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MSCI Climate Paris Aligned Indexes

MSCI Climate
Paris AlignedIndexes
Is your portfolio built for the net-zero transition?
Climate change can pose profound risk

The index methodology aligns with theto portfolio companies — and create vast

recommendations of the Task Force on

opportunities for institutional investors.

Climate-related Financial Disclosures

At MSCI, our goal is to equip you with the(TCFD) and the requirements of the EU

tools to minimize exposure to these risks,

Paris Aligned Benchmark, methodology

both physical and transition, and maximize

standards established by the European

exposure to sustainable investment

Commission.

opportunities, as you seek to decarbonize
your portfolio.
Our Climate Paris Aligned Indexes aredesigned to help investors transitioning to a

Want to learn how we can help yournet-zero transition?

Contact us

net-zero economy build resilient portfoliosaligned with the 1.5°C temperature-rise
scenario of the Paris Agreement.

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Defining your rolein capping global
emissions
Climate change is the greatest threat toThe Paris Agreement aims to keep global

In response, more and more investors havethe planet we have ever faced and its

temperature rise to well below 2°C,

been setting their own net-zero targets. For

consequences, from weather extremes

preferably to no more than 1.5°C, above

owners and managers of assets seeking

to rising sea levels, have already taken apreindustrial levels. To achieve this goal,

to decarbonize their portfolios, investment

devastating toll on our ecosystems andglobal greenhouse gas (GHS) emissions

policy benchmarks can provide a reference

organisms.

need to fall by nearly half by 2030,

point for a net-zero transition. Climate

and reach net-zero no later than 2050,

indexes also can help investors identify

according to the Intergovernmental Panelclimate-related financial risks and novel

on Climate Change.

investment opportunities.

What’s at stake for institutional investors?
Climate change can pose profound risk to portfolio
companies

It also can create vast opportunity for investors• Extreme weather could damage assets• New low-carbon technologies could boost company profits• Increased carbon pricing could result in significant costs• Shift in consumer preferences• Stranded asset risk

• Access to new markets could spur growth• Strategies could result in loss of trust in management• Green strategies could enhance reputation and brand value

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Built to help you
integrate yourclimate strategy
Our transparent, rules-based indexes are designed to help investors incorporate netzero strategies into their portfolio across their investment process.
The indexes aim to:
The MSCI Paris Aligned Climate Indexes follow a rules-based optimized methodology andaim to achieve the following:›› Align with a 1.5°C climate scenario using
MSCI Climate Value-at-Risk model and“self-decarbonization” rate of 10% year-onyear.
›› Reduce exposure to physical risk arisingfrom extreme weather events by at least50%.
›› Shift index weight from companies facing
climate transition risks to those withclimate transition opportunities by using
MSCI Low Carbon Transition Score andexcluding categories of fossil fuel-linked
companies.

›› Increase weight of companies with credible
carbon reduction targets through weighting
scheme.
›› Achieve modest tracking error compared toparent index as well as low turnover.
The index methodologies align with theminimum technical requirements ofEU Paris Aligned Benchmark. and theTCFD recommendations by accounting
for the portfolio’s exposure to physicaland transition risk, as well as increased
exposure to climate opportunities.

›› Reduce weight of companies assessed ashigh carbon emitters using Scope 1, 2 and3 emissions.

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Why MSCI Climate
Paris Aligned
Indexes?
›› Rely on advanced climate analytics
data and models, including forwardlooking metrics designed to showtemperature alignment of investmentswith global temperature goals›› Built for customization; canbe combined with MSCI’s ESG,Sustainable Impact, Factor andThematic data indexes and sets›› MSCI EU PAB Overlay Index
methodology available for investors
looking for a strict application of EU
regulatory minimum requirements

1. The EU Paris Aligned Benchmark is contained in the EU Commission’s TechnicalExpert Group on Sustainable Finance’s Final Report on Climate Benchmarks andBenchmarks’ ESG Disclosures: https://ec.europa.eu/info/business-economyeuro/banking-and-finance/sustainable-finance/eu-climate-benchmarks-andbenchmarks-esg-disclosures_enmsci.com 5

We bring together some of the best minds in quantitative finance and climate science tobuild new types of models and analytics for pricing climate risk, allocating capital, andadvancing understanding of how a changing climate and the energy transition influencefinancial markets.

We use an array of advanced, proprietary tools to construct
our indexes.
Climate Value-at-Risk
Model built to provide a forward-looking and return-based valuationassessment to measure climate-related risks and opportunities inportfolios
Low Carbon Transition Score
Measure of a company’s exposure to climate transition risks andopportunities reached by aggregating measures of Scope 1, 2 and 3
emissions, avoided emissions and climate management quality
Barra® Open Optimizer
Flexible optimization library designed to reduce risk during core
portfolio construction while aiming to control for turnover andminimize tracking error

View full methodology here

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Helping you
achieve yourgoals

Our indexes can be used as:›› Basis for index-based strategies for mutual funds, exchange-traded funds (ETFs),
derivatives and structured products.
›› Reference or policy benchmarks to support net-zero strategies.
›› Climate performance benchmarks for actively managed climate-aligned portfolios.

Can be used as policy
benchmark for strategic
asset allocation
Leading asset owners haveadopted MSCI Climate Indexes
to align benchmarks withclimate objectives

ASSET ALLOCATIONCan be used asunderlying benchmark
for index products suchas ETFs and mutual
funds

Can be used as
benchmark to measureperformance of activemanagers

Asset managers worldwide
have used MSCI ClimateIndexes to launch ETFs andindex funds

Asset managers can useMSCI Climate Indexes as
performance benchmark tomeasure impact of climate on
portfolio risk and return

FINANCIAL INSTRUMENTSPERFORMANCE BENCHMARKSCan be used to support
engagement
Investors can use indexes to
identify and engage highemitting companies to help
drive decarbonization

ENGAGEMENT TOOL

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How are MSCI’s Climate
Paris Aligned Indexes
constructed?
When constructing these indexes, we begin with all existing constituents of the parent
market cap weighted index, such as the MSCI ACWI Index, our flagship global equity index,
with the aim of providing an opportunity set with sufficient liquidity and replicability.
STEP ONE:STEP TWO:

DEFINE THE ELIGIBLE UNIVERSE

AIM TO MEET INDEX OBJECTIVES

Exclude securities of companies based onthese criteria:

Aim to achieve the index objectives (seep. 4), such as aligning with a 1.5°C climate
scenario and shifting index weight towardgreen revenues.

Controversial Weapons

STEP THREE:ESG Controversies

MAINTAIN INDEXES

TobaccoThe indexes are rebalanced twice yearly, asof the close of the last business day of Mayand November. The rebalancing coincides
with the May and November index reviewsof the MSCI Global Investable MarketIndexes.

Environmental Harm
Thermal Coal Mining
Oil & Gas
Power Generation(Thermal Coal, Liquid Fuel, NaturalGas)

For more information, please visit https://www.msci.com/our-solutions/esg-investing/esg-indexes/climate-paris-aligned-indexes.

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Conclusion
Investors seeking to implement net-zero strategies can use the MSCI Climate Paris
Aligned Indexes to take a broad-based approach to portfolio construction, embedding
forward-looking measures of climate risk and return to help reach their goals. Our indexes,
whether used as benchmarks or for the basis for indexed allocations, are designed to help
investors make more informed decisions in the transition to a net-zero economy.

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About MSCI ESG Research
Products and Services
MSCI ESG Research products and services are provided by
MSCI ESG Research LLC, and are designed to provide indepth research, ratings and analysis of environmental, socialand governance-related business practices to companies
worldwide. ESG ratings, data and analysis from MSCI ESG
Research LLC. are also used in the construction of theMSCI ESG Indexes. MSCI ESG Research LLC is a Registered
Investment Adviser under the Investment Advisers Act of 1940
and a subsidiary of MSCI Inc.

About MSCI Inc.
MSCI is a leading provider of critical decision support tools andservices for the global investment community. With over 50 years ofexpertise in research, data and technology, we power better investment
decisions by enabling clients to understand and analyze key driversof risk and return and confidently build more effective portfolios. We
create industry-leading research-enhanced solutions that clients useto gain insight into and improve transparency across the investment
process.

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