Index Methodology

MSCI Europe ex UK ex
Switzerland Climate
Change Select Index
Methodology
August 2024

AUGUST 2024

MSCI Europe ex UK ex Switzerland Climate Change Select Index
Methodology | August 2024

Contents
1

Introduction ....................................................................................................... 3

2

Index Construction Methodology ....................................................................... 4

2.1 Eligibility Criteria ............................................................................................................4
2.2 Minimum Requirements ................................................................................................4
2.3 Eligible Universe .............................................................................................................5
2.4 Determination Of Combined Score ..............................................................................5
2.5 Weighting Scheme .........................................................................................................6
2.6 Treatment of Unrated Companies ..............................................................................7
3

Maintaining the Index ........................................................................................ 9

3.1 Semi-Annual Index Reviews ..........................................................................................9
3.2 Ongoing Event Related Changes ..................................................................................94

MSCI ESG Research ......................................................................................... 11

4.1 MSCI ESG Ratings ....................................................................................................... 11
4.2 MSCI ESG Controversies ............................................................................................ 11
4.3 MSCI ESG Business Involvement Screening Research ........................................... 11
4.4 MSCI Climate Change Metrics ................................................................................... 11
Appendix I: Companies Involved in Controversial Weapons Business...................... 13
Appendix II: MSCI Low Carbon Transition Risk Assessment ................................... 15
Appendix III: Calculation of Target Metrics ............................................................. 17
Appendix IV: Decarbonization Trajectory of Index ................................................... 21
Appendix V: Iterative Process ................................................................................. 22
Appendix VI: Minimum Requirements of EU CTB .................................................... 25
Appendix VII: Methodology Set ............................................................................... 26
Appendix VIII: Changes to this Document ............................................................... 27© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI Europe ex UK ex Switzerland Climate Change Select Index
Methodology | August 2024

1

Introduction
The MSCI Europe ex UK ex Switzerland Climate Change Select Index Methodology (the ‘Index’) aims
to represent the performance of an investment strategy that re-weights securities based upon theopportunities and risks associated with the transition to a lower carbon economy. The Index also
excludes companies meeting the below exclusion criteria –•Companies involved in manufacturing of Controversial Weapons•

Companies involved in ESG Controversies•

Companies involved in Environmental Controversies•

Companies involved in the Tobacco-related businesses•

Companies involved in Thermal Coal extraction and mining

The Index is constructed from the MSCI Europe ex UK ex Switzerland Index (the ‘Parent Index’) anduses the MSCI Low Carbon Transition1 (LCT) score and category to reweight constituents of the
Parent Index to increase exposure to companies participating in opportunities associated withtransition and decrease exposure to companies exposed to risks associated with transition. As a
final step, the Index is designed to exceed the minimum standards of the EU Climate Transition
Benchmark (CTB)2. The Index applies a heuristics-based approach in order to meet the following
objectives –•Reduce the weighted average greenhouse gas intensity by 30% (compared to the underlying
investment universe.

•

Reduce the weighted average greenhouse gas (GHG) intensity by 7% on an annualized basis•

Reduce the weighted average potential emissions intensity by 30% (compared to theunderlying investment universe.

•

Have at least equivalent ratio of weighted average “Green Revenues” to weighted average“Fossil fuels-based Revenues” as that of the underlying investment universe 3

1 Please refer to Appendix II: MSCI Low Carbon Transition Risk Assessment and https://www.msci.com/climate-change-solutions

for further details regarding the MSCI Low Carbon Transition score and category.
2 On December 3, 2020, the European Commission has published the delegated acts in the Official Journal ( https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32020R1818&from=EN) which contain the minimum technical requirements
for the EU Climate Transition Benchmarks. In case there are changes in the EU delegated acts and an update to the Index
methodology is required, MSCI will issue an announcement prior to implementing the changes in the methodology. MSCI will not
conduct a formal consultation for such an update.
3 The Index is governed by a set of methodology and policy documents (“Methodology Set”), including the present index

methodology document. Please refer to Appendix VII for more details.

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MSCI Europe ex UK ex Switzerland Climate Change Select Index
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2

Index Construction Methodology

2.1

Eligibility Criteria
The Index use company ratings and research provided by MSCI ESG Research4 to determine
eligibility for Index inclusion.

2.2

Minimum Requirements
The requirements5 imposed for the Index is detailed in Table 1.
Table 1: Requirements imposed for the Index
Requirements

MSCI Europe ex UK ex Switzerland
Climate Change Select Index

Minimum reduction in Weighted
Average Scope 1+2+3 Carbon
Emissions Intensity (WACI) relative toParent Index
Minimum reduction in Weighted
Average Potential Emissions Intensity
relative to Parent Index

Baseline Exclusions

Minimum average reduction (perannum) in WACI relative to WACI in
the Base Date
Minimum ratio of Green Revenue/
Fossil fuels-based Revenue relative toParent Index
Active weight in High Climate Impact
Sector relative to Parent Index asdefined in Appendix III

30%

30%
• Controversial Weapons• ESG Controversy Score of 0
• Tobacco Involvement• Orange Flag Environmental
Controversies• Thermal coal mining
7%

At least equivalent

0%

4 See section 4 for further information regarding ESG and climate data used in the Indexes that MSCI Limited and MSCI DeutschlandGmbH source from MSCI ESG Research LLC, a separate subsidiary of MSCI Inc. MSCI ESG Research is solely responsible for thecreation, determination and management of such data as a provider to MSCI Limited and MSCI Deutschland GmbH. MSCI Limited
and MSCI Deutschland GmbH are the benchmark administrators for the MSCI indexes.
5 The minimum requirements for EU Climate Transition Benchmarks in the EU Delegated Acts are detailed in Appendix VI.

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2.3

Eligible Universe
The Eligible Universe is constructed from the constituents for the Parent Index by excluding securities
based on the exclusion criteria listed below:

2.4•

Controversial Weapons: Companies involved in Controversial Weapons as defined by themethodology of the MSCI Ex-Controversial Weapons Indexes.

•

ESG Controversies: All companies assessed as having involvement in ESG controversies
that are classified as Red Flags (MSCI ESG Controversy Score of 0). A Red Flag indicates anongoing, Very Severe ESG controversy implicating a company directly through its actions,products, or operations.

•Tobacco: All companies with involvement in Tobacco as defined by the methodology of the
MSCI Global ex Tobacco Involvement Indexes.

•

Environmental Harm: All companies assessed as having involvement in environmental
controversies that are classified as Red (MSCI Environmental Controversy Score of 0) orOrange Flags (score of 1).
o

A Red Flag indicates an ongoing, Very Severe ESG controversy implicating a company
directly through its actions, products, or operations.

o

An Orange Flag indicates an ongoing Severe ESG controversy implicating a company
directly, or a Very Severe ESG controversy that is either partially resolved or indirectly
attributed to the company’s actions, products, or operations.

•

Thermal Coal Mining: All companies deriving 1% or more revenue (either reported or
estimated) from the mining of thermal coal (including lignite, bituminous, anthracite andsteam coal) and its sale to external parties. It excludes revenue from metallurgical coal, coal
mined for internal power generation (e.g. in the case of vertically integrated power
producers), intra-company sales of mined thermal coal, and revenue from coal trading (either
reported or estimated)•

ESG Ratings: All companies assessed with an ESG Rating of ‘BB’, ‘B’ or ‘CCC’.

Determination Of Combined Score
Each company in the Eligible Universe is assigned a Combined Score, which is calculated using acompany’s LCT Category and its Low Carbon Transition Score as outlined below.

2.4.1 Category Tilt Score
The ‘Category Tilt Score’ is used to express relative tilt towards or away from a stock based on the
LCT Category. Based on the LCT Category of a company, a Category Tilt Score is assigned based on
the table below:
LCT Category
Solutions
NeutralOperational Transition
Product Transition

Category Tilt Score
3
1
0.667
0.333

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Asset Stranding

0.167

2.4.2 Relative Tilt Score
The ‘Relative Tilt Score’ differentiates companies within an LCT Category. Companies with higher
LCT Score are determined by MSCI ESG Research to be relatively better at managing their climate
related risk compared to their peers with worse LCT Score.
The Relative Tilt Score is calculated by normalizing security level LCT score relative to the
maximum6 LCT Score of the LCT Category within the Parent Index. The ‘Relative Tilt Score’ is flooredat 0.5 to balance its effect on the final weight of index constituents.
𝑅𝑒𝑙𝑎𝑡𝑖𝑣𝑒 𝑇𝑖𝑙𝑡 𝑆𝑐𝑜𝑟𝑒 =𝐿𝐶𝑇 𝑆𝑐𝑜𝑟𝑒
𝑀𝑎𝑥𝑖𝑚𝑢𝑚2 𝐿𝐶𝑇 𝑆𝑐𝑜𝑟𝑒 𝑖𝑛 𝐿𝐶𝑇 𝐶𝑎𝑡𝑒𝑔𝑜𝑟𝑦

2.4.3 Combined Score
The Combined Score is calculated for each company as follows:
Combined Score = Category Tilt Score * Relative Tilt Score.

2.5

Weighting Scheme
At each rebalancing, all the securities from the Eligible Universe are weighted by the product of theirweight in the Parent Index and the Combined Score.
𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑦 𝑊𝑒𝑖𝑔ℎ𝑡 = 𝐶𝑜𝑚𝑏𝑖𝑛𝑒𝑑 𝑆𝑐𝑜𝑟𝑒 ∗ 𝑊𝑒𝑖𝑔ℎ𝑡 𝑖𝑛 𝑃𝑎𝑟𝑒𝑛𝑡 𝐼𝑛𝑑𝑒𝑥
The above weights are then normalized to 100%.

2.5.1 Intermediate Universe
Each security in the Parent Index is classified into one of two climate impact sectors7 based on its
NACE section code. A stock can be assigned to either a ‘High Climate Impact’ or ‘Low Climate
Impact’ sector. The Eligible Universe is broken into two smaller universes as described below:
2.5.1.1 High Climate Impact Intermediate Universe
High Climate Impact Intermediate Universe is constructed in following two steps –•Select all securities in the High Climate Impact Sector from the Parent Index.

•

Renormalize the weights of securities so that the aggregate weight of securities is equal to
the weight of High Climate Impact Sector in the Parent Index.

2.5.1.2 Low Climate Impact Intermediate Universe
Low Climate Impact Intermediate Universe is constructed in following two steps –6 To account for potential outliers within each LCT Category, the category maximum LCT Score is calculated after winsorizing thesecurity level LCT Score at 90th percentile of the LCT Category.
7 For details regarding the Climate Impact Sectors, please refer to Appendix III: Calculation of Target Metrics© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI Europe ex UK ex Switzerland Climate Change Select Index
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Select all securities in the Low Climate Impact Sector from the Parent Index.

•

Renormalize the weights of securities so that the aggregate weight of securities is equal to
the weight of Low Climate Impact Sector in the Parent Index.

2.5.2 Final Universe
The Final Universe is constructed by combining the High Impact Intermediate Universe and the Low
Impact Intermediate Universe. The High Impact Sector and Low Impact Sector weights are equal totheir respective weights in the Parent Index.
The security weight within the High Impact and Low Impact sectors are in proportion of the
security’s LCT Category8, LCT Score and Carbon Emissions Intensity. Compared to the Parent Index,
the Final Universe typically has

2.5.3

•

Lower Carbon Footprint•

Higher Green Revenue to Fossil fuels-based Revenue ratio•

Higher weight in companies which set emission reduction targets9•

Equal weight in High Impact and Low Impact Sector

Capping of Security Weight In Final Universe
The weight of securities in the Final Universe is capped at 5%10, with the excess weight being
distributed among the remaining securities in the same Climate Impact sector as the security being
capped so that the overall weight in the High Impact Sector and Low Impact Sector is unchanged.

2.5.4

EU CTB Check
The Final Universe is assessed against the minimum requirements detailed in Table 1. In case the
Final Universe is found deficient on any of the minimum requirements, then the weights of the
securities in the Final Universe are determined through an iterative process as described in Appendix
IV.

2.6 Treatment of Unrated Companies
Companies not assessed by MSCI ESG Research on data for any of the following MSCI ESG
Research products are not eligible for inclusion in the Index:•

MSCI ESG Controversies

8 For details regarding the LCT Category and LCT Score, please refer to Appendix II: MSCI Low Carbon Transition Risk Assessment.
9 The assessment of Low Carbon Transition Risk Management is based on policies and commitments to mitigate transition risk,

governance structures, risk management programs and initiatives, targets and performance, and involvement in any controversies.
Thus, emission reduction targets are considered in the MSCI Low Carbon Transition Assessment, which is used in the reweightingof constituents in the MSCI Climate Change Indexes methodology.
10 Securities in the Index are capped at the maximum weight in the Parent Index if the constituent of the Parent Index with thehighest market capitalization weight is more than 10%.

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MSCI Climate Change Metrics

For the treatment of unrated companies in the calculation of target metrics, please refer to Appendix
III.

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3

Maintaining the Index

3.1

Semi-Annual Index Reviews
The Index is rebalanced on a semi-annual basis, as of the close of the last business day of May andNovember, coinciding with the May and November Index Review of the MSCI Global Investable
Market Indexes. The pro forma Index is in general announced nine business days before theeffective date.
In general, MSCI uses MSCI ESG Research data (including MSCI ESG Ratings, MSCI ESG
Controversies, MSCI Climate Change Metrics and MSCI Business Involvement Screening Research)
as of the end of the month preceding the Index Reviews for the rebalancing of the Index.

3.2

Ongoing Event Related Changes
The general treatment of corporate events in the Index aims to minimize turnover outside of Index
Reviews. The methodology aims to appropriately represent an investor’s participation in an event
based on relevant deal terms and pre-event weighting of the index constituents that are involved.
Further, changes in index market capitalization that occur as a result of corporate event
implementation will be offset by a corresponding change in the Variable Weighting Factor (VWF) of
the constituent.
Additionally, if the frequency of Index Reviews in the Parent Index is greater than the frequency ofIndex Reviews in the Index, the changes made to the Parent Index during intermediate Index Reviews
will be neutralized in the Index.
The following section briefly describes the treatment of common corporate events within the Index.
No new securities will be added (except where noted below) to the Index between Index Reviews.
Parent Index deletions will be reflected simultaneously.

EVENT TYPE

EVENT DETAILSNew additions to the Parent Index

A new security added to the parent index (such as IPO
and other early inclusions) will not be added to theindex.

Spin-Offs

All securities created as a result of the spin-off of an
existing Index constituent will be added to the Index
at the time of event implementation. Reevaluation forcontinued inclusion in the Index will occur at thesubsequent Index Review.

Merger/Acquisition

For Mergers and Acquisitions, the acquirer’s post
event weight will account for the proportionate
amount of shares involved in deal consideration, while
cash proceeds will be invested across the Index.
If an existing Index constituent is acquired by a nonIndex constituent, the existing constituent will be© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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deleted from the Index and the acquiring nonconstituent will not be added to the Index.
Changes in Security Characteristics

A security will continue to be an Index constituent if
there are changes in characteristics (country, sector,
size segment, etc.) Reevaluation for continued
inclusion in the Index will occur at the subsequentIndex Review.

Further detail and illustration regarding specific treatment of corporate events relevant to this Index
can be found in the MSCI Corporate Events Methodology book under the sections detailing thetreatment of events in Capped Weighted and Non-Market Capitalization Weighted indexes.

The MSCI Corporate Events methodology book is available at: https://www.msci.com/indexmethodology.

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4

MSCI ESG Research
The Index is a product of MSCI Inc. that utilizes information such as company ratings and research
produced and provided by MSCI ESG Research LLC (MSCI ESG Research), a subsidiary of MSCI Inc.
In particular, the Index uses the following MSCI ESG Research products: MSCI ESG Ratings, MSCIESG Controversies, MSCI ESG Business Involvement Screening Research, MSCI Climate Change
Metrics. MSCI Indexes are administered by MSCI Limited and MSCI Deutschland GmbH.

4.1

MSCI ESG Ratings
MSCI ESG Ratings aim to measure entities’ management of environmental, social and governancerisks and opportunities. MSCI ESG Ratings use a weighted average key issue calculation that isnormalized by industry to arrive at an industry-adjusted ESG score (0-10), which is then translated toa seven-point scale from ‘AAA’ to ‘CCC’, indicating how an entity manages relevant key issues
relative to industry peers.
The MSCI ESG Ratings methodology can be found at: https://www.msci.com/legal/disclosures/esgdisclosures.

4.2

MSCI ESG Controversies
MSCI ESG Controversies provide assessments of controversies concerning the potential negativeenvironmental, social, and/or governance impact of company operations, products and services.
The evaluation framework used in MSCI ESG Controversies is designed to be consistent withinternational norms represented by the UN Declaration of Human Rights, the ILO Declaration on
Fundamental Principles and Rights at Work, and the UN Global Compact. MSCI ESG Controversies
Score falls on a 0-10 scale, with “0” being the most severe controversy.
The MSCI ESG Controversies methodology can be found at:https://www.msci.com/legal/disclosures/esg-disclosures.

4.3

MSCI ESG Business Involvement Screening Research
MSCI ESG Business Involvement Screening Research (BISR) aims to enable institutional investors tomanage environmental, social and governance (ESG) standards and restrictions reliably andefficiently.
For more details on MSCI ESG Business Involvement Screening Research, please refer tohttps://www.msci.com/legal/disclosures/esg-disclosures.

4.4

MSCI Climate Change Metrics
MSCI Climate Change Metrics provide climate data & tools to support institutional investors seeking
to integrate climate risk & opportunities into their investment strategy and processes. This includes
investors seeking to achieve a range of objectives, including measuring and reporting on climate risk
exposure, implementing low carbon and fossil fuel-free strategies, alignment with temperature
pathways and factoring climate change research into their risk management processes, in particularthrough climate scenario analysis for both transition and physical risks.

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The dataset spans across the four dimensions of a climate strategy: transition risks, green
opportunities, physical risks and 1.5° alignment.
For more details on MSCI Climate Change Metrics, please refer to https://www.msci.com/climatechange-solutions.

© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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Appendix I: Companies Involved in Controversial Weapons
Business
Companies which meet the following Controversial Weapons criteria are excluded from the Index.
•

Cluster Bombs
MSCI ESG Research’s cluster bomb research identifies public companies that are involved in
the production of cluster bombs and munitions, or the essential components of theseproducts.

•

Landmines
MSCI ESG Research’s landmines research identifies public companies that are involved in
the production of anti‐personnel landmines, anti‐vehicle landmines, or the essential
components of these products.

•

Depleted Uranium Weapons
MSCI ESG Research’s depleted uranium weapons research identifies public companies
involved in the production of depleted uranium weapons and armor.

•

Chemical and Biological Weapons
MSCI ESG Research’s chemical and biological weapons research identifies publiccompanies that are involved in the production of chemical and biological weapons, or the
essential components of these products.

•

Blinding Laser Weapons
MSCI ESG Research’s blinding laser weapons research identifies public companies that are
involved in the production of weapons utilizing laser technology to cause permanent
blindness.

•

Non-Detectable Fragments
MSCI ESG Research’s non-detectable fragments research identifies public companies thatare involved in the production of weapons that use non-detectable fragments to inflict injury.

•

Incendiary Weapons (White Phosphorus)
MSCI ESG Research’s incendiary weapons research identifies companies that are involved in
the production of weapons using white phosphorus.

Involvement criteria:•

Producers of the weapons•

Producers of key components of the weapons (only applies to cluster bombs, landmines,
depleted uranium weapons as well as chemical and biological weapons)•

Ownership of 20% or more of a weapons or components producer© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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The minimum limit is raised to 50% for financial companies having an ownership in acompany that manufactures controversial weapons or key components of controversial
weapons•

Owned 50% or more by a company involved in weapons or components production

Revenue limits:
Any identifiable revenues, i.e., zero tolerance.
For details, please refer to MSCI Global ex Controversial Weapons Indexes Methodology at
https://www.msci.com/index/methodology/latest/XCW.

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Appendix II: MSCI Low Carbon Transition Risk Assessment
MSCI ESG Research’s Low Carbon Transition Risk assessment11 is designed to identify potential
leaders and laggards by measuring companies’ exposure to and management of risks andopportunities related to the low carbon transition. The assessment is derived from company
disclosures and estimates.
The final output of this assessment is two company-level factors:(1) Low Carbon Transition Category: This factor groups companies in five categories thathighlight the predominant risks and opportunities they are most likely to face in the transition(Exhibit 1).
(2) Low Carbon Transition Score: This score is based on a multi-dimensional risks andopportunities assessment and considers both primary and secondary risks a company
faces. It is industry agnostic and represents an absolute assessment of a company’s
position vis-à-vis the transition.
Exhibit 1: Low Carbon Transition Categories and Scores

11 For more details on MSCI Climate Change Metrics, please refer to https://www.msci.com/climate-change-solutions© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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Calculation methodology
The Low Carbon Transition Categories and Scores are determined by a combination of eachcompany’s current risk exposure and its efforts to manage the risks and opportunities presented by
the low carbon transition. The 3-step process followed by MSCI ESG Research is explained below.
Step 1: Measure Low Carbon Transition Risk Exposure
The first step towards measuring the Low Carbon Transition Risk Exposure for a company is thecomputation of its estimated total net carbon intensity – which considers operational and productcarbon emissions. In the next step, we compute Low Carbon Transition Risk Exposure Category and
Score based on total net carbon intensity.
Step 2: Assess Low Carbon Transition Risk Management
In the second step, MSCI ESG Research assesses a company’s management of risks andopportunities presented by the low carbon transition. This assessment is based on policies andcommitments to mitigate transition risk, governance structures, risk management programs andinitiatives, targets and performance, and involvement in any controversies.
Step 3: Calculate Low Carbon Transition Category and Score
In the final step, the Low Carbon Transition Risk Exposure Category and Score that was calculated in
Step 1 is adjusted for the strength of management efforts. Following this adjustment, Low Carbon
Transition Risk Exposure Score of companies with top or second quartile risk management improves
and some top and second quartile companies may move up one category.

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Appendix III: Calculation of Target Metrics
Greenhouse Gas (GHG) Emissions Intensity
MSCI ESG Research collects company-specific direct (Scope 1) and indirect (Scope 2) greenhousegas emissions (GHG) data from company public documents and/or the Carbon Disclosure Project. If
a company does not report GHG emissions, then MSCI ESG Research estimates Scope 1 and Scope
2 GHG emissions.
MSCI ESG Research estimates company-specific indirect (Scope 3) GHG emissions from the Scope
3 Carbon Emissions Estimation Model. The data is generally updated on an annual basis.

Calculation of GHG Intensity
Carbon emissions of a company are normalized for size by dividing annual carbon emissions byEnterprise Value including Cash (EVIC). The Carbon Emissions Intensity is calculated using the latest
Scope 1+2 carbon emissions, Scope 3 carbon emissions and EVIC of a company.
Security Level GHG Intensity (Scope 1+2+3) =(Unadjusted Security Level GHG Intensity (Scope 1+2) + Unadjusted Security Level GHG Intensity(Scope 3)) * (1 + EVIAF)
Unadjusted Security Level GHG Intensity (Scope 1+2) =(𝑆𝑐𝑜𝑝𝑒 1 + 2 𝐶𝑎𝑟𝑏𝑜𝑛 𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠)
𝐸𝑉𝐼𝐶 (𝑖𝑛 𝑀$)
If Scope 1+2 carbon emissions and/or EVIC are not available, the average Scope 1+2 intensity of all
the constituents of the MSCI ACWI in the same GICS Industry Group in which the security belongs isused.

Unadjusted Security Level GHG Intensity (Scope 3) =(𝑆𝑐𝑜𝑝𝑒 3 𝐶𝑎𝑟𝑏𝑜𝑛 𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠)
𝐸𝑉𝐼𝐶 (𝑖𝑛 𝑀$)
If Scope 3 carbon emissions and/or EVIC are not available, the average Scope 3 intensity of all theconstituents of the MSCI ACWI in the same GICS Industry Group in which the security belongs is
used.

Enterprise Value Inflation Adjustment Factor (EVIAF)12 =(𝐴𝑣𝑒𝑟𝑎𝑔𝑒(𝐸𝑉𝐼𝐶))−1
𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 (𝐴𝑣𝑒𝑟𝑎𝑔𝑒(𝐸𝑉𝐼𝐶))

12 Average Enterprise Value + Cash is calculated for securities in the Eligible Universe© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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Weighted Average GHG Intensity of Parent Index =∑(𝑊𝑒𝑖𝑔ℎ𝑡 𝑖𝑛 𝑃𝑎𝑟𝑒𝑛𝑡 𝐼𝑛𝑑𝑒𝑥 ∗ 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑦 𝐿𝑒𝑣𝑒𝑙 𝐺𝐻𝐺 𝐼𝑛𝑡𝑒𝑛𝑠𝑖𝑡𝑦)

Weighted Average GHG Intensity of Derived Index =∑(𝐼𝑛𝑑𝑒𝑥 𝑊𝑒𝑖𝑔ℎ𝑡 ∗ 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑦 𝐿𝑒𝑣𝑒𝑙 𝐺𝐻𝐺 𝐼𝑛𝑡𝑒𝑛𝑠𝑖𝑡𝑦)

Calculation of Potential Carbon Emissions Intensity
Security Level Potential Carbon Emissions (PCE) Intensity =𝐴𝑏𝑠𝑜𝑙𝑢𝑡𝑒 𝑃𝑜𝑡𝑒𝑛𝑡𝑖𝑎𝑙 𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠
𝐸𝑉𝐼𝐶(𝑖𝑛 𝑀$)
If Absolute Potential Emissions data is not available, MSCI uses zero fossil fuel reserves.

Weighted Average Potential Emissions Intensity of Parent Index =∑(𝑊𝑒𝑖𝑔ℎ𝑡 𝑖𝑛 𝑃𝑎𝑟𝑒𝑛𝑡 𝐼𝑛𝑑𝑒𝑥 ∗ 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑦 𝐿𝑒𝑣𝑒𝑙 𝑃𝐶𝐸 𝐼𝑛𝑡𝑒𝑛𝑠𝑖𝑡𝑦)

Weighted Average Potential Emissions Intensity of Derived Index =∑(𝐼𝑛𝑑𝑒𝑥 𝑊𝑒𝑖𝑔ℎ𝑡 ∗ 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑦 𝐿𝑒𝑣𝑒𝑙 𝑃𝐶𝐸 𝐼𝑛𝑡𝑒𝑛𝑠𝑖𝑡𝑦)
Calculation of Average Decarbonization
On average, the Index follows a 7% decarbonization trajectory since the Base Date. The Weighted
Average Carbon Intensity at the Base Date (W1) is used to compute the target Weighted Average
Carbon Intensity at any given Semi-Annual Index Review (Wt) as per the below formula.
(𝑡−1)
2

𝑊𝑡 = 𝑊1 ∗ 0.93

Where ‘t’ is the number of Semi-Annual Index Reviews since the Base Date.
Thus, for the 3rd Semi-Annual Index Review since the Base Date (t=3), the target Weighted Average
Carbon Intensity will be W1*0.93.
Climate Impact Sectors
NACE13 is the European Union’s classification of economic activities. As per the draft DA, stocks in
the NACE Section codes A, B, C, D, E, F, G, H, L are classified as “High Climate Impact” sector andother stocks are classified ‘Low Climate Impact’ sector. The GICS Sub-Industry code for each

13 For further details regarding NACE, please refer to https://ec.europa.eu/eurostat/statistics-

explained/index.php?title=NACE_background© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI Europe ex UK ex Switzerland Climate Change Select Index
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security is mapped to the corresponding “Climate Impact Sector” using a mapping. This mapping isconstructed in the following steps:
1. MSCI has published a mapping14 between the NACE classes and GICS Sub-Industry.
2. For each GICS Sub-Industry, the number of NACE classes which fall under the High Climate
Impact Sector (say the number of classes is NH) and Low Climate Impact Sector (say the
number of classes is NL) is identified
3. If all the NACE classes for a given GICS Sub-Industry are identified in the High Climate
Impact Sector (NL = 0), then the GICS Sub-Industry is mapped to the High Climate Impact
Sector. Conversely, if all the NACE classes for a given GICS Sub-Industry are identified in the
Low Climate Impact Sector (NH = 0) then the GICS Sub-Industry is mapped to the Low
Climate Impact Sector
4. In case a GICS Sub-Industry is mapped to some NACE classes in the High Climate Impact
Sector and the others in the Low Climate Impact Sector, the GICS Industry is mapped to the
Climate Impact Sector in the following manner:a. NH >= NL: If the number of NACE classes in the High Climate Impact Sector is at least
equivalent to the number of NACE classes in the Low Climate Impact Sector, theGICS Sub-Industry is mapped to the High Climate Impact Sectorb. NH < NL: If the number of NACE classes in the High Climate Impact Sector is lessthan the number of NACE classes in the Low Climate Impact Sector, the GICS SubIndustry is mapped to the Low Climate Impact Sector
5. Using the GICS Sub-Industry to Climate Impact Sector mapping created in Step 4, and the
security-level GICS Sub-Industry, each security in the Parent Index is classified in either theHigh Climate Impact Sector or the Low Climate Impact Sector.
Calculation of Green Revenue to Fossil fuels-based Revenue Multiple
Green Revenue
For each constituent in the Parent Index, the Green Revenue% is calculated as the cumulative
revenue (%) from the six CleanTech themes which are as follows:•

Alternative Energy – products and services that support the transmission, distribution andgeneration of renewable energy and alternative fuels to reduce carbon and pollutant
emissions in supporting affordable and clean energy to combat climate change.

•

Energy Efficiency – products, and services that support the maximization of productivity inlabor, transportation, power and domestic applications with minimal energy consumption toensure universal access to affordable, reliable and modern energy services.

•

Sustainable Water – products, services, infrastructure projects and technologies that resolve
water scarcity and water quality issues, through minimizing and monitoring current water
demand, improving the quality and availability of water supply to improve resource
management in both domestic and industrial use.

14 This mapping is available in the Handbook of Climate Transition Benchmarks, Paris-Aligned Benchmark and Benchmarks’ ESG

Disclosures. Please note that the mapping does not reflect changes in the GICS structure that were implemented in the MSCI indexes on June
1, 2023.

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MSCI Europe ex UK ex Switzerland Climate Change Select Index
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Green Building – design, construction, redevelopment, retrofitting, or acquisition of greencertified properties to promote mechanisms for raising capacity for effective climate change
mitigation and adaptation.

•

Pollution Prevention – products, services, infrastructure projects and technologies that
reduces volume of waste materials through recycling, minimizes introduction of toxic
substances, and offers remediation of existing contaminants such as heavy metals andorganic pollutants in various environmental media to significantly address pollution in alllevels and its negative effects•

Sustainable Agriculture - revenues from forest and agricultural products that meetenvironmental and organic certification requirements to address significantly biodiversity
loss, pollution, land disturbance, and water overuse

The Weighted Average Green Revenue% is calculated as:= ∑(𝑊𝑒𝑖𝑔ℎ𝑡 𝑖𝑛 𝐼𝑛𝑑𝑒𝑥 ∗ 𝐺𝑟𝑒𝑒𝑛 𝑅𝑒𝑣𝑒𝑛𝑢𝑒%)

Fossil fuels-based Revenue
For each constituent in the Parent Index, the Fossil fuels-based Revenue% is calculated as the
cumulative revenue (%) from the following sources:•

Revenue% (either reported or estimated) from the mining of thermal coal (including lignite,
bituminous, anthracite and steam coal) and its sale to external parties. It excludes: revenue
from metallurgical coal; coal mined for internal power generation (e.g. in the case ofvertically integrated power producers); intra-company sales of mined thermal coal; andrevenue from coal trading (either reported or estimated)•

Revenue% from the extraction, production and refining of Conventional and Unconventional
Oil & Gas. Conventional Oil and Gas includes Arctic onshore/offshore, deepwater, shallow
water and other onshore/offshore. Unconventional Oil and Gas includes oil sands, oil shale(kerogen-rich deposits), shale gas, shale oil, coal seam gas, and coal bed methane.

•

Revenue% from thermal coal based power generation, liquid fuel based power generationand natural gas based power generation.

The Weighted Average Fossil fuels-based Revenue% is calculated as:= ∑(𝑊𝑒𝑖𝑔ℎ𝑡 𝑖𝑛 𝐼𝑛𝑑𝑒𝑥 ∗ 𝐹𝑜𝑠𝑠𝑖𝑙 𝑓𝑢𝑒𝑙𝑠 𝑏𝑎𝑠𝑒𝑑 𝑅𝑒𝑣𝑒𝑛𝑢𝑒%)
The Green Revenues to Fossil fuels-based Revenues multiple for either the Parent Index or the Index
is calculated as a ratio of the Weighted Average Green Revenue to the Weighted Average Fossil
fuels-based Revenue as per the formula below:=

𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐺𝑟𝑒𝑒𝑛 𝑅𝑒𝑣𝑒𝑛𝑢𝑒%
𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐹𝑜𝑠𝑠𝑖𝑙 𝑓𝑢𝑒𝑙𝑠 𝑏𝑎𝑠𝑒𝑑 𝑅𝑒𝑣𝑒𝑛𝑢𝑒%© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI Europe ex UK ex Switzerland Climate Change Select Index
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Appendix IV: Decarbonization Trajectory of Index
The Weighted Average GHG Intensity on the Base Date (W1) is used to compute the target Weighted
Average GHG Intensity at any given Semi-Annual Index Review (Wt) as per the below formula.
(𝑡−1)
2

𝑊𝑡 = 𝑊1 ∗ 0.93

Where ‘t’ is the number of Semi-Annual Index Reviews since the Base Date. The table below shows theWeighted Average GHG Intensity on the Base Date (W1) for each of the regions where the Index isconstructed:
Index

Parent Index

MSCI Europe ex UK ex
Switzerland Climate Change
Select Index

MSCI Europe ex UK ex
Switzerland Index© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

Base Date

W1 (tCO2/M$
Enterprise
Value + Cash)

May 28, 2021

296.74

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MSCI Europe ex UK ex Switzerland Climate Change Select Index
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Appendix V: Iterative Process
The iterative down weighting process is applied on the securities of the Final Universe with theobjective of meeting all the minimum requirements15 detailed in Table 1.
ITERATIVE DOWNWEIGHTING
Starting with the Final Universe, an iterative down weighting process is applied in order to meet withthe minimum requirements for the Index. The iterative down weighting stops when all therequirements defined in above are met. The steps followed in the iterative downweighting (Exhibit 2)
are outlined below:
Step 1. Check whether all targets for the Index are met. If all targets are met, then no downweighting
is required.
Step 2. Securities in the Applicable Universe are sorted in increasing order of their Scope 1+2+3
Carbon Emissions Intensity and securities in the top half of the sorted list are identified as“Top Half” securities. Securities in the bottom half of the sorted list are identified as "Bottom
Half” securities.
Step 3. If the target based on Minimum reduction in WACI relative to Parent Index and the Minimum
average reduction in WACI (per annum) is not met, the lowest ranked “Bottom Half” stock inascending order of Scope 1+2+3 Carbon Emissions Intensity is selected for downweighting
and the weight is reduced by 25% of its weight in the Final Universe. Note that stocks with an
LCT Category of Solutions are not eligible for downweighting. If this target is met, but
a. If the target based on Weighted Average Potential Emissions Intensity relative toParent Index is not met, the “Bottom Half” stock with highest Potential Carbon
Emissions Intensity is downweighted.
b. Otherwise if the target based on Minimum ratio of Green Revenue/ Fossil fuels-based
Revenue relative to Parent Index is not met, the “Bottom Half” stock with largest
difference between its Fossil fuels-based Revenue% and its Green Revenue% isdownweighted
Step 4. If the targets are still not met, the stock is downweighted in steps of 25% of its weight in the
Final Universe till a maximum downweighting of 75%.
Step 5. Stocks of the Final Universe in the “Top Half”, belonging to the same “Climate Impact Sector”
as the stock being downweighted are proportionally upweighted to ensure that the overall
allocation to the High Climate Impact Sector is the same as that in the Parent Index and thesum of the weights of all constituents is 1.
Step 6. While upweighting stocks, the security weights of the stocks being upweighted is capped at
5%16, with the excess weight being distributed among the remaining securities that are being
upweighted.

15 In the steps detailed for the iterative process, “targets” refers to all the minimum requirements as detailed in Table 1.
16 Securities in the Index are capped at the maximum weight in the Parent Index if the constituent of the Parent Index with thehighest market capitalization weight is more than 10%.

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MSCI Europe ex UK ex Switzerland Climate Change Select Index
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Step 7. If the targets are still not met, the iterative process continues and Steps 3-6 are repeated.
Step 8. If the targets are not met and all “Bottom Half” stocks of the Final Universe are downweighted
by 75% of the weight in the Final Universe, Steps 3-7 are repeated, with a maximum
downweighting of 90% in a single downweighting step of 15 percentage points of the weightin the Final Universe.
Step 9. If the targets are not met after the maximum downweighting of 90% of all “Bottom Half”
stocks, then stocks are iteratively excluded in the same order as outlined in Step 3.
Step 10. If the targets are not met after excluding all the “Bottom Half” stocks, then the index will
rebalance using the constituents and weighting of stocks as after Step 9.

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MSCI Europe ex UK ex Switzerland Climate Change Select Index
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Exhibit 2: Schematic Representation of the Iterative Downweighting Process# If the target based on Minimum reduction in WACI relative to Parent Index and the Minimum
average reduction in WACI (per annum) is met but the target on Weighted Average Potential
Emissions Intensity relative to Parent Index is not met, the “Bottom Half” security with the highestPotential Carbon Emissions Intensity is selected for downweighting. If the target on Weighted
Average Potential Emissions Intensity relative to Parent Index is also met but the target on Minimum
ratio of Green Revenue/ Fossil fuels-based Revenue relative to Parent Index is not met, the “Bottom
Half” security with the highest difference in its Fossil fuels-based Revenue% and Green Revenue% isselected for downweighting.
## If the targets are not met and all “Bottom Half” stocks of the Final Universe are downweighted by
75% of the weight in the Final Universe, maximum downweighting is relaxed to 90% in a single
downweighting step of 15 percentage points of the weight in the Final Universe.
If the targets are not met after the maximum downweighting of 90% of all “Bottom Half” stocks, thenstocks are iteratively excluded in the same order.
If the targets are not met after excluding all the “Bottom Half” stocks then the index will rebalanceusing the constituents and weighting of stocks at the final step.

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MSCI Europe ex UK ex Switzerland Climate Change Select Index
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Appendix VI: Minimum Requirements of EU CTB
The below details the minimum requirements of EU CTBs as per the EU Delegated Acts:
Exclusions (Applicable from 2023)•

Controversial Weapons: companies involved in any activities related to controversial
weapons;•

Tobacco: companies involved in the cultivation and production of tobacco•

Environmental Harm: companies significantly harm one or more of environmental objectives•

Controversies: companies in violation of the United Nations Global Compact (UNGC)
principles or the Organisation for Economic Co-operation and Development (OECD)
Guidelines for Multinational Enterprises;

Objectives•

Relative Reduction: 30% minimum reduction in Weighted Average Scope 1+2+3 Carbon
Emissions Intensity (WACI) relative to Parent Index•

Self-Decarbonization: 7% minimum average reduction (per annum) in WACI relative to WACI
in the Base Date•

Exposure Constraint: At least equivalent exposure to the High Climate Impact Sector relative
to Parent Index© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI Europe ex UK ex Switzerland Climate Change Select Index
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Appendix VII: Methodology Set
The Index is governed by a set of methodology and policy documents (“Methodology Set”), including
the present index methodology document as mentioned below:•

Description of methodology set – www.msci.com/index/methodology/latest/ReadMe•

MSCI Corporate Events Methodology – www.msci.com/index/methodology/latest/CE•

MSCI Fundamental Data Methodology –www.msci.com/index/methodology/latest/FundData•

MSCI Index Calculation Methodology –www.msci.com/index/methodology/latest/IndexCalc•

MSCI Index Glossary of Terms – www.msci.com/index/methodology/latest/IndexGlossary•

MSCI Index Policies – www.msci.com/index/methodology/latest/IndexPolicy•

MSCI Global Industry Classification Standard (GICS) Methodology –www.msci.com/index/methodology/latest/GICS•

MSCI Global Investable Market Indexes Methodology –www.msci.com/index/methodology/latest/GIMI•

MSCI Global ex Controversial Weapons Indexes Methodology –www.msci.com/index/methodology/latest/XCW•

MSCI Global ex Tobacco Involvement Index –www.msci.com/index/methodology/latest/ExTobacco•

MSCI Climate Change Methodology –www.msci.com/index/methodology/latest/ClimateChange•

ESG Factors in Methodology

The Methodology Set for the Index can also be accessed from MSCI’s webpage
https://www.msci.com/index-methodology in the section ‘Search Methodology by Index Name orIndex Code’.
* ‘ESG Factors in Methodology’ contains the list of environmental, social, and governance factors
considered, and how they are applied in the methodology (e.g., selection, weighting or exclusion). It
can be accessed in the Methodology Set as described above.

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Appendix VIII: Changes to this Document
The following sections have been modified as of August 2024
Section 4: ESG Research•

Updated the description for ESG Research Products

Appendix II: MSCI Low Carbon Transition Risk Assessment•

Updated the details for the Low Carbon Transition Category and Score.

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