MSCI Factor ESG Target Indexes
Indexes for ESG aware Factor Investors

As a leader in Factor Indexes and ESG Ratings & Research1, MSCI continues to lead innovation in this field bycombining the merits of both Factors and ESG. MSCI Research has created a consistent and effective framework
to create Factor ESG Target Indexes in a one-step integrated approach to help investors achieve better outcomes.
Asset owners are increasingly seeking to integrate ESG across the entire
investment process and are looking for ways to incorporate ESG into theirFactor Investing based portfolios.
VOLATILITY• Factor Investing seeks to capture excess returns and manage risks in asystematic and transparent manner• ESG Integration, such as selecting or re-weighting stocks with a higher
VALUE

QUALITY

ESG Rating, has historically led to higher quality and lower volatility
characteristics• MSCI developed superior index technology for combining Factor andESG Investing, leveraging MSCI’s leading expertise in indexes, ESG andoptimization analytics
As Factor allocations and ESG objectives become simultaneous
requirements for many asset owners, MSCI Factor ESG Target Indexes aredesigned to allow clients to develop Factor strategies while also integrating
ESG considerations.

BenefitKey Features• Combines Factor and ESG exposures• ESG score improvement based on industry leading

simultaneously in a consistent,transparent and cost-effective manner.
The methodology can be applied for single
factor or multi-factor strategies

MSCI ESG Ratings• Designed to mitigate reputational risk and short and long-term
ESG risk within Factor Indexes• Framework enables customization to incorporate client specificapproach to Factors and ESG• Indexes are based on industry leading MSCI benchmarks allowing
for seamless integration• Parent index construction rules designed to achieve liquidity
and replicability

1

Provided by MSCI ESG Research

MSCI Factor ESG Target Indexes | msci.com

Integrating Factors and ESG
The shape of the curve shown in the graph below is determined by two broad dimensions: Factor exposure and ESG exposure.
MSCI’s approach of optimizing Factor and ESG exposures places higher weighting on the constituents which are in the top-rightquadrant above the curve.
This approach is highly customizable to achieve intended dual exposures.
Higher ESG Exposure

MSCI Factor ESG Indexes

Based on MSCI ESG
Ratings & Research

Selects holdings with higherweights above the curve

ESG enhancement

Factor + ESG enhancement

Higher Factor Exposure

VOLATILITYVALUEQUALITY

Factor enhancement

Parameters

MSCI Factor ESG Target Index

Opportunity set• MSCI Global Universe (GIMI)

Ineligible companies• Controversial weapons: Producers and owners of cluster bombs, landmines, depleteduranium weapons, chemical and biological weapons• Very severe controversies: ESG controversy score of 0 (ESG red flag companies)• Un-rated stocks are not eligible

Index construction• Target specific factor exposure (i.e. Minimum Volatility, Quality, Value, etc.)• ESG score improvement - minimum 20% greater than parent index ESG score• Maintain active sector and country weights within +/- 5% to parent index

Rebalancing• Semi-annual rebalance

Past performance not indicative of future results.

About MSCIMSCI is a leading provider of critical decision support tools and services for the global investment community. With over 45years of expertise in research, data and technology, we power better investment decisions by enabling clients to understandand analyze key drivers of risk and return and confidently build more effective portfolios. We create industry-leading researchenhanced solutions that clients use to gain insight into and improve transparency across the investment process.
To learn more, please visit www.msci.com.
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MSCI Factor ESG Target Indexes | msci.com