Consultation on Proposed
Changes to MSCI Thematic Index
Methodologies
PROPOSAL FOR CONSULTATIONThis consultation may or may not lead to the implementation of any or all of the proposed changes in thehighlighted or any other MSCI indexes. Consultation feedback will remain confidential. MSCI may publicly
disclose feedback if specifically requested by specific market participants. In that case, the relevant feedback
would be published together with the final result of the consultation.
April 2022

Information Classification: GENERAL© 2022 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

Table of Contents
1. Summary of Proposed Changes
2. Analysis of Proposed Change 1
3. Analysis of Proposed Change 2
4. Analysis of Proposed Change 3

5. Appendix 1 - Enhancement of MSCI Thematic Exposure Standard product and MSCI Thematic Indexes
6. Appendix 2 – List of MSCI Thematic Indexes in scope of this consultation

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Summary
MSCI presents a consultation with proposals for three changes to MSCI Thematic
Index methodologies* following the upcoming enhancement** of the MSCI Thematic
Exposure Standard (TES).

MSCI invites feedback from market participants on or
before April 18, 2022; and will announce the results of theconsultation on or before April 22, 2022. Changes, if any,
would be implemented effective June 1, 2022.

*Please refer to Appendix II for the full list of thematic indexes in scope of this consultation**Please refer to Appendix I for the impact of this enhancement on MSCI Thematic Indexes

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Summary of proposed changes

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Proposed Changes to MSCI Thematic Index Methodologies
S.
No

Current

Proposed Change

Expected Benefit(s)1.

A pertinent SIC Code may be deleted from thelist of selected SIC Codes1 if a company whosebusiness segment is in the ‘selected list of
business segments’1 is deleted from the parent
universe. This may lead to the deletion of other“relevant” companies from the index.

Implement SIC code buffering as amechanism to retain a SIC Code in theselected list for 2 years.

Reduce risk of deletion of pertinent SIC
codes and hence of relevant companies
from the thematic index. Reduces index
turnover and improves robustness ofindex rebalance.

2.

For companies which do not declare any
revenue (e.g., they only have costs) or declare
negative revenue (e.g., via certain accounting
treatments), relevance scores (RS) would be
calculated as 0, except for the Genomic
Innovation2 theme.

Use segment assets for such companies
as a fallback scaling factor to facilitate a
non-zero relevance score. That is, extend
the fallback logic of the Genomic
Innovation theme to all themes.

Mitigate risk of constituent deletion if aparticular company does not reportrevenues in one fiscal year (and so avoid
reverse turnover). Facilitate inclusion ofcompanies with relevant businessactivities which may be pre-revenue.

3.

Relevance score of 25% is used to selectcompanies for the MSCI ACWI IMI Blockchain
Economy3 Index at rebalance.

Reduce the threshold to 15% for the
MSCI ACWI IMI Blockchain Economy
Index only.

Improve the theme representation and
NOC stability of the index.

1:Please refer to section 3.3.3 and 3.3.4 of the MSCI Thematic Relevance Score Methodology
2 : Please refer to section 2.6.2 of the methodology document of the ACWI IMI Genomic Innovation Index here –https://www.msci.com/index-methodology
3 : Please refer to section 2.6.3 of the methodology document of the ACWI IMI Blockchain Economy Index here –https://www.msci.com/index-methodology

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Proposed Change 1
SIC CODE BUFFERING

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Rationale for Proposed Change 1• A pertinent SIC Code may be deleted from the list of selected SIC Codes if a company whose businesssegment is in the ‘selected list of business segments’* is deleted from the parent universe. However, thedeletion of such a company from the universe need not invalidate the SIC Code’s linkage to the theme.
• Pertinent SIC Codes dropped from the list of selected SIC Codes* can lead to a decrease in the relevance
score of other companies leading to those stocks being deleted from a thematic index.
• SIC Code buffering prevents the immediate deletion of the SIC Codes: using this approach, we propose thata SIC code is retained in the selected list for a period of 2 years** from the date of first entry in the selected
SIC Code list.
• The next slide shows the reduction in index turnover after applying SIC Code buffering, ceteris paribus.

Question: Should SIC Code buffering be applied to MSCI Thematic Indexes ?
*Please refer to section 3.3.4 of the MSCI thematic relevance score calculation methodology**MSCI proposes a 2-year window to be consistent with the lookback period for which segment data is used in relevance score calculation.

Information Classification: GENERAL

Simulated SIC Code buffering: November 2019 SAIR
Name

RS

• In May 2019 SAIR, SIC code 3812 was(Maymapped to the business segment 'Sensors’
2019)
of Chemring Group• In Nov 2019 SAIR, Chemring Group was
CHEMRING GROUP
29%
deleted from ACWI IMI.
• This deleted SIC Code 3812 from the list for
FLIR SYSTEMS
28%
the Nov 2019 SAIR rebalance.
• Five stocks were deleted from the MSCI ACWI77%
IMI Robotics Index as a result. The relevance KRATOS DEFENSE
score of Lockheed Martin was also reduced.
ULTRA ELECTRONIC
27%• If SIC Code buffering had been active :HLDGS• The index would have had 5 fewer
deletions
TOMTOM77%• The weight of Lockheed Martin would
have been stable.
CHINA AVIONICS A (HK-C)
65%• One-way index turnover would have
reduced from 6.6% to 4.3%
LOCKHEED MARTIN CORP
55%
JENOPTIK

47%

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RS (Nov
2019 w/o
SIC Code
Buffering)RS(Nov 2019with SIC Code
Buffering)

NA

NA

14%

28%

22%

55%

12%

27%

0%

76%

0%

83%

33%

54%

34%

46%

Comment

Parent Deletion in
Nov 2019 SAIR
5 securities nolonger deleted as
the RS is above
25%. RS level is alsosimilar to that in
May 2019. Hencelittle contribution toindex turnoverReducedcontribution toturnover as RS levelis stable.

Proposed Change 2
RELEVANCE SCORE FALLBACK CALCULATION WHEN NO OR NEGATIVEREVENUE IS REPORTED

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Rationale for Proposed Change 2• Relevance score is calculated by using attributable segment revenue as a proportion of total revenue.
• Some potentially relevant companies may not be selected as they do not report any revenue. The company
could be pre-revenue or arise from a specific accounting treatment of corporate transactions. E.g.
• Biotech companies may be in a clinical trials phase and do not yet report any revenues.
• Plug Power Inc: RS in the Efficient Energy and Future Mobility themes decreased to 0% when its FY
2020 revenue was negative due to the treatment of the vesting of warrants** issued to Amazon. This
led to the stock’s deletion from thematic indexes.
• Rivian Automotive Inc: RS for the Future Mobility theme is zero as it reports zero revenue.
• To better reflect the thematic linkage of such companies, an alternative approach* is already applied for the
Genomic Innovation theme, by using segment assets to scale exposure.
• MSCI proposes to use this fallback for all themes in the scope of this consultation.
Question: Should the segment asset fallback for relevance score calculation be applied to all themes for
those companies whose revenue for all segments is zero or null or negative ?
* See section 2.6.2 of the methodology document of the ACWI IMI Genomic Innovation Index here –https://www.msci.com/index-methodology** See page 38 of this document https://www.sec.gov/ix?doc=/Archives/edgar/data/1093691/000155837021007147/plug-20201231x10k.htm
Information Classification: GENERALRS fallback calculation and selected potential index inclusions
Name

Theme

Current Relevance Score(Nov 2021 SAIR w/oapplying segment asset
fallback)

PLUG POWER INC

Efficient Energy

072%

WALLBRIDGE MINING COMPANY LTD

Future Mobility

0

34%

AUSTRALIAN STRATEGIC MATERIALS LTD Future Mobility

042%

FISKER INC

Future Mobility

049%

LORDSTOWN MOTORS CORP

Future Mobility

0

33%

PIEDMONT LITHIUM INC

Future Mobility

0

100%

VOLTA INC

Future Mobility

0

100%

ENOVIX CORP

Future Mobility

0

100%

ELECTREON WIRELESS LTD

Future Mobility

072%

HYLIION HLDGS CORP

Future Mobility

0

100%

PLUG POWER INC

Future Mobility

057%

LITHIUM AMERICAS CORP

Future Mobility

043%

RIVIAN AUTOMOTIVE INC

Future Mobility068%

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Simulated Relevance
Score (Nov 2021 SAIR)
after applying segment
asset fallback

Proposed Change 3
RELAXATION OF SELECTION THRESHOLD FOR BLOCKCHAIN ECONOMY TO
15% FROM 25%

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Rationale for Proposed Change 3• In the Nov 2021 SAIR, the ACWI IMI Blockchain Economy Index had 39 constituents using a relevance score threshold of 25%*.
• If relevance scores from TES were used to rebalance the index in Nov 2021, there would be net deletions from the index due todiscount factor changes**.
• To mitigate this impact and improve the NOC stability of index, MSCI proposes to relax the relevance score threshold to 15%
from 25%, effective May 2022 SAIR.
• As detailed in the table on the next slide, using relevance scores from TES but relaxing the relevance score threshold from 25%
to 15%, would have led to 5 fewer deletions from the index in the Nov 2021 SAIR.

Question: Do you agree that the relevance score threshold for selection in the MSCI ACWI IMIBlockchain Economy Index should be relaxed to 15% from 25%?

*Please refer to section 3.4.5 of the MSCI Relevance Score Calculation methodology document**Please refer to slide 18 of this document which shows the impact on the Blockchain Economy thematic index using index turnover
Information Classification: GENERALACWI IMI Blockchain Economy Index– Impact of using relevance scores from TES torebalance the Index in Nov 2021 vs. without using relevance scores from TES
Row headers represent relevance score ranges (both ends included) calculated without using relevance scores from TES; Column headers
represent those calculated by using relevance scores from TES.

0-10%

0-10%
10%-15%15%-25%25%-50%50%-75%75%-100%

10%-15%15%-25%25%-50%50%-75%75%-100%

54

0

2

0

0

1

6

0

0

0

0

0

1

2

0

0

0

0

0

2

4

4

0

0

0

0

1

1

2

0

1

0

0

5

3

16

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The red highlighted box shows thenumber of deletions from the MSCIACWI IMI Blockchain Economy
Index if relevance scores from TES
are used and the relevance scorethreshold of 25% is used.
The green highlighted box shows thenumber of securities which will not
be deleted from the index if
relevance scores from TES are used
but the relevance score threshold is
relaxed to 15%

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Appendix I

Information Classification: GENERALMSCI Thematic Exposure Standard(TES) enhancement and MSCI
Thematic Indexes
MORE DIVERSIFIED INDEXES, GREATER RS CONSISTENCY

Information Classification: GENERALMSCI Thematic Exposure Standard (TES) enhancement likely tolead to more diversified Thematic Indexes in May 2022 SAIR
– The upcoming enhancement for the MSCI Thematic Exposure Standard will see relevance scores will be
generated for a global universe of 90,000+ equity securities*, a common universe and source for all
relevance score calculation.
– The use of this common universe for relevance score calculation (instead of individual thematic index
parent universes) will likely lead to changes in RS values and hence changes in index constituents.
– Recall the RS calculation is dependent on the calculation universe via the (1) SIC Code selection (2)Discount Factor calculation.
– In general, there will likely be a net increase in constituents for thematic indexes. Some companies will
have higher scores and others will now have non-zero RS scores.
– However, the MSCI ACWI IMI Blockchain Economy Index has net deletions in transition simulations due to
Discount Factor changes. To mitigate this impact, MSCI proposes to relax the relevance score selection
threshold to 15% from 25%, effective May 2022 SAIR, as discussed previously in this document.
– The next slide shows the impact on MSCI Thematic Indexes of using the MSCI Thematic ExposureStandard as the source for all relevance core calculation.
*as of March 2022
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Use of TES as data source for thematic indexes leads to index
turnover comparable to that without the use of TES data in the Nov
2021 SAIRThis chart compares the turnover (t/o) of thematic indexes with and without the use of TES data for the Nov 2021 SAIR
35%
30%
25%
20%

15%
10%
5%
0%

Index rebalance turnover with TES data

Index rebalance turnover without TES data

*Index rebalance t/o with TES data is calculated as the one-way turnover between a thematic index rebalanced using TES relevance scores in the Nov 2021 SAIR and thethematic index rebalanced in May 2021 without the use of TES relevance scores.
Index rebalance t/o without TES data is calculated as the one-way turnover between thematic indexes rebalanced in Nov 2021 and May 28, 2021; both without the use of TES
relevance scores
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Appendix II
IN-SCOPE INDEXES

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Indexes in scope of this consultation
MSCI Thematic Indexes
MSCI ACWI IMI Ageing Society Opportunities

MSCI ACWI IMI Food Revolution

MSCI ACWI IMI Autonomous Technology &Industrial Innovation

MSCI ACWI IMI Future Education

MSCI ACWI IMI Blockchain Economy

MSCI ACWI IMI Future Mobility

MSCI China Tech 100

MSCI ACWI IMI Genomic Innovation

MSCI ACWI IMI Cybersecurity

MSCI ACWI IMI Millennials

MSCI ACWI IMI Digital Economy

MSCI ACWI IMI Next Generation Internet
Innovation

MSCI ACWI IMI Digital Health

MSCI ACWI Rising Consumer SelectMSCI ACWI IMI Disruptive Technology

MSCI ACWI IMI Robotics

MSCI ACWI IMI Efficient Energy

MSCI ACWI IMI Smart Cities

MSCI ACWI IMI Fintech Innovation

MSCI ACWI IMI Space Exploration

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Indexes in scope of this consultation (2)MSCI Thematic Indexes
MSCI China All Shares IMI Ageing Society Opportunities

MSCI China A Onshore IMI Ageing Society Opportunities

MSCI China A Onshore Tech 100

MSCI China All Shares IMI Digital Economy

MSCI China A Onshore IMI Digital Economy

MSCI China A Onshore IMI TechMSCI China All Shares IMI Disruptive Technology

MSCI China A Onshore IMI Disruptive Technology

MSCI China A International
Tech 100MSCI China All Shares IMI Efficient Energy

MSCI China A Onshore IMI Efficient Energy

MSCI China All Shares IMI TechMSCI China All Shares IMI Future Mobility

MSCI China A Onshore IMI Future Mobility

MSCI China All Shares IMI Autonomous Technology & Industrial
Innovation

MSCI China A Onshore IMI Autonomous Technology & Industrial
Innovation

MSCI China All Shares IMI Millennials

MSCI China A Onshore IMI Millennials

MSCI China All Shares IMI Next Generation Internet Innovation

MSCI China A Onshore IMI Next Generation Internet Innovation

MSCI China All Shares IMI Robotics

MSCI China A Onshore IMI Robotics

MSCI China All Shares IMI Smart Cities

MSCI China A Onshore IMI Smart Cities

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