Index Methodology

MSCI Global Fossil
Fuels Exclusion
Indexes Methodology
August 2024

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

MSCI Global Fossil Fuels Exclusion Indexes Methodology | August 2024

Contents
1.

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

Constructing the MSCI Global Fossil Fuels Exclusion Indexes ............................... 4
2.1 Underlying Universe ...................................................................................................... 4
2.2 Screening Criteria .......................................................................................................... 4
2.2.1 Fossil Fuel Reserves .............................................................................................. 4
2.3 Treatment of Unrated Companies ............................................................................... 5

3.

Maintaining the MSCI Global Fossil Fuels Exclusion Indexes ................................. 6
3.1 Index Reviews ................................................................................................................ 6
3.2 Ongoing Event-Related Maintenance .......................................................................... 6

4.

MSCI ESG Research .............................................................................................. 8
4.1 MSCI Climate Change Metrics .................................................................................... 8

Appendix I: Methodology Set ....................................................................................... 9
Appendix II: Changes to this Document ...................................................................... 10© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI Global Fossil Fuels Exclusion Indexes Methodology | August 2024

1.

Introduction
The MSCI Global Fossil Fuels Exclusion Indexes (the ‘Indexes’) have been developed for use byinstitutional investors, including pension funds, who aim to eliminate or reduce some or all fossil fuelreserves exposure from their investments. The MSCI Global Fossil Fuels Indexes are currently
available in the following two variants:•

MSCI Global ex Fossil Fuels Indexes•

MSCI Global ex Coal Indexes

These indexes are free float‐adjusted market capitalization weighted.1

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

methodology document. Please refer to Appendix I for more details.

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

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MSCI Global Fossil Fuels Exclusion Indexes Methodology | August 20242.

Constructing the Indexes

2.1

Defining the Parent Index
The Parent Indexes serve as the selection universe of securities for the Indexes. The Parent Indexes
for the MSCI Global Fossil Fuel Exclusion Indexes are defined by the constituents of the MSCI Global
Investable Market Indexes (GIMI).

2.2

Screening Criteria

2.2.1 Fossil Fuel Reserves
The Indexes use company research provided by MSCI ESG Research2 to determine eligibility forindex inclusion. In particular, the indexes use MSCI ESG Climate Change Metrics to identify
companies with fossil fuel reserves.
MSCI Global ex Fossil Fuels Indexes
Companies that have proved & probable coal reserves and/or oil and natural gas reserves used forenergy purposes are excluded from the MSCI Global ex Fossil Fuels Indexes. Specifically, companies
that meet the following criterion are excluded:•

Flagged for “Fossil Fuel Reserves – Energy Application”

MSCI Global ex Coal Indexes
Companies that have proved & probable coal reserves used for energy purposes are excluded from
the MSCI Global ex Coal Indexes. Specifically, companies that meet both of the following criteria are
excluded:•

Flagged for “Fossil Fuel Reserves – Energy Application”•

Flagged for “Evidence of Total Coal Reserves”

Description of factors used:
Factor Name
Fossil Fuel Reserves –Energy Application

Description
This factor identifies companies, regardless of theirindustries, with evidence of owning fossil fuel reserves
used most likely for energy applications. For high-intensity
industries (belonging to Energy and Utilities GICS Sector &Diversified Metals & Mining GICS Sub-Industry), this factor
flags companies with evidence of fossil fuel reserves(excluding Metallurgical Coal). For other industries, it flags
companies with evidence of fossil fuel reserves (excluding
Metallurgical Coal) and deriving revenue from businesssegments associated with energy application of fossil fuels

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.

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MSCI Global Fossil Fuels Exclusion Indexes Methodology | August 2024

Evidence of Total Coal
Reserves

2.3

such as Thermal Coal mining, Oil & Gas exploration &production and downstream activities e.g. refining;
distribution & retail; pipeline & transportation; trading andfossil fuel- based power generation. Fossil fuel reserves aredefined as proved and probable reserves (i.e. 2P) for coaland proved reserves (i.e. 1P) for oil and natural gas.
Evidence of owning reserves includes companies providing
the exact volume of reserves, and companies making astatement about their ownership of reserves.
This factor identifies companies that provide evidence ofowning coal reserves, including those that own less than
50% of a reserves field. Evidence of owning reserves
includes companies providing the exact volume ofreserves, and companies making a statement about theirownership of reserves.

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

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

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MSCI Global Fossil Fuels Exclusion Indexes Methodology | August 2024

3.

Maintaining the Indexes

3.1

Index Reviews
The Indexes are reviewed on a quarterly basis 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. At index reviews, all companies in the underlying
universe are reviewed and eligible companies are added to the Indexes. Existing constituents may bedeleted from the Indexes if they are identified as having fossil fuel reserves and are screened
according to the criteria described in Section 2. Any constituent that is deleted from the Parent index
as a result of an index review is also deleted from the Indexes.
The pro forma MSCI Global Fossil Fuels Exclusion Indexes are generally announced nine businessdays before the effective date.
In general, MSCI uses MSCI ESG Research data3 (MSCI ESG Climate Change Metrics) as of the endof the month preceding the Index Reviews for the rebalancing of MSCI Global Fossil Fuels Exclusion
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 of month, when available, for the rebalancing of the Indexes.

3.2

Ongoing Event-Related Maintenance
The following section briefly describes the treatment of common corporate events within the
Indexes.
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 identified ashaving fossil fuel reserves.
EVENT TYPE

EVENT DETAILSNew additions to the Parent Index

New securities added to the Parent Index (such as
IPOs, other early inclusions and migrations from adifferent size-segment) will not be added to the Index
at the time of event implementation. Such securities
will be considered for addition in the Index at thesubsequent Index Review.

Spin-Offs

All securities created as a result of the spin-off of an
existing Index constituent will not be added to theIndex at the time of event implementation.
Reevaluation for addition in the Index will occur at thesubsequent Index Review.

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

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MSCI Global Fossil Fuels Exclusion Indexes Methodology | August 2024

Merger/Acquisition

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.
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.

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MSCI Global Fossil Fuels Exclusion Indexes Methodology | August 2024

4.

MSCI ESG Research
The Indexes are products of MSCI Inc. that utilize 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 Climate
Change Metrics. MSCI Indexes are administered by MSCI Limited and MSCI Deutschland GmbH.

4.1

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 withtemperature 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 Global Fossil Fuels Exclusion Indexes Methodology | August 2024

Appendix I: 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 –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 Indexes 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.

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MSCI Global Fossil Fuels Exclusion Indexes Methodology | August 2024

Appendix II: Changes to this Document
The following sections have been updated as of August 2016:
Section 4: Maintaining the MSCI Global Fossil Fuels Exclusion Indexes•

Clarification on 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 updated as of May 2017:
Section 2: Screening Criteria•

Updated link to the MSCI ESG CarbonMetrics

Section 4.1: Index Reviews•

Updated to include the announcement date of the pro forma indexes.

The following sections have been updated as of December 2017:
Section 2: Screening Criteria•

Removed the last paragraphSection 3.2: Exclusion Criteria•

Clarified the exclusion criteria for companies with fossil fuel reserves

The following sections have been updated as of November 2019:
Section 2: MSCI ESG Research•

Changed section name from “Screening Criteria”•

Added details on MSCI ESG Climate Change Metrics

Section 3.1: Underlying Universe•

Updated to refer to the MSCI Global Investable Market Indexes

Section 3.2: Screening Criteria•

Updated the fossil fuel reserves related criteria•

Added a sub-section on missing data

Section 3.3: Index Construction•

Removed the section

Section 4.2: Ongoing Event-Related Maintenance•Clarified the treatment of different types of corporate events

The following sections have been updated as of June 2023:
Section 3: Maintaining the MSCI Global Fossil Fuels Exclusion Index•

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

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

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MSCI Global Fossil Fuels Exclusion Indexes Methodology | August 2024•

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 section 3 (Maintaining the MSCI Global Fossil Fuels Exclusion
Indexes)•

Updated the descriptions of MSCI ESG Research products.

The following section has been updated as of January 2024:
Section 2.3: Treatment of Unrated Companies•

New section replaced section 2.2.2 detailing the treatment of companies with ratings andresearch not available from MSCI ESG Research

Appendix I: Methodology Set
Added details on the Methodology Set for the Indexes.
The following section has been updated as of August 2024
Section 4: MSCI ESG Research•

Updated with latest descriptions.

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