Consultation on Potential
Enhancement to MSCI JapanESG Select Leaders Index
Methodology
MARCH 2022

This consultation may or may not lead to the implementation of any or all of the proposedchanges in the highlighted 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
results of the consultation.
© 2022 MSCI Inc. All rights reserved.
Information Classification: GENERAL

Please refer to the disclaimer at the end of this document.

Overview• MSCI launched a consultation on a proposed change of the parent index for the MSCI Japan ESG
Select Leaders Index from MSCI Japan IMI Top 700 Index to MSCI Japan IMI– The proposal aims to provide full coverage of the MSCI Japan IMI universe (1,127 securities as of March
22, 2022), following the increased availability of ESG data

• The proposed change would be implemented starting from the May 2022 Semi-Annual Index
Review in one of the following ways:– Proposal: apply the Semi-Annual Index Review rules– Alternative: apply a full index reconstitution with no priority for existing index constituents

MSCI welcomes feedback from market participants until April 8, 2022 and will announce its decision
on or before April 15, 2022

Information Classification: GENERAL

2

Potential Enhancement• Change the parent index from MSCI Japan IMI Top 700 to MSCI Japan IMIParameters

Methodology

Parent Index (CURRENT)MSCI Japan IMI Top 700(ranked by free float market capitalization, 20% buffer)

Parent Index (NEW)MSCI Japan IMIESG Screening(unchanged)

Exclude companies with:• ESG Rating below 'BB' (buffer 'B’)
• ESG Controversy Score below '3' (buffer '1')

ESG Selection(unchanged)

Within each GICS sector, target 50% of the free-float adjusted
market capitalization, ranked on certain ESG criteria

Weighting

Each security is weighted by its corresponding free-float
adjusted market capitalization

Information Classification: GENERAL

3

Broader Opportunity Set
Proposal (Semi-Annual Index Review rules):Alternative (full reconstitution):

Changing the parent index would broaden the MSCIJapan ESG Select Leaders Index by 23 securities
across 7 of the 11 GICS® sectors

Changing the parent index would broaden the MSCIJapan ESG Select Leaders Index by 72 securities
across 10 of the 11 GICS® sectors

Existing Index (Number of Securities)

Additions due to Proposed Universe

Simulations as of the November 2021 Semi-Annual Index Review

Information Classification: GENERAL

4

Transition Analysis• Impact of changing the parent index to MSCI Japan IMI if it had been implemented
at the November 2021 Semi-Annual Index Review:

Current
Proposal
Alternative

Additions Deletion
410236109
43Turnover
3.5%
4.6%
16.0%

Simulation as of the November 2021 Semi-Annual Index Review

Information Classification: GENERAL

5Discussion Points• Do you agree with the proposed change of the parent index from the MSCI JapanIMI Top 700 to the MSCI Japan IMI?
• Do you agree to apply the Semi-Annual Index Review rules (including the priority
given to existing constituents in the ranking and selection of securities) at thetime of the transition?
– Alternatively, should the Index be fully reconstituted to allow for a better representationof Small Cap companies from the expanded universe, but at the expense of higher
turnover at the time of the transition?

Information Classification: GENERAL

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Appendix

Information Classification: GENERAL

Ranking and Selection• Possible ranking and selection options for implementing the proposed change of the parentindex from the MSCI Japan IMI Top 700 to the MSCI Japan IMI:
Proposal: Semi-Annual Index Review rules

Alternative: Full reconstitution

Ranking

For each sector, eligible companies of the Parent Index
are ranked based on the following criteria:• ESG Ratings• Current index membership (existing constituents
above non-constituents)• Industry adjusted ESG scores• Decreasing free float adjusted market capitalization

For each sector, eligible companies of the Parent Index
are ranked based on the following criteria:• ESG Ratings• Industry adjusted ESG scores• Decreasing free float adjusted market capitalization

Constituents for the Index are then selected from theranked universe until 50% coverage by cumulative freefloat adjusted market capitalization target is reached.

Selection

Constituents for the Index are then selected from theranked universe in the following order until 50%
coverage by cumulative free-float adjusted market
capitalization target is reached:• Securities in the top 35%• ‘AAA’ and ‘AA’ rated securities in the top 50%• Current index constituents in the top 65%• Remaining securities in the eligible universe

Information Classification: GENERAL

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Detailed Simulated Impact (Proposal)
Proposed implementation: Semi-Annual Index Review rules
Number of Constituents

Sector Coverage

Current*

Additions

Weight ofAdditions

Current*

Simul.

Energy2--65%

64%

Materials

26

3

0.6%

59%

58%

Industrials

67

80.2%

50%

50%

Consumer Discretionary

24

30.1%

61%

61%

Consumer Staples

17

30.2%

49%

49%

Health Care1930.2%

49%

50%

Financials

1520.5%48%

49%

Information Technology

24--58%58%

Communication Services

5--55%

56%

Utilities

7--55%

56%

Real Estate

1610.1%

48%

48%

Total

222

231.9%

GICS Sector

Simulation as of the November 2021 Semi-Annual Index Review* Pro forma constituents of the MSCI Japan ESG Select Leaders Index as of the November 2021 Semi-Annual Index Review
Information Classification: GENERAL

9Detailed Simulated Impact (Alternative)
Alternative implementation: full reconstitution
Number of Constituents
Current*

Additions

EnergyMaterialsIndustrials
Consumer Discretionary
Consumer Staples
Health Care
Financials
Information Technology
Communication Services
Utilities
Real Estate22667241719152457161426
2193713246

Weight of
Additions
1.9%
2.4%
0.9%
0.4%
0.1%
0.6%
2.9%
0.4%
0.3%
1.1%

Total

222

105

11.0%

GICS Sector

Sector Coverage

51122
14
125

Weight ofDeletions
2.6%
2.2%
1.2%
0.1%
0.4%
5.1%
1.4%
0.3%
0.9%

33

14.2%

Deletions

Current*

Simul.

65%
59%
50%
61%
49%
49%
48%
58%
55%
55%
48%

64%50%50%
60%
51%
50%
50%
50%
48%
51%
50%

Simulation as of the November 2021 Semi-Annual Index Review* Pro forma constituents of the MSCI Japan ESG Select Leaders Index as of the November 2021 Semi-Annual Index Review
Information Classification: GENERAL

10ESG Metrics
Integration, Values and Norms
MSCI Japan IMI Index

Current

Proposal

Alternative

ESG Score

6.2

7.3

7.3

7.5

ESG Leaders (AAA-AA) (%)

30.2

53.4

52.5

53.9

ESG Laggards (B-CCC) (%)

5.8

000

ESG Trend Positive (%)

31.9

28.9

29.3

34.5

ESG Trend Negative (%)

4.4

4.1

4.2

3.9

Index ESG RatingAAAAAAAAAAA

Environmental Pillar Score

5.7

6.2

6.2

6.2

Social Pillar Score

5.4

5.9

5.9

5.9

Governance Pillar Score

4.7

4.8

4.8

5

Board Independence (wtd Avg %)

44.1

43.6

43.6

43.8

Female Directors (wtd Avg %)

13.9

14.9

14.9

15.2

Deviation from One Share One Vote (%)

6.2

10.4

10.2

9.2

Tobacco Involvement (%)

1.4

0.1

0.1

0.1

Civilian Firearms Producers (%)

0.1

0.1

0.1

0.1

Ties to Controversial Weapons (%)

0000

Global Compact Compliance Violation (%)

0.1

000Red Flag Controversies (%)

0.1000Orange Flag Controversies (%)

5.9

0.9

0.90Integration

Key Governance Metrics

Values and Norms

As of February 28, 2022.

MSCI IndexMetrics®
Information
Classification: GENERAL

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