%

0

1

2
3
Impact Quality Score

0%

0%

4

5

Figure 2. MSCI value washing possibility.

2

Pucker, K., & King, A. (2022). ESG investing isn't designed to save the planet.

9Through this mapping of MSCI’s Key Issues and related impact measurements against the Value
Model, we have reached the conclusion that the MSCI ESG Ratings could be improved to remove all
possibilities for value washing, specifically by enhancing their ratings methodology to be 1)
independently checkable, 2) objectively measured, and to provide 3) clear end-goals. More discussion
on each of these suggested improvements are outlined in the next section of this report.

10Section 3. Recommendations for Improvement
While MSCI’s overall coverage of stakeholders and themes is respectable, they have unfortunately
overlooked 34 (42%) Value Model goals especially in the Employee, Society, and Partner stakeholder
categories. More importantly, the quality of their impact measurements were found to be severely
lacking. To address these points, we suggest the following improvements be made to the overall
MSCI ESG Ratings methodology:
Recommendation #1: Reduce Complex and Convoluted ESG Ratings Process
As discussed earlier, MSCI mixes various indicators and metrics into each of their Key Issues, using
various formulas and metrics in order to calculate a score for each. For example, one of the MSCI’S
key issues in the Environmental area, “Biodiversity and Land Use” requires more than 5 subindicators to evaluate it. Additionally, this key issue is calculated with 2 constants: An Exposure scoreand a Management score (Figure 3), and each of these in turn is calculated with different formulaswith their own unique sub-indicators. Continuing further, one of these sub-indicators, the “Exposure
score” is calculated by combing another 2 what we’ll call “sub-sub-indicators” including a Business
Exposure score and Geographic Exposure score (Figure 4). To continue even further, one of these subsub indicators, the Business Exposure score is defined using another formula and set of sub-metrics
including 1) a Business Segment Exposure Score for the business segment, 2) the weight of thatbusiness segment for the company based on its contribution to total company assets, and 3) the
number of business segments within the overall company (Figure 5). As expected, theses sub-sub-sub
metrics also require different formulas and variables for scoring them, but these are omitted due to thelimitations of this paper's space.

Figure 3. The formula for Biodiversity & Land Use Key issue score

Figure 4. The formula for the Exposure score in Biodiversity & Land Use key issue

11

Figure 5. The formula for the Business Exposure score in Biodiversity & Land Use key issue

For an outsider, this complex process may make it look like MSCI is using a highly advanced
scientific method which takes into consideration many metrics and sub-indicators to assess each
MSCI Key Issue. However, their model does not provide a clear explanation of these calculations nor
does it provide a replicable if/then relationship between an impact measurement and a final MSCIESG Rating score. That is to say, if score X goes up, we have no idea how the final result Y will becalculated. Thus, it is almost impossible for outsiders to check independently, and may requires a teamof analysts to figure out what needs to be done in order to score well. This creates a market for ESG
Ratings Institutions like MSCI but does not in fact lead to greater value creation for a firm’s multiple
stakeholders.
Why this matters: If the MSCI Ratings system is so complex, subjective and opaque, performancemeasurement dashboards with clear, consistent benchmarks that can be used to compare and contrast
corporate performance and achievement of the various sustainability goals are impossible to develop
and implement.
Complexity by design such that a PhD and a team of academic researchers are required to make senseof how sustainability topics can be measured and scored is not a winning formula for addressing ourmost important sustainability challenges, nor for creating value across a company’s stakeholder
ecosystem. While sustainability consultants and sustainability data businesses may flourish undersuch a complex system, we do not believe that this is the point of corporate sustainability practices
today or of successful ones in the future.
Recommendation #2: Transform the Mishmash of Requirements into Clear, Logical andReasonable Objective Measurements of Sustainability Impacts and Outcomes
In addition to the highly complicated formulas used to assess a company’s sustainability performance,
MSCI’s overlapping requirements in each of their Key Issues also hinders the rigorous measurementof corporate sustainability performance. MSCI frequently mixes too many requirements within one
Key Issue, which are then in turn discussed repeatedly throughout many other of their 33 Key Issues.
For example, one of the MSCI’s social key issues, “Community Relations” covered 6 different goals
related to 4 different stakeholders within the Value Model all at the same time, including (1) Healthy,
Safe, Resilient Community, (2) Transparent Social Reporting, and (3) Local Value Chains in theSociety stakeholder category, (4) Suppliers and Distributor Impact Reporting in the Partner
stakeholder category, (5) Human Rights Training in the Employee stakeholder category, and (6)Biodiversity Impact in the Nature stakeholder category. Among these, the “Healthy, Safe, Resilient
Community” goal was found to be included multiple times within other parts of the MSCI’s ranking
system, including its Key Issues of: (A) Consumer Financial Protection, (B) Access to Finance, (C)12Access to Health Care, and (D) Opportunities in Nutrition & Health. Table 6 presents more examples
that show how one Key Issue includes various goals from the Value Model.
Why this matters: By definition sustainability is a complex issue and because of this clearly defined
metrics are a requirement for proper measurement and management of any sustainability topic. By
mixing together so many issues, measures and weights into the MSCI Key Issues, in the end wecannot be sure what is truly being measured, and to what extent results from one company can becompared to others or even that one company’s performance in one year can be used to benchmark its
own sustainability performance in subsequent years.
What is most disappointing here is that MSCI is so deeply embedded in the finance industry that itself
thrives on consistent reporting of financial metrics such as profits, earnings, ROA, ROI, etc. That thissame level of rigor has not been applied to their ESG ratings is both surprising and disappointing,especially as MSCI has the market power to immediately address such shortcomings, and that doing
so would immediately change how businesses globally measure and report on their sustainability
performance.

RelatedStakeholders

MSCI Key Issue

Related Value Model Goal

Community
Relations

Healthy, Safe, Resilient Community, Transparent
Social Reporting, Local Value Chains, Suppliers andDistributor Impact Reporting, Human Rights
Training, Biodiversity Impact
Data Security, Customer Privacy, Governance
Reporting, Human Rights Training, Supporting
MSMEs, VCSEs, MWOBEs, and/or SDVOBs
through education and training
Suppliers and Distributor Impact Reporting, Audited
Fair labor practices throughout supply chain anddistribution channels, Sustainable Sourcing of Raw
Materials, Truth in Labeling

Privacy & Data
Security

Controversial
Sourcing

Society, Partner,
Employee, Nature

No. ofgoals
included
6

Consumer,
Employee, Firm,
Partner,

5Partner,
Environment,
Customer,

4

Table 6. MSCI’s Key issues included various goals.
Based on what we have learned from our analyses, we therefore cannot with any level of confidence
believe that that even two experienced analysts using the exact same MSCI ESG scoring methodology
on the exact same company data would arrive at the same scores at the end of their analyses. We
would welcome any feedback from MSCI or analysts who regularly work with their ratings
methodology to prove our concerns to be wrong. But until that time, we would recommend thatanyone basing investment decisions on the MSCI ESG Rankings to carefully review their
methodology documentation to reach their own conclusions as to the validity and veracity of results
achieved through them.
Recommendation #3: Development of Standard Metrics and End-goals
Lastly, MSCI ESG Ratings lack clear objectives or end-goals that companies can use to benchmark
their performance against for greater value creation today or in the future. For example, one of theEnvironmental key issues “Opportunities in Clean Tech”, present its target, “to increase investment inclean tech” in the Management score category, which is unclear and not a specific goal, lacking astandardized measurement method. Moreover, there are no common metrics that can be applied to all
13

Key Issues regardless of the types of business, industry, or country, except for their governance issues.
Such an approach might be effective when comparing the financial risk of companies within the same
industry or similar geographical market. However, it will be very difficult to apply this approach todifferent companies from different industries or markets.
Why this matters: Is the purpose of the MSCI ESG Ratings to (1) improve sustainability related
outcomes and the value generated from them or (2) to generate data on ESG topics that can be
consumed and sold for profit? If the former, then MSCI should continuously work to develop clear
end goals that could then be used to benchmark corporate sustainability performance against. If thelatter, then it is important for all industry players to be clear about this and not conflate the first withthe second. We of course also hope that the true purpose of this system is aligned with #1 above, andthat in turn, our feedback can be considered constructive and supportive of future changes.

Conclusion
The MSCI ESG Ratings model focuses on the scoring of topics related to how effectively individualcompanies and their competitors manage ESG-related risks and opportunities against larger industry
and country performance benchmarks. For this reason, MSCI excels in its coverage of Firm andShareholder issues, in particular, governance structures and economic value added. Additionally,
MSCI covers most all stakeholders and themes covered within the Value Model (100% coverage by
stakeholder, 89% coverage by themes on average). However, 34 Value Model goals (42%) are missing
from their coverage of sustainability topics
More importantly, all of MSCI’s impact measurements scored either 2 or 3 out of 5 possible points
when measured against our impact measurement quality scoring system. Such surprisingly low scoressuggest that MSCI ESG Rankings can be used as a value washing tool masquerading as an ESG
performance assessment. We have also found that MSCI’s convoluted approach to ratings,
complicated requirements, lack of end-goals, and highly variable processes must be improved if their
aim is to truly provide meaningful insights into a company’s, industry’s or market’s commitment tosustainable practices and impacts.
MSCI has been a global leader within the ESG Rating market for decades, and considering their
dominance, we are deeply concerned that MSCI ESG Ratings can be used as a platform forwidespread value washing. Thus, we strongly recommend that organizations or investors who use
such ESG Ratings do so understanding both their strengths and limitations. Moreover, we hope that
our findings prompt the broader sustainability assessment and ratings industries to shift theirperspective to measuring actual multi-stakeholder impacts in simpler, clearer and more straightforward ways. Such a change would enable us to celebrate companies that create increasing levels ofvalue for themselves and their stakeholders in aggregate, rather than those that simply report on theirperformance. By championing more simple, standard, evidence-based assessments, futuresustainability discussions and efforts could be refocused on actually achieving the sustainability
outcomes that we consistently discuss, but collectively have yet failed to achieve.

14Appendix 1. MSCI’s Goal Coverage by stakeholders*Dark color: covered goals, white color: uncovered goals by MSCI
81 Value Model Goals

Stakeholder

Employee

NatureSociety

Firm

E1-A Full-time
Employment

E1-B Ethnic Diversity

E3-E Occupationalsafety and Health
Coverage

E3-F
E4-A Training and
Employee Mental health Education
and wellbeing

E4-B Performance
Feedback and Review

N1-A Carbon Neutral

N1-B Zero non-GHG air N1-C Zero Plastic
emissions
Pollution

N1-D 100% Waste
N1-E Zero Sound andreclamation & recycling Light disturbances

N4-B Sustainable
Sourcing of Raw
Materials

N4-C Products with
Positive Societal andEnvironmental Impact

N4-E Efficient
Transportation

N5-A Biodiversity Impact N5-B Humane,
N5-C 100% Sustainably N6-A Transparently
Compassionate
Sourced Palm Oil
Reported Building andTreatment of All Animals
Land Use

N6-B 100% certified
safe & accessiblebuildings

N6-C 100% of newbuildings are carbon
neutral

S1-A Transparent tax
reporting

S1-B Appropriate Taxes S2-A Healthy, Safe,
Paid
Resilient Community

S2-B Benefit-based
capital spending

S2-C Transparent Social S3-A Local Employment S3-B Local Ownership
Reporting

S3-C Equitablepurchasing

S3-D Local Value
Chains

S3-E Supporting Local
Youth

F1-A Transparent
reporting on financial
performance

F1-B Government
relationship

F2-A Mission Driven

F2-B Governance
Reporting

F2-C Board
Composition

F3-A Positive EVA

C1-A Truth in Labeling

C1-B Truth inAdvertising

C2-A Data Security

C2-B Customer Privacy C3-A Customer
Satisfaction

C3-B Customer Health &SafetyP2-A Supporting
MSMEs, VCSEs,
MWOBEs, and/or
SDVOBs throughbusiness partnerships

P2-B Supporting
MSMEs, VCSEs,
MWOBEs, and/or
SDVOBs througheducation and training

P3-B Environmental and P3-C Supply Chain
Social operating
Carbon Certification
requirements

CustomerPartner

Shareholder

P1-A Report on
P1-B Report on Supply
Stakeholder Structure in Chain Diversity, Equity
the Supply Chain and and Inclusion
Distribution Channel

E1-C Gender Diversity E1-D Broad Diversity
E2-A Transparent
E2-BTransparent
and Equity-based policy and Representativeness Reporting on Employees Reporting on Wagesof employees

N4-D Efficient
Packaging

E5-A Turnover,E5-B Work Flexibility
Inclusion & Engagement

P3-A Suppliers andDistributor Impact
Reporting

E2-C Living Wage

E2-D Employee
Healthcare

E3-A Physical Health

E3-B Retirement
Provision

E3-C Family/Medical
Leave

E5-C Freedom of
Association

E5-D Employee
Ownership

E6-A Human Rights
ReportingE6-B Human Rights
Corrective Action

E6-C Human Rights
Training

N2-C Discharge water
quality

N3-A Energy
N3-B Renewable Energy N3-C Carbon Neutral
Consumption Reporting Use
Products

N2-A Water
N2-B Water use
infrastructure interaction reporting
strategy

F2-D Outside Director
Ratio

SH1-A
Positive EVA

15

F2-E Zero Corruption

P4-A Audited Fair labor
practices throughout
supply chain anddistribution channels

P4-B Living wage paidby all suppliers anddistributors in partner
network

S4-A Community
volunteering

E3-D Employee
Healthcare

N4-A Transparently
Reported ProductImpact

S4-B Charitable giving

Appendix 2. Mapping MSCI Key Issues & Sub-Issues against Value Model Goals
Pillar No.

1

Carbon Emissions

2

Climate Change
Vulnerability

3

Financing Environmental
Impact4

5

6E

MSCI Key Issues

7

8

9

10

Product Carbon Footprint

Biodiversity & Land Use

Raw Material Sourcing

Water Stress

Electronic Waste

Packaging Material &Waste

Toxic Emissions & Waste

11

Opportunities in Clean Tech

12

Opportunities in Green
Building

13

No. Sub-Issues Identified

VM Goals Mapped

1 Carbon neutral-specific

N1-A :Carbon Neutral

2 Renewable energy - specific

N3-B :Renewable Energy Use

3 Governance reporting- specificF2-B :Governance Reporting

4 Mission driven- specificF2-A :Mission Driven

5 Positive impact product-specific

N4-C :Products with Positive Societal and Environmental
Impact6 Carbon neutral product-specific

N3-C : Carbon Neutral Products

7 Carbon neutral-specific

N1-A :Carbon Neutral

8 Raw material sourcing-specific

N4-B :Sustainable Sourcing of Raw Materials

9 Biodiversity impact- specific

N5-A :Biodiversity Impact

10 Transport reporting-specific

N6-A :Transparently Reported Building and Land Use

11 Water use reporting-specific

N2-B :Water use reporting

12 Raw material sourcing-specific

N4-B :Sustainable Sourcing of Raw Materials

13 Palm oil- specific

N5-C 100% Sustainably Sourced Palm Oil

14 Labeling- specificC1-A Truth in Labeling

15 Water strategy- specific

N2-A : Water infrastructure interaction strategy

16 Water use reporting- specific

N2-B :Water use reporting

17 Mission driven- specificF2-A : Mission Driven

18 Waste recycling- specificN1-D :100% Waste reclamation & recycling

19 Positive impact product-specific

N4-C :Products with Positive Societal and Environmental
Impact20 Efficient packing- specific

N4-D : Efficient Packaging

21 Waste recycling- specificN1-D :100% Waste reclamation & recycling

22 Plastic pollution- specific

N1-C :Zero Plastic Pollution

23 Non-GHG emission- specific

N1-B : Zero non-GHG air emissions

24 Governance reporting- specificF2-B: Governance Reporting

25 Operating requirement- specificP3-B :Environmental and Social operating requirements.

26 Financial reporting-specificF1-A :Transparent reporting on financial performance

27 Positive impact product-specific

N4-C :Products with Positive Societal and Environmental
Impact28 Safe & accessible building- specificN6-B: 100% certified safe & accessible buildings

29 Building & land reporting- specific

N6-A: Transparently Reported Building and Land Use

30 Renewable energy - specific

N3-B :Renewable Energy Use

Opportunities in Renewable
Energy31 Government relationship- specific16

F1-B : Government relationshipPillar No.

14

MSCI Key Issues

Health & Safety

15 Human Capital Development

16

17

18

S

19

20

21

22

23

24

Labor Management

Supply Chain Labor
Standards

Chemical Safety

Consumer Financial
Protection

Privacy & Data Security

Product Safety & Quality

Responsible Investment

Community Relations

Controversial Sourcing

No. Sub-Issues Identified

VM Goals Mapped

32 Employee safety-specificE3-E: Occupational safety and Health Coverage

33 Goverance reporting- specificF2-B :Governance Reporting

34 Fair labor in partner- specificP4-A: Audited Fair labor practices throughout supply chain& distribution channels

35 Employee Inclusion- specificE5-A Turnover, Inclusion & Engagement

36 Employee training- specificE4-A Training and Education

37 Performance feedback- specific

E4-B Performance Feedback and Review

38 Employee living wage-specific

E2-C Living Wage

39 Employee training- specificE4-A Training and Education

40 Retirement- specific

E3-B Retirement Provision

41 Fair labor in partner- specificP4-A Audited Fair labor practices throughout supply chain& distribution channels

42 Living wage in partner-specificP4-B Living wage paid by all suppliers and distributors inpartner network

43 Supporting partners- specificP2-B Supporting MSMEs, VCSEs, MWOBEs, and/or
SDVOBs through education & training

44 Customer health- specificC3-B Customer Health & Safety

45 Labeling- specificC1-A Truth in Labeling46 Product impact reporting- specific

N4-A Transparently Reported Product Impact

47 Advertising- specificC1-B Truth in Advertising

48 Healthy community- specific

S2-A Healthy, Safe, Resilient Community

49 Data security- specific

C2-A Data Security

50 Customer privacy- specificC2-B Customer Privacy

51 Goverance reporting- specificF2-B Governance Reporting

52 Customer health- specificC3-B Customer Health & Safety

53 Advertising- specificC1-B Truth in Advertising

54 Partner impact reporting- specificP3-A Suppliers and Distributor Impact Reporting

55 Firm EVA- specificF3-A Positive EVA (Firm)/EVA (Industry) ratio

56 Shareholder EVA- specific

SH1-A Positive EVA

57 Goverance reporting- specificF2-B Governance Reporting

58 Healthy community-specific

S2-A Healthy, Safe, Resilient Community

59 Social reporting- specific

S2-C Transparent Social Reporting

60 Partner impact reporting- specificP3-A Suppliers and Distributor Impact Reporting

61 Partner impact reporting- specificP3-A Suppliers and Distributor Impact Reporting

62

P4-A Audited Fair labor practices throughout supply chain& distribution channels

Fair labor in partner- specific63 Raw material Sourcing-specific17

N4-B Sustainable Sourcing of Raw Material

Pillar No.

25

S

26

27

28

29

30

MSCI Key Issues

Access to Finance

Access to Health Care

Opportunities in Nutrition &HealthBoard

Pay

Ownership & Control

G
31

32

33

Accounting

Business Ethics

Tax Transparency

No. Sub-Issues Identified

VM Goals Mapped

64 Healthy community-specific

S2-A Healthy, Safe, Resilient Community

65 Goverance reporting- specificF2-B Governance Reporting

66 Charitable giving- specific

S4-B Charitable giving

67 Healthy community- specific

S2-A Healthy, Safe, Resilient Community

68 Local value chain- specificS3-D: Local Value Chains

69 Supporting partners- specificP2-A: Supporting MSMEs, VCSEs, MWOBEs, and/or
SDVOBs through business partnerships

70 Customer health- specificC3-B Customer Health & Safety

71 Goverance reporting- specificF2-B Governance Reporting

72 Healthy community-specific

S2-A Healthy, Safe, Resilient Community

73 Goverance reporting- specificF2-B Governance Reporting

74 Board composition- specificF2-C Board Composition

75 Zero corruption- specificF2-E Zero Corruption

76 Goverance reporting- specificF2-B Governance Reporting77 Shareholder EVA- specific

SH1-A Positive EVA

78 Firm EVA- specificF3-A Positive EVA (Firm)/EVA (Industry) ratio

79 Shareholder EVA- specific

SH1-A Positive EVA

80 Governance reporting- specificF2-B Governance Reporting

81 Goverance reporting- specificF2-B Governance Reporting

82 Financial reporting-specificF1-A :Transparent reporting on financial performance

83 Zero corruption- specificF2-E Zero Corruption

84 Government relationship- specificF1-B : Government relationship

85 Partner impact reporting- specificP3-A: Suppliers and Distributor Impact Reporting

86 Government relationship- specificF1-B Government relationship

87 Tax reporting- specific

S1-A Transparent tax reporting

88 Tax paid- specific

S1-B Appropriate Taxes Paid

*For more detailed information on Value Model, please visit our Value Research Center Website:
https://www.valueresearchcenter.com/value-mode

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