Index Methodology

MSCI Climate Change
ESG Select Indexes
Methodology
Abucay, Reil

August 2024

MSCI Climate Change ESG Select Indexes Methodology | August 2024

Contents
1

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

Constructing the Indexes ......................................................................................4

3

4

2.1

Defining the Parent Indexes .................................................................................... 4

2.2

Eligibility Criteria....................................................................................................... 4

2.3

Issuer Capping.......................................................................................................... 6

2.4

Treatment of Unrated Companies .......................................................................... 6

Maintaining the Indexes ........................................................................................7
3.1

Quarterly Index Reviews .......................................................................................... 7

3.2

Ongoing Event Related Changes ............................................................................ 7

MSCI ESG Research ..............................................................................................9
4.1

MSCI ESG Ratings .................................................................................................... 9

4.2

MSCI ESG Controversies ......................................................................................... 9

4.3

MSCI ESG Business Involvement Screening Research ......................................... 9

4.4

MSCI Climate Change Metrics ................................................................................ 9

Appendix I: Controversial Business Involvement Criteria ...........................................11
Appendix II: Calculation of Target Metrics .................................................................13
Appendix III: Methodology Set ...................................................................................17
Appendix IV: Changes to this Document ....................................................................18

MSCI Climate Change ESG Select Indexes Methodology | August 2024

1

Introduction
The MSCI Climate Change ESG Select Indexes (the “Indexes”) aim to represent the performance ofan investment strategy that re-weights securities based on the opportunites and risks associatedwith the transition to a lower carbon economy. The Indexes1 are designed to exceed the minimum
standards of the EU Climate Transtiion Benchmark (CTB). The Indexes apply a heuristics-based
approach to meet the following objectives:• Reduce the weighted average greenhouse gas intensity by 30% (compared to the underlying
investment universe).
• Reduce the weighted average greenhouse gas (GHG) intensity by 7% on an annualized basis• Reduce the weighted average potential emissions intensity by 30% (compared to theunderlying investment universe).
• Have at least equivalent ratio of weighted average “Green Revenues” to weighted average“Fossil fuels-based Revenues” as that of the underlying investment universe.
The Indexes are constructed based on the MSCI Climate Change Indexes methodology2 and apply
additional eligiblity criteria as described in Section 2.

The Indexes are governed by a set of methodology and policy documents (“Methodology Set”), including the present index
methodology document. Please refer to Appendix III for more details
1

2 For more information, please refer to the MSCI Climate Change Indexes Methodology at https://www.msci.com/index-

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

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MSCI Climate Change ESG Select Indexes Methodology | August 20242

Constructing the Indexes
The Indexes use company ratings and research provided by MSCI ESG Research3 to determine
eligibility for index inclusion .

2.1

Defining the Parent Indexes
The Parent Indexes for the MSCI Climate Change ESG Select Indexes include all the constituents of
their corresponding market capitalization weighted indexes (the “Parent Indexes”), as shown in thetable below:

2.2

Index Name

Parent Index

MSCI World Climate Change ESG Select Index

MSCI WorldMSCI USA Climate Change ESG Select Index

MSCI USAMSCI Europe Climate Change ESG Select Index

MSCI Europe

MSCI EMU Climate Change ESG Select Index

MSCI EMUMSCI Japan Climate Change ESG Select Index

MSCI JapanMSCI Germany Climate Change ESG Select
Index

MSCI Germany

Eligibility Criteria
Securities are selected and weighted in accordance with the MSCI Climate Change Indexes
Methodology4 and apply additional eligibility criteria and weighting criteria as per Section 2.2 and
2.3.

2.2.1 Eligible Universe
The Eligible Universe for the Indexes are constructed from the constituents of their corresponding
market capitalization weighted indexes (the “Parent Indexes”) after excluding companies from thefollowing Global Industry Classification Standard (GICS®)5 Sub-Industries:•

Oil & Gas Drilling

3 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
4 As per Appendix V (Iterative Downweighting to meet the minimum EU CTB requirements) of the MSCI Climate Change Indexes

Methodology, companies in the Solutions category as per Low Carbon Transition Risk Assessment are not eligible fordownweighting. However, this rule was not applied for the MSCI Germany Climate Change ESG Select Index at the time of the May
2023, August 2023, November 2023 and February 2024 Index Reviews in order to ensure rebalancing feasibility.
5 GICS is the global industry classification standard jointly developed by MSCI and S&P Global Market Intelligence.

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MSCI Climate Change ESG Select Indexes Methodology | August 2024•

Oil & Gas Equipment & Services•

Oil & Gas Storage & Transportation.

2.2.2 Controversial Business Involvement Criteria
The Indexes use 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 Indexes:•

Controversial Weapons•

Nuclear Weapons•

Tobacco•Thermal Coal•

Conventional Oil & Gas•

Unconventional Oil and Gas•

Nuclear-based Power Generation•

Global Norms – United Nations Global Compact Compliance•

Human Rights Concerns Controversies•

Scope 1+2 Emissions Intensity•

Energy Consumption Intensity•

Nuclear Mining•

Civilian Firearms•

Weapons

Please refer to Appendix I for details on the screens.

2.2.3 ESG Ratings Eligibility
The Indexes uses MSCI ESG Ratings to identify companies that have demonstrated an ability to
manage their ESG risks and opportunities. Companies are required to have an MSCI ESG Rating of’BB’ or above to be eligible for inclusion in the Indexes.

2.2.4 ESG Controversies Score Eligibility
All Companies assessed having involvement in ESG Controversies that are classified as Red flag
(MSCI Controversy Score of 0) or Orange flag (MSCI Controversy Score of 1).
•

A Red Flag indicates an ongoing, Very Severe ESG controversy implicating a company
directly through its actions, products, or operations.

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MSCI Climate Change ESG Select Indexes Methodology | August 2024•

An Orange Flag indicates an ongoing Severe ESG controversy implicating a company directly,
or a Very Severe ESG controversy that is either partially resolved or indirectly attributed to thecompany’s actions,Companies are required to have an MSCI ESG Controversies that are classified as Orange Flag
(Score of 1) or above to be eligible for inclusion in the Indexes.
Companies not assessed by MSCI ESG Research on MSCI ESG Controversies are not eligible forinclusion in the Indexes.

2.3

Issuer Capping
The maximum weight of any issuer in the Index is capped at 5% in accordance with the MSCI
Capped Indexes methodology6.

2.4

Treatment of Unrated Companies
Companies not assessed by MSCI ESG Research on the following data are not eligible for inclusionin the Indexes.
•

ESG Ratings•

ESG Controversies

For the treatment of companies where the Scope 1+2+3 Emissions Intensity is not available, pleaserefer to Appendix II.

6 Please refer to the MSCI Capped Indexes methodology at www.msci.com/index-methodology.

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

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MSCI Climate Change ESG Select Indexes Methodology | August 2024

3

Maintaining the Indexes

3.1

Quarterly Index Reviews
The Indexes are reviewed to coincide with the regular Index Reviews of the MSCI Global Investable
Market Indexes. The changes are implemented as of the close of the last business day of February,
May, August and November.
In general, MSCI uses MSCI ESG Research data7 (including MSCI ESG Ratings, MSCI ESG
Controversies, 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 Indexes.
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 the Indexes.
The pro forma Indexes are in general announced nine business days before the effective date.

3.2

Ongoing Event Related Changes
The general treatment of corporate events in the indexes aim 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 Indexes are greater than the frequency
of Index Reviews in the indexes, the changes made to the Parent Indexes during intermediate Index
Reviews will be neutralized in the MSCI Climate Change ESG Select 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 Indexes between Index Reviews.
Parent Index deletions will be reflected simultaneously.
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.

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.

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

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MSCI Climate Change ESG Select Indexes Methodology | August 2024

Merger/Acquisition

For Mergers and Acquisitions, the acquirer’s post
event weight will account for the proportionate
amount of shares 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
inclusion in the Index will occur at the subsequentIndex 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/indexmethodology© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI Climate Change ESG Select Indexes Methodology | August 2024

4

MSCI ESG Research
The Indexes are a product of MSCI Inc. that utilizes information such as company ratings andresearch produced and provided by MSCI ESG Research LLC (MSCI ESG Research), a subsidiary of
MSCI Inc. In particular, the Indexes use 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 and 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 toa seven-point scale from ‘AAA’ to ‘CCC’, indicating how an entity manages relevant key issues
relative to industry peers.
The MSCI ESG Ratings methodology can be found at: https://www.msci.com/legal/disclosures/esgdisclosures.

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 withinternational 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 a 0-10 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 provides 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© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI Climate Change ESG Select Indexes Methodology | August 2024

temperature pathways and factoring climate change research into their risk management processes,
in particular through climate scenario analysis for both transition and physical risks.
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/climatechange-solutions© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI Climate Change ESG Select Indexes Methodology | August 2024

Appendix I: Controversial Business Involvement Criteria•

Carbon Emissions Intensityo•Civilian Firearms
o

•

•

o

All companies deriving 5% or more higher percent of revenue from supplying key
nuclear specific products or services to the nuclear power industry.

o

All companies deriving 5% or more revenue (either reported or estimated) from
nuclear power activities.

Nuclear Mining
All companies deriving 5% or more revenue from the mining of uranium.

Nuclear Weaponso•All companies which are flagged for Severe and Very Severe controversy related to
Human Rights violation in the last three years.

Nuclear-based Power Generationo•

All companies that fail to comply with the United Nations Global Compact principles.

Human Rights Concerns Controversieso•All companies with more than 300 Energy consumption (GwH) per million EUR
revenue

Global Norms – United Nations Global Compact Complianceo•

All companies that have any tie to Controversial Weapons.

Energy Consumption Intensityo•All companies that derive 5% or more revenue from the manufacture and retail ofcivilian firearms and ammunition.

Controversial Weaponso•All companies with a Carbon Emissions Intensity (Scope 1+2) of more than 1500
tCO2/$M Sales

All companies that have any tie to nuclear weapons.

Conventional Oil & GasoAll companies that derive 5% or more revenue (either reported or estimated) from theextraction and production of oil and gas.

o

All companies that derive 10% or more revenue (either reported or estimated) fromliquid fuel based power generation.

© 2024 MSCI Inc. All rights reserved.

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MSCI Climate Change ESG Select Indexes Methodology | August 2024

•

•

•

•

Tobaccoo

All companies that manufacture tobacco products, such as cigars, blunts, cigarettes,
e-cigarettes, inhalers, beedis, kreteks, smokeless tobacco, snuff, snus, dissolvableand chewing tobacco. This also includes companies that grow or process raw
tobacco leaves.

o

All companies that derive 5% or more revenue from tobacco-related businessactivities.

Thermal CoaloAll companies deriving more than 0% revenue (either reported or estimated) from themining of thermal coal (including lignite, bituminous, anthracite and steam coal) andits sale to external parties. It excludes: revenue from metallurgical coal; coal mined
for internal power generation (e.g. in the case of vertically integrated power
producers); intra-company sales of mined thermal coal; and revenue from coal
trading.

o

All companies that disclose evidence of thermal coal production.

o

All companies deriving 5% or more revenue (either reported or estimated) fromthermal coal based power generation

Unconventional Oil & GasoAll companies deriving more than 0% revenue from unconventional oil and gas. It
includes revenues from oil sands, oil shale (kerogen-rich deposits), shale gas, shaleoil, coal seam gas, and coal bed methane. It excludes all types of conventional oil
and gas production including Arctic onshore/offshore, deepwater, shallow water andother onshore/offshore.

oAll companies that provide evidence of producing shale oil and gas.

o

All companies that provide evidence of producing oil sands.

o

All companies deriving more than 0% revenue from Arctic oil.

oAll companies deriving more than 0% revenue from Arctic gas.

o

All companies with evidence of producing Arctic oil. It excludes revenue from nonextraction activities (e.g. exploration, surveying, processing, refining); ownership ofArctic oil reserves with no associated extraction revenues; revenue from intracompany sales.

oAll companies with evidence of producing Arctic gas. It excludes revenue from nonextraction activities (e.g. exploration, surveying, processing, refining); ownership ofArctic gas reserves with no associated extraction revenues; revenue from intracompany sales.

Weaponso

All companies deriving 5% or more aggregate revenue from weapons systems,
components, and support systems and services.

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MSCI Climate Change ESG Select Indexes Methodology | August 2024

Appendix II: Calculation of Target Metrics
Greenhouse Gas (GHG) Emissions Intensity
MSCI ESG Research collects company-specific direct (Scope 1) and indirect (Scope 2) greenhousegas emissions (GHG) data from company public documents and/or the Carbon Disclosure Project. If
a company does not report GHG emissions, then MSCI ESG Research estimates Scope 1 and Scope
2 GHG emissions.
MSCI ESG Research estimates company-specific indirect (Scope 3) GHG emissions from the Scope
3 Carbon Emissions Estimation Model. The data is generally updated on an annual basis.

Calculation of GHG Intensity
For Parent Index constituents where the Scope 1+2+3 Emissions Intensity is not available, theaverage Scope 1+2+3 Emissions Intensity of all the constituents of the MSCI ACWI in the same GICS
Industry Group in which the constituent belongs is used.
Security Level GHG Intensity =𝑆𝑐𝑜𝑝𝑒 1 + 2 + 3 𝐶𝑎𝑟𝑏𝑜𝑛 𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 ∗ (1 + 𝐸𝑉𝐼𝐴𝐹)𝐸𝑛𝑡𝑒𝑟𝑝𝑟𝑖𝑠𝑒 𝑉𝑎𝑙𝑢𝑒 + 𝐶𝑎𝑠ℎ(𝑖𝑛 𝑀$)

Enterprise Value Inflation Adjustment Factor (EVIAF)8 =𝐸𝑉𝐼𝐴𝐹 = (𝐴𝑣𝑒𝑟𝑎𝑔𝑒(𝐸𝑛𝑡𝑒𝑟𝑝𝑟𝑖𝑠𝑒 𝑉𝑎𝑙𝑢𝑒 + 𝐶𝑎𝑠ℎ))−1
𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 (𝐴𝑣𝑒𝑟𝑎𝑔𝑒(𝐸𝑛𝑡𝑒𝑟𝑝𝑟𝑖𝑠𝑒 𝑉𝑎𝑙𝑢𝑒 + 𝐶𝑎𝑠ℎ))Weighted Average GHG Intensity of Parent Index =∑(𝑊𝑒𝑖𝑔ℎ𝑡 𝑖𝑛 𝑃𝑎𝑟𝑒𝑛𝑡 𝐼𝑛𝑑𝑒𝑥 ∗ 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑦 𝐿𝑒𝑣𝑒𝑙 𝐺𝐻𝐺 𝐼𝑛𝑡𝑒𝑛𝑠𝑖𝑡𝑦)

Weighted Average GHG Intensity of Derived Index =∑(𝐼𝑛𝑑𝑒𝑥 𝑊𝑒𝑖𝑔ℎ𝑡 ∗ 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑦 𝐿𝑒𝑣𝑒𝑙 𝐺𝐻𝐺 𝐼𝑛𝑡𝑒𝑛𝑠𝑖𝑡𝑦)
Calculation of Potential Carbon Emissions Intensity
For newly added companies to the index where data is not available yet, MSCI uses zero fossil fuelreserves.
Security Level Potential Carbon Emissions (PCE) Intensity =𝐴𝑏𝑠𝑜𝑙𝑢𝑡𝑒 𝑃𝑜𝑡𝑒𝑛𝑡𝑖𝑎𝑙 𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 ∗ (1 + 𝐸𝑉𝐼𝐴𝐹)𝐸𝑛𝑡𝑒𝑟𝑝𝑟𝑖𝑠𝑒 𝑉𝑎𝑙𝑢𝑒 + 𝐶𝑎𝑠ℎ(𝑖𝑛 𝑀$)

8 Average Enterprise Value + Cash is calculated for securities in the Eligible Universe© 2024 MSCI Inc. All rights reserved.

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MSCI Climate Change ESG Select Indexes Methodology | August 2024

Weighted Average Potential Emissions Intensity of Parent Index =∑(𝑊𝑒𝑖𝑔ℎ𝑡 𝑖𝑛 𝑃𝑎𝑟𝑒𝑛𝑡 𝐼𝑛𝑑𝑒𝑥 ∗ 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑦 𝐿𝑒𝑣𝑒𝑙 𝑃𝐶𝐸 𝐼𝑛𝑡𝑒𝑛𝑠𝑖𝑡𝑦)

Weighted Average Potential Emissions Intensity of Derived Index =∑(𝐼𝑛𝑑𝑒𝑥 𝑊𝑒𝑖𝑔ℎ𝑡 ∗ 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑦 𝐿𝑒𝑣𝑒𝑙 𝑃𝐶𝐸 𝐼𝑛𝑡𝑒𝑛𝑠𝑖𝑡𝑦)
Calculation of Average Decarbonization
On average, the Indexes follow a 7% decarbonization trajectory since the Base Date. The Weighted
Average GHG Intensity at the Base Date (W1) is used to compute the target Weighted Average GHG
Intensity at any given Semi-Annual Index Review (Wt) as per the below formula.
(𝑡−1)
2

𝑊𝑡 = 𝑊1 ∗ 0.93

Where ‘t’ is the number of Semi-Annual Index Reviews since the Base Date.
Thus, for the 3rd Semi-Annual Index Review since the Base Date (t=3), the target Weighted Average
GHG Intensity will be W1*0.93.

Calculation of Green Revenue to Fossil fuels-based Revenue Multiple
Green Revenue
For each constituent in the Parent Index, the Green Revenue% is calculated as the cumulative
revenue (%) from the six Clean Tech themes which are as follows:•

Alternative Energy – products and services that support the transmission, distribution andgeneration of renewable energy and alternative fuels to reduce carbon and pollutant
emissions in supporting affordable and clean energy to combat climate change.

•

Energy Efficiency – products, and services that support the maximization of productivity inlabor, transportation, power and domestic applications with minimal energy consumption toensure universal access to affordable, reliable and modern energy services.

•

Sustainable Water – products, services, infrastructure projects and technologies that resolve
water scarcity and water quality issues, through minimizing and monitoring current water
demand, improving the quality and availability of water supply to improve resource
management in both domestic and industrial use.

•

Green Building – design, construction, redevelopment, retrofitting, or acquisition of greencertified properties to promote mechanisms for raising capacity for effective climate change
mitigation and adaptation.

•

Pollution Prevention – products, services, infrastructure projects and technologies that
reduces volume of waste materials through recycling, minimizes introduction of toxic
substances, and offers remediation of existing contaminants such as heavy metals andorganic pollutants in various environmental media to significantly address pollution in alllevels and its negative effects© 2024 MSCI Inc. All rights reserved.

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MSCI Climate Change ESG Select Indexes Methodology | August 2024•

Sustainable Agriculture - revenues from forest and agricultural products that meetenvironmental and organic certification requirements to address significantly biodiversity
loss, pollution, land disturbance, and water overuse

The Weighted Average Green Revenue% is calculated as:= ∑(𝑊𝑒𝑖𝑔ℎ𝑡 𝑖𝑛 𝐼𝑛𝑑𝑒𝑥 ∗ 𝐺𝑟𝑒𝑒𝑛 𝑅𝑒𝑣𝑒𝑛𝑢𝑒%)
Fossil fuels-based Revenue
For each constituent in the Parent Index, the Fossil fuels-based Revenue% is calculated as the
cumulative revenue (%) from the following sources:•

Revenue% (either reported or estimated) from the mining of thermal coal (including lignite,
bituminous, anthracite and steam coal) and its sale to external parties. It excludes revenue
from metallurgical coal, coal mined for internal power generation (e.g. in the case ofvertically integrated power producers), intra-company sales of mined thermal coal andrevenue from coal trading (either reported or estimated)•

Revenue% from the extraction, production and refining of Conventional and Unconventional
Oil & Gas. Conventional Oil and Gas includes Arctic onshore/offshore, deep water, shallow
water and other onshore/offshore. Unconventional Oil and Gas includes oil sands, oil shale(kerogen-rich deposits), shale gas, shale oil, coal seam gas, and coal bed methane.

•

Revenue% from thermal coal based power generation, liquid fuel based power generationand natural gas based power generation.

The Weighted Average Fossil fuels-based Revenue% is calculated as:= ∑(𝑊𝑒𝑖𝑔ℎ𝑡 𝑖𝑛 𝐼𝑛𝑑𝑒𝑥 ∗ 𝐵𝑟𝑜𝑤𝑛 𝑅𝑒𝑣𝑒𝑛𝑢𝑒%)
The Green Revenues to Fossil fuels-based Revenues multiple for either the Parent Index or the Index
is calculated as a ratio of the Weighted Average Green Revenue to the Weighted Average Fossil
fuels-based Revenue as per the formula below:=

𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐺𝑟𝑒𝑒𝑛 𝑅𝑒𝑣𝑒𝑛𝑢𝑒%
𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐵𝑟𝑜𝑤𝑛 𝑅𝑒𝑣𝑒𝑛𝑢𝑒%

Climate Impact Sectors
NACE9 is the European Union’s classification of economic activities. As per the draft DA, stocks in
the NACE Section codes A, B, C, D, E, F, G, H, L are classified as “High Climate Impact” sector andother stocks are classified ‘Low Climate Impact’ sector. The GICS10 Sub-Industry code for eachsecurity is mapped to the corresponding “Climate Impact Sector” using a mapping. This mapping isconstructed in the following steps:

9 For further details regarding NACE, please refer to https://ec.europa.eu/eurostat/statistics-explained/index.php?title=NACE_background
10 For further information regarding GICS, please refer to https://www.msci.com/gics© 2024 MSCI Inc. All rights reserved.

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MSCI Climate Change ESG Select Indexes Methodology | August 2024

1. MSCI has published a mapping11 between the NACE classes and GICS Sub-Industry.
2. For each GICS Sub-Industry, the number of NACE classes which fall under the High Climate
Impact Sector (say the number of classes is NH) and Low Climate Impact Sector (say the
number of classes is NL) is identified
3. If all the NACE classes for a given GICS Sub-Industry are identified in the High Climate
Impact Sector (NL = 0), then the GICS Sub-Industry is mapped to the High Climate Impact
Sector. Conversely, if all the NACE classes for a given GICS Sub-Industry are identified in the
Low Climate Impact Sector (NH = 0) then the GICS Sub-Industry is mapped to the Low
Climate Impact Sector
4. In case a GICS Sub-Industry is mapped to some NACE classes in the High Climate Impact
Sector and the others in the Low Climate Impact Sector, the GICS Industry is mapped to the
Climate Impact Sector in the following manner:a. NH >= NL: If the number of NACE classes in the High Climate Impact Sector is at least
equivalent to the number of NACE classes in the Low Climate Impact Sector, theGICS Sub-Industry is mapped to the High Climate Impact Sectorb. NH < NL: If the number of NACE classes in the High Climate Impact Sector is lessthan the number of NACE classes in the Low Climate Impact Sector, the GICS SubIndustry is mapped to the Low Climate Impact Sector
5. Using the GICS Sub-Industry to Climate Impact Sector mapping created in Step 4, and the
security-level GICS Sub-Industry, each security in the Parent Index is classified in either HighClimate Impact Sector or Low Climate Impact Sector

11 This mapping is available in the Handbook of Climate Transition Benchmarks, Paris-Aligned Benchmark and Benchmarks’ ESG

Disclosures. Please note that the mapping does not reflect changes in the GICS structure that were implemented in the MSCI
indexes on June 1, 2023.

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MSCI Climate Change ESG Select Indexes Methodology | August 2024

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

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

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

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

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

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

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

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

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

MSCI Climate Change Indexes Methodology –www.msci.com/index/methodology/latest/ClimateChange•

MSCI Capped Indexes Methodology – www.msci.com/index/methodology/latest/Capped•

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.

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MSCI Climate Change ESG Select Indexes Methodology | August 2024

Appendix IV: Changes to this Document
The following sections have been modified effective December 01, 2022:•

Introduction – Updated to reflect the new screen for ‘arctic oil & gas’•

Section 2.2.1: Updated to reflect the new screen for ‘arctic oil & gas’•

Appendix I: Updated to reflect the revised screens for ‘thermal coal’ and ‘unconventional oil &gas’ and the new screen for ‘arctic oil & gas’

The following sections have been modified effective May 01, 2023:••

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 MSCIGIMI were replaced with “Index Reviews.”

Section 4: MSCI ESG Research••

Moved that section after the Section 3
Added the definition of industry-adjusted ESG score under Section 4.1 (MSCI ESG Ratings)

The following section has been modified effective September 01, 2023:•

Section 2.2: Updated footnote to clarify treatment at the August 2023 Index Review•

Section 2.2.3: Clarified the exclusion criteria for companies involved in ESG Controversies.

The following section has been modified effective December 01, 2023:•

Section 2.1: Updated to reflect the exclusion of select GICS® sub-industries.

•

Section 2.2.1: Updated to reflect the new screen for ‘conventional oil and gas’ and therevised screen for thermal coal based power generation.

•

Section 2.4: Added a section for the treatment of unrated companies.

•

Section 2.2.3: Clarified the exclusion criteria for companies involved in ESG Controversies.

•

Appendix I: Updated the description for the new and revised screens•

Appendix II: Added the calculation of target metrics for carbon emissions intensity, potential
emissions, average decarbonization, calculation of green-to-brown revenue and details on
the climate impact sector.

•

Appendix III – Updated references on NACE and GICS mapping© 2024 MSCI Inc. All rights reserved.

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MSCI Climate Change ESG Select Indexes Methodology | August 2024

The following section has been modified as of August 2024:
Section 2.3 Issuer Capping•

The issuer capping was changed from 10% to 5% for all Indexes.

Appendix III: Methodology Set•

Added details on the Methodology Set for the Indexes© 2024 MSCI Inc. All rights reserved.

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MSCI Climate Change ESG Select Indexes Methodology | August 2024

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