MSCI’s Impact
Materiality Assessment –Sample
Identifying industries’ most significant
impacts on society and the environment

MSCI’s Impact Materiality Assessment

Identifying industries’ most significant impacts on society and the environment
Why an impact materiality map?
Companies that are subject to European Union’s Corporate Sustainability
Reporting Directive (CSRD), including both financial and non-financial
undertakings, are required to conduct a double materiality assessment.
The double materiality assessment requires companies’ to identify all
sustainability issues that are material from either an impact perspective,a financial perspective, or both1 within their direct and indirect activities2.
The assessment considers both how the company’s activities may impact society and the environment (inside-out) and also how sustainability
issues may impact the company’s own financial position (outside-in).

MSCI ESG Ratings already provides a long-standing opinion of the environmental, social and governance issues that are most financially relevant
to an industry or company. To support clients in their double materiality
evaluation, MSCI’s Impact Materiality Assessment now complements
this financial assessment in identifying the most significant negative andpositive impacts across ESRS sub- or sub-sub-topics by Global Industry
Classification Standard (GICS®)3 sub-industry.

The backdrop to these regulatory requirements is the simple fact that, ascompanies go about their business, they, and consequently their investors
and financiers, have impacts on the outside world – on stakeholders andthe environment. Whether companies are creating good jobs, polluting
the water, using commodities produced on deforested land, or developing live-saving medicines, the way that they operate, the value chain thatthey rely on, and the products and services that they offer affect the world
around them in ways that can be either positive or negative, and can range
from negligible to substantial. Within any particular timeframe, some ofthese outside impacts also have financial implications for the companies
themselves and investors. The mechanisms can be as varied as litigation, new regulation, brand damage or enhancement, shifts in consumer
preferences, operational disruption, or technological developments. The
implications may materialize in costs, savings, or business opportunities
for companies, and in the creation or erosion of value for investors.

1 ESRS 1 paragraph 43: “An impact perspective when it pertains to the undertaking’s material actual or potential, positive or negative impacts on people or the environment over the short-, medium- and long-term. Impacts include those connected with the undertaking’s
own operations and upstream and downstream value chain, including through its products and services, as well as through its business relationships.” ESRS 1 paragraph 49: “(…) a financial perspective if it triggers or could reasonably be expected to trigger material
financial effects on the undertaking. This is the case when a sustainability matter generates risks or opportunities that have a material influence or could reasonably be expected to have a material influence, on the undertaking’s development, financial position, financialperformance, cash flows, access to finance or cost of capital over the short-, medium- or long-term.” Source: European Parliament and Council of the European Union. (2019). Official Journal of the European Union, L 317, 12 Impacts, risks and opportunities connected with the undertaking’s own operations and upstream and downstream value chain, including through its products and services, as well as through its business relationships.
3 GICS is the global industry classification standard jointly developed by MSCI and S&P Global Market Intelligence.

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MSCI Impact Materiality Assessment Snapshot

Consumer Staples Sector
Drug RetailTobaccoSoft Drinks & Nonalcoholic beverage

AgriculturalProducts4

HouseholdProducts

Personal Care
Products

ESRS E1 Climate Change
Climate change mitigation
ESRS E3 Water and Marine Resources
Water withdrawal
ESRS E4 Biodiversity & Ecosystems
Land-use change, fresh water use change
ESRS S1 Own Workforce
Adequate Wages
ESRS S3 Affected Communities
Water and Sanitation
Rights of indigenous people
ESRS S4 Consumers and End-users
Privacy

Legend:Singificant Negative Impact

Significant Positive Impact

Significant Negative Impact
Significant Positive Impact

4 Agricultural products sub-industry is also identified as having a potential significant positive impact on climate change mitigation given its involvement in renewables (e.g., biomass, biofuels).
Source: Source: MSCI ESG Research LLC, as of May 13, 2024

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How can the Impact Materiality Assessment be utilized?
MSCI’s Impact Materiality Assessment may be leveraged by clients toidentify the main impacts generated by industries on the environment andsociety in order to inform or corroborate their impact analysis.
Based on the initial Impact Materiality Assessment output, it is possible
to conduct a more specific and contextual deeper dive for any individualcompany5. For companies that fall under the CSRD reporting requirements, the Impact Materiality map is a helpful starting place and reality
check. For firms needing to report on investment or lending portfolios, orupstream or downstream counterparties, the Impact Materiality map likewise can be utilized as a baseline to identify the main positive and negative impacts for the main industries represented in their value chain.

How does MSCI assess impact materiality?
MSCI’s Impact Materiality Assessment evaluates how companies’ business activities may have significant positive or negative impact on societyor the environment. This could be through companies’ direct operations,value chain, business relationships, or products and services. This caninclude both actual or potential impacts that may manifest over the short,medium, or long- term.

We considered the scale of the impact (i.e., how grave or significant theimpact is on people or the environment) in order to determine the level ofmateriality of the impact. Where applicable, scope (i.e., how many people
and/or hectares of land were affected) and irremediability (i.e., can priorenjoyment be restored) of the impact(s) were also considered.
MSCI’s Impact Materiality Assessment is mainly informed by past eventsand considers historical data on positive and negative externalities generated by business activities and companies at the GICS sub-industry level.
For some ESRS topics, we integrated measures of future and potential impacts such as emissions trajectory with future climate goals and CAPEX
data (e.g., for climate change mitigation ESRS sub-sub topic).
We conducted the Impact Materiality Assessment by drawing upon MSCIESG Research’s over 40 years6 of expertise in measuring and modelling
sustainability performance of companies and industries. This assessment was informed by a combination of recognized third-party sources(scientific and regulatory datasets), company-reported data, and MSCIESG Research LLC proprietary assessment (e.g., MSCI Sustainable ImpactMetrics, MSCI ESG Controversies and Global Norms, MSCI Implied Temperature Rise, MSCI ESG Business Involvement Research Screening, MSCIEU Taxonomy Reported Data).

Contact Us
Ready to talk? Get in touch now for more information on our CSRD Metrics Solution, including our impact materiality assessment.

5 MSCI’s Impact Materiality Assessment at the sub-industry level is not a substitute for a materiality assessment conducted by the undertaking. This information is provided “as is” and does not constitute legal advice or any binding interpretation. Any approach to comply
with regulatory or policy initiatives should be discussed with your own legal counsel and/or the relevant competent authority, as needed.
6 Through our legacy companies KLD, Innovest, IRRC, and GMI Ratings.

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About MSCI Inc.
MSCI is a leading provider of critical decision support tools and services for the global investment community. With over 50 years of expertise in research, data andtechnology, we power better investment decisions by enabling clients to understand and analyze key drivers of risk and return and confidently build more effective
portfolios. We create industry-leading research-enhanced solutions that clients use to gain insight into and improve transparency across the investment process.
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 in-depth research, ratings and analysis ofenvironmental, social and governance-related business practices to companies worldwide. ESG ratings, data and analysis from MSCI ESG Research LLC. are also usedin the construction of the MSCI ESG Indexes. MSCI ESG Research LLC is a Registered Investment Adviser under the Investment Advisers Act of 1940 and a subsidiaryof MSCI Inc.
To learn more, please visit www.msci.com/esg-investing.
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