Index Methodology

MSCI USA ESG SelectIndex Methodology
August 2024

© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI USA ESG Select Index Methodology | August 2024

Contents
1

Introduction ............................................................................................................ 32

Constructing the Index ............................................................................................ 4
2.1

Defining the Parent Index ........................................................................................... 4

2.2

Defining the Exclusion Criteria .................................................................................. 4

2.2.1

Controversial Business Involvement Criteria .................................................... 4

2.2.2

ESG Controversies Score Eligibility ................................................................... 4

2.3

Defining the Optimization Constraints ...................................................................... 5

2.4

Determining the Optimized Index .............................................................................. 5

2.5 Treatment of Unrated Companies ............................................................................... 5
3

4

Maintaining the Index .............................................................................................. 6
3.1

Quarterly Index Reviews ............................................................................................. 6

3.2

Ongoing Event-Related Maintenance ........................................................................ 6

MSCI ESG Research ................................................................................................ 8
4.1

MSCI ESG Ratings....................................................................................................... 8

4.2

MSCI ESG Controversies ............................................................................................ 8

4.3

MSCI ESG Business Involvement Screening Research ........................................... 8

4.4

MSCI Climate Change Metrics ................................................................................... 8

Appendix I: Handling Infeasible Optimizations ............................................................. 10
Appendix II: Methodology Transition ............................................................................ 11
Appendix III: Controversial Business Involvement Criteria ............................................ 13
Appendix IV: Methodology for MSCI USA Extended ESG Select Index ........................... 15
Appendix V: Methodology Set ...................................................................................... 16
Appendix VI: Changes to this Document ....................................................................... 17© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 2 OF 20

MSCI USA ESG Select Index Methodology | August 2024

1

Introduction
The MSCI USA ESG Select Index (the ‘Index’) is designed to maximize exposure to positiveenvironmental, social and governance (ESG) factors while exhibiting risk and return characteristics
similar to those of the MSCI USA Index. The Index is constructed by selecting constituents of the
MSCI USA Index through an optimization process that aims to maximize exposure to ESG factors for atarget tracking error budget under certain constraints.
The Index is sector-diversified and targets companies with high ESG ratings in each sector.
Companies involved in a defined set of controversial businesses are not eligible for inclusion into theIndex1.

1 The Index is governed by a set of methodology and policy documents (“Methodology Set”), including the present index methodology

document. Please refer to Appendix V for more details.

© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 3 OF 20

MSCI USA ESG Select Index Methodology | August 20242

Constructing the Index
Constructing the Index involves the following steps:

2.1•

Defining the underlying MSCI Parent Index (‘Parent Index’);•Defining the exclusion criteria;•

Defining the optimization constraints; and•Determining the optimized index

Defining the Parent Index
The Parent Index for the Index is the MSCI USA Index.

2.2

Defining the Exclusion Criteria
The Index uses research provided by MSCI ESG Research2 to determine the securities eligible forinclusion.

2.2.1 Controversial Business Involvement Criteria
The Index uses MSCI ESG Business Involvement Screening Research and MSCI Climate Change
Metrics to identify companies that are involved in the following business activities. Companies thatmeet the business involvement criteria are excluded from the Index. Please refer to Appendix III for
details on these criteria.
•

Controversial Weapons•

Civilian Firearms•

Nuclear Weapons•

Tobacco•Alcohol•

Conventional Weapons•

Gambling•

Nuclear Power•

Fossil Fuel Extraction•

Thermal Coal Power2.2.2 ESG Controversies Score Eligibility
The Index uses MSCI ESG Controversies Scores to identify companies that are involved in very serious
controversies involving the environmental, social, or governance impact of their operations and/or
2. See section 4 for further information regarding ESG and climate data used in the Indexes that MSCI Limited and MSCI DeutschlandGmbH source from MSCI ESG Research LLC, a separate subsidiary of MSCI Inc. MSCI ESG Research is solely responsible for thecreation, determination and management of such data as a provider to MSCI Limited and MSCI Deutschland GmbH. MSCI Limited and
MSCI Deutschland GmbH are the benchmark administrators for the MSCI indexes© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 4 OF 20

MSCI USA ESG Select Index Methodology | August 2024

products and services. Existing constituents of the Index are required to have an MSCI ESG
Controversies Score above 0 to remain in the index, while companies that are currently not
constituents of the Index are required to have an MSCI ESG Controversies Score above 2 to be eligible
for inclusion.

2.3

Defining the Optimization Constraints
The Index is constructed using an optimization process that applies the following objective andconstraints:•

The Index has a higher exposure (without a defined upper bound) to industry adjusted ESG
scores relative to the Parent Index, subject to maintaining similar risk and return
characteristics under a predicted tracking error constraint of 1.8%.

•

The maximum weight of an Index constituent will be 5%.

•

The minimum weight of an Index constituent will be 0.1%.

•

The maximum number of Index constituents will be 350 securities.

•

The sector weight of the Index will not deviate by more than +/- 3% relative to the Parent Index.

•

The one-way turnover of the Index is constrained to a maximum of 10% at May and November
Index Review and at 5% at the February and August Index Review.

•

One way transaction cost is set to 0.5% which aims to achieve a balance between turnover and
ESG Scores•

An AS/CF (Asset Selection/Common Factor) Risk Aversion Ratio of 10 is applied.

Please refer to Appendix I for the description of handling infeasible optimizations.

2.4

Determining the Optimized Index
The Index is constructed using the most recent release of the Barra Open Optimizer in combination
with the relevant Barra Equity Model. The optimization uses the MSCI USA Index after application of
the exclusion criteria as described in section 2.2 above, as the universe of eligible securities and thespecified optimization objective and constraints to determine the constituents of the Index.

2.5 Treatment of Unrated Companies
Companies not assessed by MSCI ESG Research on data for any of the following MSCI ESG Research
products are not eligible for inclusion in the Index.
•

MSCI ESG Ratings•

MSCI ESG Controversies•

MSCI Climate Change Metrics•

MSCI Business Involvement Screening Research (BISR)© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 5 OF 20

MSCI USA ESG Select Index Methodology | August 2024

3

Maintaining the Index

3.1

Quarterly Index Reviews
The Index is rebalanced on a quarterly basis to coincide with the regular Index Reviews of the MSCI
Global Investable Market Indexes. The changes are implemented at the end of February, May, Augustand November. The pro forma indexes are in general announced nine business days before theeffective date.
In general, MSCI uses MSCI ESG Research data3 (including MSCI ESG Ratings, MSCI ESG
Controversies Scores, MSCI ESG Business Involvement Screening Research and MSCI Climate Change
Metrics) as of the end of the month preceding the Index Reviews for the rebalancing of the Index. For
some securities, such data may not be published by MSCI ESG Research by the end of the month
preceding the Index Review. For such securities, MSCI will use ESG data published after the end ofmonth, when available, for the rebalancing of MSCI USA ESG Select Index.
At each Index Review, the optimization process outlined in Section 2 is implemented. Companies canonly be added to the Index at regular Index Reviews.

3.2

Ongoing Event-Related Maintenance
The general treatment of corporate events in the Index aims to minimize turnover outside of Index
Reviews. The methodology aims to appropriately represent an investor’s participation in an event
based on relevant deal terms and pre-event weighting of the index constituents that are involved.
Further, changes in index market capitalization that occur as a result of corporate event
implementation will be offset by a corresponding change in the Variable Weighting Factor (VWF) of
the constituent.
Additionally, if the frequency of Index Reviews in the Parent Index is greater than the frequency ofIndex Reviews in the MSCI USA ESG Select Index, the changes made to the Parent Index during
intermediate Index Reviews will be neutralized in the Index.
The following section briefly describes the treatment of common corporate events within the Index.
No new securities will be added (except where noted below) to the Index between Index Reviews.
Parent Index deletions will be reflected simultaneously.
There are no deletions from the Index between Index Reviews on account of a security becoming
ineligible because of decrease in MSCI ESG Controversies Score and/or change in businessinvolvement.

EVENT TYPE

EVENT DETAILSNew additions to the Parent Index

A new security added to the parent index (such as IPO
and other early inclusions) will not be added to theindex.

3 See section 4 for details of data sourced from MSCI ESG Research used in the Index.

© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 6 OF 20

MSCI USA ESG Select Index Methodology | August 2024

Spin-Offs

All securities created as a result of the spin-off of an
existing Index constituent will be added to the Index at
the time of event implementation. Reevaluation forcontinued inclusion in the Index will occur at thesubsequent Index Review.

Merger/Acquisition

For Mergers and Acquisitions, the acquirer’s post event
weight will account for the proportionate amount ofshares involved in deal consideration, while cash
proceeds will be invested across the Index.
If an existing Index constituent is acquired by a nonIndex constituent, the existing constituent will bedeleted from the Index and the acquiring nonconstituent will not be added to the Index.

Changes in Security Characteristics

A security will continue to be an Index constituent if
there are changes in characteristics (country, sector,
size segment, etc.) Reevaluation for continued inclusionin the Index will occur at the subsequent Index Review.

Further detail and illustration regarding specific treatment of corporate events relevant to this Index
can be found in the MSCI Corporate Events Methodology book under the sections detailing thetreatment of events in Capped Weighted and Non-Market Capitalization Weighted indexes.
The MSCI Corporate Events methodology book is available at:https://www.msci.com/index/methodology/latest/CE.

© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 7 OF 20

MSCI USA ESG Select Index Methodology | August 2024

4

MSCI ESG Research
The Index is a product of MSCI Inc. that utilizes information such as company ratings and research
produced and provided by MSCI ESG Research LLC (MSCI ESG Research), a subsidiary of MSCI Inc. In
particular, the Index uses the following MSCI ESG Research products: MSCI ESG Ratings, MSCI ESG
Controversies, MSCI ESG Business Involvement Screening Research and MSCI Climate Change
Metrics. MSCI Indexes are administered by MSCI Limited MSCI Deutschland GmbH.

4.1

MSCI ESG Ratings
MSCI ESG Ratings aim to measure entities’ management of environmental, social and governancerisks and opportunities. MSCI ESG Ratings use a weighted average key issue calculation that isnormalized by industry to arrive at an industry-adjusted ESG score (0-10), which is then translated to aseven-point scale from ‘AAA’ to ‘CCC’, indicating how an entity manages relevant key issues relative toindustry peers.
The MSCI ESG Ratings methodology can be found at:https://www.msci.com/legal/disclosures/esg-disclosures.

4.2

MSCI ESG Controversies
MSCI ESG Controversies provide assessments of controversies concerning the potential negativeenvironmental, social, and/or governance impact of company operations, products and services. The
evaluation framework used in MSCI ESG Controversies is designed to be consistent with international
norms represented by the UN Declaration of Human Rights, the ILO Declaration on Fundamental
Principles and Rights at Work, and the UN Global Compact. MSCI ESG Controversies Score falls on a0-10 scale, with “0” being the most severe controversy.
The MSCI ESG Controversies methodology can be found at:https://www.msci.com/legal/disclosures/esg-disclosures.

4.3

MSCI ESG Business Involvement Screening Research
MSCI ESG Business Involvement Screening Research (BISR) aims to enable institutional investors tomanage environmental, social and governance (ESG) standards and restrictions reliably andefficiently.
For more details on MSCI ESG Business Involvement Screening Research, please refer tohttps://www.msci.com/legal/disclosures/esg-disclosures.

4.4

MSCI Climate Change Metrics
MSCI Climate Change Metrics provide climate data & tools to support institutional investors seeking
to integrate climate risk & opportunities into their investment strategy and processes. This includes
investors seeking to achieve a range of objectives, including measuring and reporting on climate risk
exposure, implementing low carbon and fossil fuel-free strategies, alignment with temperature
pathways and factoring climate change research into their risk management processes, in particularthrough climate scenario analysis for both transition and physical risks.

© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 8 OF 20

MSCI USA ESG Select Index Methodology | August 2024

The dataset spans across the four dimensions of a climate strategy: transition risks, green
opportunities, physical risks and 1.5° alignment.
For more details on MSCI Climate Change Metrics, please refer to https://www.msci.com/climatesolutions© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 9 OF 20

MSCI USA ESG Select Index Methodology | August 2024

Appendix I: Handling Infeasible Optimizations
During the Quarterly Index Review, in the event that there is no optimal solution that satisfies all the
optimization constraints defined in Section 2.3, the tracking error will be relaxed in steps of 0.2% until
an optimal solution is found.

© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 10 OF 20

MSCI USA ESG Select Index Methodology | August 2024

Appendix II: Methodology Transition
May 2012 – May 2013
The MSCI USA ESG Select Index transitioned to the methodology described in the above document
starting from the May 2012 Index Review. As part of the enhancements to the MSCI USA ESG SelectIndex Methodology, the annual turnover budget is reduced from 50% to 30% (10% at Semi-Annual
Index Reviews and 5% at Quarterly Index Reviews). The lower annual turnover budget of 30% will beapplied starting from the May 2012 Index Review.
June 2016
Effective at the May 2016 Index Review, the MSCI USA ESG Select Index reflected enhancements to
the MSCI ESG Controversies (formerly known as MSCI Impact Monitor). The details of the changes
are as given below.
The changes to MSCI ESG Controversies included adjusting the scoring model to align the scores withindividual controversy case levels, including the introduction of an Orange flag, and the removal of
specific controversial business involvement (CBI) criteria from the model to refocus the ESG
Controversies scores on event-driven controversies.
MSCI implemented the following changes to the MSCI USA ESG Select Index methodology effective
June 1, 2016 to maintain consistency with the existing index construction objectives:
1. As per the old MSCI ESG Impact Monitor methodology, securities which had an Impact
Monitor score of 0 and 1 had a Red controversy flag. Under the new methodology, only
securities with an ESG controversies score of 0 have a Red controversy flag. For indexes
where constituents were ineligible to be included in the index if their Impact Monitor score was
0 or 1 (current Red controversy flag), the exclusion criteria was changed to ESG Controversies
score = 0 in order to continue to only exclude securities with Red controversy flag in the MSCIUSA ESG Select Index.
2. Additional exclusion rules based on the controversial business involvement criteria related toalcohol, gambling, nuclear power, conventional weapons and controversial weapons that wereincorporated in the old MSCI Impact Monitor scores were introduced as part of themethodology of the MSCI USA ESG Select Index. Since, the rule for exclusion of securities withtobacco involvement was already more stringent in MSCI USA ESG Select methodology, it was
not included. The details of the exclusion rules are mentioned in Appendix III.
November 2017
In order to meet its objective, the MSCI USA ESG Select Index construction, since inception, made useof the Barra Global Equity Model (GEM2L) within the optimization setup. However, starting from theNovember 2017 Semi-Annual Index Review, the index construction used an optimization setup thatused the Barra Global Equity Model for Long-Term Investors (GEMLTL). The change of optimization
setup was completed without any change in the prevailing index methodology.
December 2021
Effective from the November 2021 Index Review, the controversial business involvement criteria havebeen enhanced to reflect the framework designed by MSCI ESG Research to define significant
involvement in controversial activities. According to this framework, there are four restrictiveness© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 11 OF 20

MSCI USA ESG Select Index Methodology | August 2024

levels: Most Restrictive, Highly Restrictive, Moderately Restrictive, Least Restrictive. Also, screens for
Fossil Fuel Reserves, Fossil Fuel Extraction and Thermal Coal Power were added.

© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 12 OF 20

MSCI USA ESG Select Index Methodology | August 2024

Appendix III: Controversial Business Involvement Criteria
MSCI ESG Research has developed a framework designed to define significant involvement incontroversial activities. According to this framework, there are four levels of restrictiveness: Most
Restrictive, Highly Restrictive, Moderately Restrictive, Least Restrictive.
Each controversial activity screened by the MSCI USA ESG Select Index (except Tobacco, Fossil Fuel
Extraction and Thermal Coal Power) is assigned to one of these restrictiveness levels.
“Most Restrictive” screen applied•

Controversial Weapons-•

All companies with any tie to Controversial Weapons (cluster munitions, landmines,
depleted uranium weapons, biological/chemical weapons, blinding lasers, non-detectable
fragments and incendiary weapons), as defined by the methodology of the MSCI Global ExControversial Weapons Indexes available athttps://www.msci.com/index/methodology/latest/XCW

Civilian Firearms-

All companies with any tie to Civilian Firearms, covering the production and distribution(wholesale or retail) of firearms or small arms ammunitions intended for civilian use, as
well as ownership of or by another company with involvement. It does not include
companies that cater to the military, government, and law enforcement markets“Highly Restrictive” screen applied•

Nuclear Weapons-

All companies that manufacture nuclear warheads and/or whole nuclear missiles-

All companies that manufacture components that were developed or are significantly modified
for exclusive use in nuclear weapons (warheads and missiles)-

All companies that manufacture or assemble delivery platforms that were developed orsignificantly modified for the exclusive delivery of nuclear weapons-

All companies that provide auxiliary services related to nuclear weapons-

All companies that manufacture components that were not developed or not significantly
modified for exclusive use in nuclear weapons (warheads and missiles) but can be used innuclear weapons-

All companies that manufacture or assemble delivery platforms that were not developed or
not significantly modified for the exclusive delivery of nuclear weapons but have the capability
to deliver nuclear weapons-

All companies that manufacture components for nuclear-exclusive delivery platforms“Least Restrictive” screen applied•

Alcohol© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 13 OF 20

MSCI USA ESG Select Index Methodology | August 2024•

Conventional Weapons-•

All companies deriving 10% or more revenue from the production of conventional weaponsand components

Gambling-•

All companies deriving 10% or more revenue from the production of alcohol-related products

All companies deriving 10% or more revenue from ownership of operation of gambling-related
business activities

Nuclear Power-All companies deriving 10% or more revenue from the ownership or operation of nuclear power
plantsNo specific restrictiveness level applied•••

Tobacco-All companies classified as “Producer” or “Licensor”-

All companies classified as “Distributor”, “Retailer”, or “Supplier” that earn 15% or more ofrevenues from tobacco products-

All companies classified as “Ownership by a Tobacco Company” or “Ownership of a Tobacco
Company”

Fossil Fuel Extraction-

All companies deriving 5% or more aggregate revenue (either reported or estimated) fromthermal coal mining and unconventional oil and gas extraction.

-

Thermal Coal Mining: Revenue from the mining of thermal coal (including lignite, bituminous,
anthracite and steam coal) and its sale to external parties. It does not cover revenue frommetallurgical coal; coal mined for internal power generation (e.g. in the case of verticallyintegrated power producers); intra-company sales of mined thermal coal; and revenue fromcoal trading-

Unconventional Oil & Gas Extraction: Revenue from oil sands, oil shale (kerogen-rich deposits),
shale gas, shale oil, coal seam gas, and coal bed methane. It does not cover all types of
conventional oil and gas production including Arctic onshore/offshore, deep water, shallow
water and other onshore/offshore.

Thermal Coal Power-All companies deriving 5% or more revenue (either reported or estimated) from thermal coalbased power generation.

© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 14 OF 20

MSCI USA ESG Select Index Methodology | August 2024

Appendix IV: Methodology for MSCI USA Extended ESG SelectIndex
The MSCI USA Extended ESG Select Index follows the index methodology as the MSCI USA ESG SelectIndex with the only difference being the Monthly Review of Controversies.
Monthly Review of Controversies
Effective November 1, 2023, the MSCI USA Extended ESG Select Index constituents are reviewed on amonthly basis for the involvement in ESG controversies4. Existing constituents will be deleted if they
are assessed as having involvement in ESG controversies that are classified as Red Flags (MSCI ESG
Controversies Score of 0). A Red Flag indicates an ongoing, Very Severe ESG controversy implicating acompany directly through its actions, products, or operations.
MSCI uses MSCI ESG Controversies data as of the end of the month preceding the review (e.g., end ofJune data for the July monthly review). For some securities, such data may not be published by MSCIESG Research by the end of the month preceding the review. For such securities, MSCI will use ESG
data published after the end of month, when available, for the monthly review of the Index.
The pro forma indexes are generally announced nine business days before the effective date.

Controversial Business Involvement Criteria
Prior to the November 2021 Semi-Annual Index Review, the MSCI USA Extended ESG Select Index
applied the ineligibility criteria for civilian firearms, as described below:•

Civilian Firearms–

All companies classified as a “Producer”–

All companies classified as a “Retailer” that earn 5% or more in revenue or more than
$20 million in revenue from civilian firearms-related products.

TurnoverIn addition, during the February 2018 Quarterly Index Review, the turnover of the MSCI USA Extended
ESG Select Index was calculated with respect to the constituents of the MSCI USA ESG Select Index.

4 The monthly review of ESG controversies was implemented effective November 1, 2023 and the proforma indexes were announced

nine business days before the effective date.

© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 15 OF 20

MSCI USA ESG Select Index Methodology | August 2024

Appendix V: Methodology Set
The Index is governed by a set of methodology and policy documents (“Methodology Set”), including
the present index methodology document as mentioned below:•

Description of methodology set – https://www.msci.com/index/methodology/latest/ReadMe•

MSCI Corporate Events Methodology – https://www.msci.com/index/methodology/latest/CE•

MSCI Fundamental Data Methodology –https://www.msci.com/index/methodology/latest/FundData•

MSCI Index Calculation Methodology –https://www.msci.com/index/methodology/latest/IndexCalc•

MSCI Index Glossary of Terms –https://www.msci.com/index/methodology/latest/IndexGlossary•

MSCI Index Policies – https://www.msci.com/index/methodology/latest/IndexPolicy•

MSCI Global Industry Classification Standard (GICS) Methodology –https://www.msci.com/index/methodology/latest/GICS•

MSCI Global Investable Market Indexes Methodology –https://www.msci.com/index/methodology/latest/GIMI•

ESG Factors In Methodology*

The Methodology Set for the Index can also be accessed from MSCI’s webpage
https://www.msci.com/index-methodology in the section ‘Search Methodology by Index Name orIndex Code’.
* ‘ESG Factors in Methodology’ contains the list of environmental, social, and governance factors
considered, and how they are applied in the methodology (e.g., selection, weighting or exclusion). It
can be accessed in the Methodology Set as described above.

© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 16 OF 20

MSCI USA ESG Select Index Methodology | August 2024

Appendix VI: Changes to this Document
The following sections have been modified as of May 2016:
Section 3.2.1: Controversial Business Involvement Criteria•

Added section

Section 3.2.3: ESG Controversies Score Eligibility•

Updated the MSCI ESG Controversies Score eligibility requirements

Appendix 3: Methodology Transition•

Added details pertaining to the methodology changes effective as of May 2016

Appendix 4: Controversial Business Screening Criteria
The following sections have been modified as of June 2016:
Section 3.2.1: Controversial Business Involvement criteria•

Added Civilian Firearms to the list of controversial business involvement criteria

Appendix 4: Controversial Business Screening Criteria•

Addition of the controversial business screening criteria pertaining to Civilian Firearms

The following sections have been modified as of May 2017:
Section 4.1: Quarterly Index Reviews•

Clarification on the use of ESG data for securities whose data were published later than at theend of the month preceding Index Review.

The following sections have been modified as of June 2017:•

The details on the Corporate Events treatment are now included in Section 4.2.

The following sections have been modified as of November 2017:•

Updated Appendix 3 to add the information on transition of MSCI USA ESG Select Index to

GEMLTLThe following sections have been modified as of May 2018:
Appendix 4: Methodology for MSCI USA Extended ESG Select Index•

New Appendix

The following sections have been modified as of November 2021:
Section 2.4: MSCI Climate Change Metrics•

New section

Section 3.2.1: Controversial Business Involvement Criteria•

Added screens for ‘Fossil Fuel Extraction’ and ‘Thermal Coal Power’

Appendix 2: Methodology Transition© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 17 OF 20

MSCI USA ESG Select Index Methodology | August 2024•

Added details which highlight the changes to the MSCI USA ESG Select Index effective
December 2021

Appendix 3: Controversial Business Involvement Criteria•

Updated the controversial business involvement criteria for each activity according to theframework designed by ESG Research•

Added screens for ‘Fossil Fuel Extraction’ and ‘Thermal Coal Power’

Appendix 4: Methodology for MSCI USA Extended ESG Select Index•

Updated to reflect alignment with MSCI USA ESG Select Index Methodology effective
December 2021

The following sections have been modified as of June 2023:
Section 3: Maintaining the MSCI USA ESG Select Index•

Methodology book was updated to reflect the transition of the MSCI Global Investable Market
Indexes (GIMI) to Quarterly Comprehensive Index Reviews.

•

All references to “Semi-Annual Index Reviews” and “Quarterly Index Reviews” of the MSCI GIMI
were replaced with “Index Reviews”.

Section 4: MSCI ESG Research•

Moved that section after the Section 3 (Maintaining the MSCI USA ESG Select Index)•

Updated the descriptions of MSCI ESG Research products

The following sections have been modified as of November 2023:
Appendix 4: Methodology for MSCI Extended USA ESG Select Index•

The monthly review of ESG controversies is applied within the MSCI Extended USA ESG SelectIndex effective November 1, 2023 and is not applicable historically prior to that date.

The following sections have been modified as of January 2024:
Section 2.5: Treatment of Unrated Companies•

New section detailing the treatment of companies with ratings and research not available fromMSCI ESG Research

Appendix V: Methodology Set•

Added details on the Methodology Set for the Indexes.

The following sections have been modified as of August 2024
Section 2.5: Treatment of Unrated Companies•

Added the treatment of companies when business involvement screening research or climatechange metrics research not available from MSCI ESG Research.

© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 18 OF 20

MSCI USA ESG Select Index Methodology | August 2024

Contact us
msci.com/contact-us

AMERICAS

About MSCI

United States+ 1 888 588 4567 *Canada+ 1 416 687 6270

Brazil+ 55 11 4040 7830

Mexico+ 52 81 1253 4020

EUROPE, MIDDLE EAST & AFRICA
South Africa+ 27 21 673 0103

Germany+ 49 69 133 859 00

Switzerland+ 41 22 817 9777

United Kingdom + 44 20 7618 2222
Italy

+ 39 02 5849 0415

France+ 33 17 6769 810

ASIA PACIFIC
China+ 86 21 61326611

Hong Kong+ 852 2844 9333

India

+ 91 22 6784 9160

Malaysia

1800818185 *South Korea+ 82 70 4769 4231

Singapore+ 65 67011177

Australia+ 612 9033 9333

Taiwan008 0112 7513 *ThailandJapan

0018 0015 6207 7181 *+ 81 3 4579 0333

MSCI is a leading provider of critical decision
support tools and services for the global
investment community. With over 50 yearsof expertise in research, data andtechnology, we power better investment
decisions by enabling clients to understandand analyze key drivers of risk and returnand confidently build more effective
portfolios. We create industry-leading
research-enhanced solutions that clients use
to gain insight into and improvetransparency across the investment process.
To learn more, please visit www.msci.com.
The process for submitting a formal index
complaint can be found on the index
regulation page of MSCI’s website
at: https://www.msci.com/index-regulation.

* toll-free© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 19 OF 20

MSCI USA ESG Select Index Methodology | August 2024

Notice and disclaimer
This document and all of the information contained in it, including without limitation all text, data, graphs, charts (collectively, the “Information”) is the property of MSCI
Inc. or its subsidiaries (collectively, “MSCI”), or MSCI’s licensors, direct or indirect suppliers or any third party involved in making or compiling any Information(collectively, with MSCI, the “Information Providers”) and is provided for informational purposes only. The Information may not be modified, reverse-engineered,
reproduced or redisseminated in whole or in part without prior written permission from MSCI. All rights in the Information are reserved by MSCI and/or its Information
Providers.
The Information may not be used to create derivative works or to verify or correct other data or information. For example (but without limitation), the Information may
not be used to create indexes, databases, risk models, analytics, software, or in connection with the issuing, offering, sponsoring, managing or marketing of any
securities, portfolios, financial products or other investment vehicles utilizing or based on, linked to, tracking or otherwise derived from the Information or any other
MSCI data, information, products or services.
The user of the Information assumes the entire risk of any use it may make or permit to be made of the Information. NONE OF THE INFORMATION PROVIDERS MAKES
ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE INFORMATION (OR THE RESULTS TO BE OBTAINED BY THE USE THEREOF),
AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH INFORMATION PROVIDER EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES (INCLUDING,WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION.
Without limiting any of the foregoing and to the maximum extent permitted by applicable law, in no event shall any Information Provider have any liability regarding anyof the Information for any direct, indirect, special, punitive, consequential (including lost profits) or any other damages even if notified of the possibility of such damages.
The foregoing shall not exclude or limit any liability that may not by applicable law be excluded or limited, including without limitation (as applicable), any liability for
death or personal injury to the extent that such injury results from the negligence or willful default of itself, its servants, agents or sub-contractors.
Information containing any historical information, data or analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or
prediction. Past performance does not guarantee future results.
The Information may include “Signals,” defined as quantitative attributes or the product of methods or formulas that describe or are derived from calculations using
historical data. Neither these Signals nor any description of historical data are intended to provide investment advice or a recommendation to make (or refrain frommaking) any investment decision or asset allocation and should not be relied upon as such. Signals are inherently backward-looking because of their use of historical
data, and they are not intended to predict the future. The relevance, correlations and accuracy of Signals frequently will change materially.
The Information should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients
when making investment and other business decisions. All Information is impersonal and not tailored to the needs of any person, entity or group of persons.
None of the Information constitutes an offer to sell (or a solicitation of an offer to buy), any security, financial product or other investment vehicle or any trading strategy.
It is not possible to invest directly in an index. Exposure to an asset class or trading strategy or other category represented by an index is only available through third
party investable instruments (if any) based on that index. MSCI does not issue, sponsor, endorse, market, offer, review or otherwise express any opinion regarding any
fund, ETF, derivative or other security, investment, financial product or trading strategy that is based on, linked to or seeks to provide an investment return related tothe performance of any MSCI index (collectively, “Index Linked Investments”). MSCI makes no assurance that any Index Linked Investments will accurately track index
performance or provide positive investment returns. MSCI Inc. is not an investment adviser or fiduciary and MSCI makes no representation regarding the advisabilityof investing in any Index Linked Investments.
Index returns do not represent the results of actual trading of investible assets/securities. MSCI maintains and calculates indexes, but does not manage actual assets.
The calculation of indexes and index returns may deviate from the stated methodology. Index returns do not reflect payment of any sales charges or fees an investor
may pay to purchase the securities underlying the index or Index Linked Investments. The imposition of these fees and charges would cause the performance of an
Index Linked Investment to be different than the MSCI index performance.
The Information may contain back tested data. Back-tested performance is not actual performance, but is hypothetical. There are frequently material differences
between back tested performance results and actual results subsequently achieved by any investment strategy.
Constituents of MSCI equity indexes are listed companies, which are included in or excluded from the indexes according to the application of the relevant index
methodologies. Accordingly, constituents in MSCI equity indexes may include MSCI Inc., clients of MSCI or suppliers to MSCI. Inclusion of a security within an MSCI
index is not a recommendation by MSCI to buy, sell, or hold such security, nor is it considered to be investment advice.
Data and information produced by various affiliates of MSCI Inc., including MSCI ESG Research LLC and Barra LLC, may be used in calculating certain MSCI indexes.
More information can be found in the relevant index methodologies on www.msci.com.
MSCI receives compensation in connection with licensing its indexes to third parties. MSCI Inc.’s revenue includes fees based on assets in Index Linked Investments.
Information can be found in MSCI Inc.’s company filings on the Investor Relations section of msci.com.
MSCI ESG Research LLC is a Registered Investment Adviser under the Investment Advisers Act of 1940 and a subsidiary of MSCI Inc. Neither MSCI nor any of its
products or services recommends, endorses, approves or otherwise expresses any opinion regarding any issuer, securities, financial products or instruments or trading
strategies and MSCI’s products or services are not a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on assuch, provided that applicable products or services from MSCI ESG Research may constitute investment advice. MSCI ESG Research materials, including materials
utilized in any MSCI ESG Indexes or other products, have not been submitted to, nor received approval from, the United States Securities and Exchange Commission or
any other regulatory body. MSCI ESG and climate ratings, research and data are produced by MSCI ESG Research LLC, a subsidiary of MSCI Inc. MSCI ESG Indexes,
Analytics and Real Estate are products of MSCI Inc. that utilize information from MSCI ESG Research LLC. MSCI Indexes are administered by MSCI Limited (UK) and
MSCI Deutschland GmbH.
Please note that the issuers mentioned in MSCI ESG Research materials sometimes have commercial relationships with MSCI ESG Research and/or MSCI Inc.
(collectively, “MSCI”) and that these relationships create potential conflicts of interest. In some cases, the issuers or their affiliates purchase research or other products
or services from one or more MSCI affiliates. In other cases, MSCI ESG Research rates financial products such as mutual funds or ETFs that are managed by MSCI’sclients or their affiliates, or are based on MSCI Inc. Indexes. In addition, constituents in MSCI Inc. equity indexes include companies that subscribe to MSCI products orservices. In some cases, MSCI clients pay fees based in whole or part on the assets they manage. MSCI ESG Research has taken a number of steps to mitigate potential
conflicts of interest and safeguard the integrity and independence of its research and ratings. More information about these conflict mitigation measures is available
in our Form ADV, available at https://adviserinfo.sec.gov/firm/summary/169222.
Any use of or access to products, services or information of MSCI requires a license from MSCI. MSCI, Barra, RiskMetrics, IPD and other MSCI brands and productnames are the trademarks, service marks, or registered trademarks of MSCI or its subsidiaries in the United States and other jurisdictions. The Global Industry
Classification Standard (GICS) was developed by and is the exclusive property of MSCI and S&P Global Market Intelligence. “Global Industry Classification Standard(GICS)” is a service mark of MSCI and S&P Global Market Intelligence.
MIFID2/MIFIR notice: MSCI ESG Research LLC does not distribute or act as an intermediary for financial instruments or structured deposits, nor does it deal on its own
account, provide execution services for others or manage client accounts. No MSCI ESG Research product or service supports, promotes or is intended to support or
promote any such activity. MSCI ESG Research is an independent provider of ESG data.
Privacy notice: For information about how MSCI collects and uses personal data, please refer to our Privacy Notice at https://www.msci.com/privacy-pledge.

© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI.COM | PAGE 20 OF 20