Index Methodology

MSCI Natural
Resources
Stewardship Index
Methodology
May 2022

May 2022

MSCI NATURAL RESOURCES STEWARDSHIP INDEX METHODOLOGY | MAY 2022

Contents

1

MSCI Natural Resources Stewardship Index

3

2

MSCI ESG Research

4

2.1

MSCI Impact Solutions: Sustainable Impact Metrics

4

2.2

MSCI Impact Solutions: SDG Alignment

5

2.3

MSCI ESG Ratings

5

2.4

MSCI ESG Controversies

5

2.5

MSCI ESG Business Involvement Screening Research

6

2.6

MSCI Climate Change Metrics

6

3 Constructing the MSCI Natural Resources Stewardship
Index

4

7

3.1

Selection Universe

7

3.2

ESG Filtered Universe7

3.3“Circular Technologies” Universe

9

3.4“Circular Transition” Universe

9

3.5

Weighting Scheme

10

Maintaining the MSCI Natural Resources Stewardship Index
12
4.1

Semi-Annual Index Review

12

4.2

Quarterly Index Reviews

12

4.3

Ongoing Event-Related Maintenance13

Appendix 1: What is a Circular Economy?

15

Appendix 2: Natural Resources Stewardship-specific Exclusions
Criteria
16
Appendix 3: Sector-Relative Management Score (SRMS)
Calculation© 2022 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

18

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1

MSCI Natural Resources Stewardship Index
The MSCI Natural Resources Stewardship Index (the ‘Index’) aims to represent theperformance of a set of companies from MSCI ACWI IMI that are associated with key
aspects of the protection of natural resources through their products or services,
and/or through their management of related issues, all assessed within the context
of potential contribution towards a circular economy (see Appendix 1).
In particular, the Index incorporates companies that provide technologies (“circulartechnologies”) and/or those that help enable the transition to a circular economy(“circular transition”), as defined using the following measures:•

Pollution Prevention•

Sustainable Agriculture•

Sustainable Water•

Biodiversity and Land Use•

Raw Material Sourcing•

Toxic Emissions & Waste

The MSCI Natural Resources Stewardship Index also applies a set of exclusions
criteria to screen companies with business activities that are not considered alignedwith the overall objective of protecting natural resources or promoting circularity.
Additionally, the Index utilizes a combination of weighting strategies at both security
and component levels, as well as applying region-neutrality and issuer capping.

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2

MSCI ESG Research
The MSCI Natural Resources Stewardship Index uses company ratings and research
provided by MSCI ESG Research LLC. In particular, the Index uses the following MSCIESG Research products: MSCI Impact Solutions, MSCI ESG Ratings, MSCI ESG
Controversies, MSCI ESG Business Involvement Screening Research, and MSCI
Climate Change Metrics.
For details on MSCI ESG Research’s full suite of ESG products, please refer to:https://www.msci.com/esg-investing.

2.1

MSCI Impact Solutions: Sustainable Impact Metrics
MSCI Impact Solutions’ Sustainable Impact Metrics is designed to identify
companies that derive revenue from products or services with positive impact onsociety and the environment. The Sustainable Impact Metrics are comprised of six
Environmental Impact categories and seven Social Impact categories arranged bytheme.

MSCI Sustainable Impact Taxonomy
PillarEnvironmental
Impact

ThemesClimate Change

Natural capitalSocial Impact

Basic needs

Empowerment

Categories
1. Alternative energy
2. Energy efficiency
3. Green building
4. Sustainable water
5. Pollution prevention
6. Sustainable agriculture
7. Nutrition
8. Major Disease Treatment
9. Sanitation
10. Affordable Real Estate
11. SME Finance
12. Education
13. Connectivity – Digital divide

Under each of the actionable environmental and social impact themes, MSCI ESG
Research has identified specific categories of products and services that it hasdetermined companies can offer as potential solutions to environmental and social
challenges.
gicMore detailed taxonomy for each category can be found in Section 2.4 of the MSCIACWI Sustainable Impact Index Methodology available athttps://www.msci.com/index-methodology.

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2.2

MSCI Impact Solutions: SDG Alignment
MSCI Impact Solutions’ SDG Alignment is designed to provide a holistic view ofcompanies’ net contribution – both positive and negative – towards addressing eachof the 17 UN Sustainable Development Goals (SDGs). SDG Alignment assessments
and scores include analysis of companies’ operations, products and services,
policies, and practices and their net contribution – positive and adverse – toaddressing key global challenges.
The MSCI SDG Alignment framework provides 17 SDG Net Alignment scores and 17
SDG Net Alignment assessments (including Strongly Aligned, Aligned, Neutral,
Misaligned and Strongly Misaligned) for each of the 17 global goals. In addition, themodel offers assessments and scores for two dimensions, product alignment andoperation alignment, for each company and for each of the 17 goals.
For more details on MSCI Impact Solutions including MSCI SDG Alignment, pleaserefer to https://www.msci.com/our-solutions/esg-investing/impact-solutions.

2.3

MSCI ESG Ratings
MSCI ESG Ratings provides research, data, analysis and ratings of how wellcompanies manage environmental, social and governance risks and opportunities.
MSCI ESG Ratings provides an overall company ESG rating - a seven-point scale from‘AAA’ to ‘CCC’. In addition, the product provides scores and percentiles indicating
how well a company manages each key issue relative to industry peers, as well as
underlying data and metrics used to compile the scores and ratings.
For more details on MSCI ESG Ratings, please refer to https://www.msci.com/esgratings.

2.4

MSCI ESG Controversies
MSCI ESG Controversies (formerly known as MSCI Impact Monitor) provides
assessments of controversies concerning the negative environmental, 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 themost severe controversy.
For more details on MSCI ESG Controversies, please refer tohttps://www.msci.com/documents/10199/acbe7c8a-a4e4-49de-9cf85e957245b86b.

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2.5

MSCI ESG Business Involvement Screening Research
MSCI ESG Business Involvement Screening Research (BISR) aims to enableinstitutional investors to manage environmental, social and governance (ESG)
standards and restrictions reliably and efficiently.
For more details on MSCI ESG Business Involvement Screening Research, pleaserefer to http://www.msci.com/resources/factsheets/MSCI_ESG_BISR.pdf.

2.6

MSCI Climate Change Metrics
MSCI Climate Change Metrics provides climate data & tools to support investors
integrating climate risk & opportunities into their investment strategy and processes.
It supports investors seeking to achieve a range of objectives, including measuring
and reporting on climate risk exposure, implementing low carbon and fossil fuel-freestrategies, align with temperature pathways and factoring climate change research
into their risk management processes, in particular through climate scenario analysis
for both transition and physical risks.
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 tohttps://www.msci.com/climate-solutions.

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3

Constructing the MSCI Natural Resources Stewardship
Index

3.1

Selection Universe
The underlying universe for the MSCI Natural Resources Stewardship Index isdefined by the constituents of the MSCI ACWI Investable Market Indexes (IMI, the‘Parent Index’1), from which three separate universes of stocks are constructed (asdescribed in Sections 3.2 to 3.4).

3.2

ESG Filtered Universe
The MSCI Natural Resources Stewardship Index methodology applies two sets of
exclusions criteria to determine eligibility in the ESG Filtered Universe.

3.2.1 Natural Resources Stewardship-specific Exclusions
The MSCI Natural Resources Stewardship Index uses MSCI ESG Controversies, MSCIESG Business Involvement Screening Research, MSCI Climate Change Metrics, and
MSCI Impact Solutions’ SDG Alignment to identify companies that have beenassessed as negatively impacting the index objective. The criteria are as follows:−

Human Rights Controversies−

Palm Oil−

Genetically Modified Organisms (GMO)−

Biocide−Tobacco−Thermal Coal Mining−

Oil & Gas Extraction and Production−

Oil & Gas Pipelines and Transportation−

Oil & Gas Refining−

SDG 14 and 15 Net Alignment

Please refer to Appendix 2 for details on these exclusions criteria.

1 Other parent indexes, as a subset of MSCI ACWI IMI, may also be used. However, use of some indexes as

parent indexes may result in a low number of constituents, which may affect replicability.

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3.2.2 Circular Economy-related Screens
The MSCI Natural Resources Stewardship Index uses MSCI ESG Research data toapply a set of exclusions standards which either address headline risks and/or
contribute negatively to a circular economy. The exclusions filters are as follows:
1. ESG Controversies Score: All companies that are involved in environmental,social, and/or governance controversies assessed as Red Flags (Score of 0
or those with very severe controversies).
2. Environmental Controversies: All companies that are involved inenvironmental controversies assessed as Red, Orange, and Yellow Flags(Score of 4 and below).
3. Environmental Pillar Quartile: All companies that are assessed as belonging
to the bottom quartile relative to their relevant ESG Ratings Industry.
4. Key Issue Management Score/s: All companies belonging to the bottom 25%of the applicable2 key issue management score/s.
5. SDG 12 Net Alignment: All companies that are assessed as Strongly
Misaligned and Misaligned on their Net Alignment to SDG 12 (Responsible
Consumption and Production).
6. Controversial Weapons: All companies with any tie to Controversial Weapons(cluster munitions, landmines, depleted uranium weapons,
biological/chemical weapons, blinding lasers, non-detectable fragments andincendiary weapons), as defined by the methodology of the MSCI Global ExControversial Weapons Indexes available at https://www.msci.com/indexmethodology.

Notes on Unrated Securities or Securities with Missing Coverage:•

Companies that are not assessed on MSCI ESG Research’s ESG
Controversies (exclusion filters 1 and 2) are excluded from the final universe.

•

Companies that are not assessed on MSCI ESG Research’s ESG Ratings andSDG Alignment (exclusion filters 3 to 5) are not excluded from the final
universe.

2 The exclusion is applied by key issue, which means that an index using multiple key issues will exclude

companies with the lowest 25% score for key issue 1, lowest 25% score for key issue 2, and so forth. The
bottom 25% per key issue management score is calculated from companies in MSCI ACWI IMI with more than
5% weight assigned to the respective key issue.

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3.3

“Circular Technologies” Universe
The MSCI Natural Resources Stewardship Index uses MSCI Impact Solutions’Sustainable Impact Metrics to identify companies that have exposure to products
and services that aim to protect natural resources. Companies in the ESG Filtered
Universe that have an aggregated revenue of 25% or more from the following
categories (‘ESG Revenue’) are included in the Circular Technologies Universe:

3.4•

Pollution Prevention•

Sustainable Agriculture•

Sustainable Water: aggregated revenue from the Wastewater Treatment
Solutions, Water Recycling Equipment & Services, and Rainwater Harvesting
Solutions sub-categories is considered“Circular Transition” Universe
The MSCI Natural Resources Stewardship Index uses MSCI ESG Ratings’ key issue
management scores to identify companies that have better management strategies
to protect natural resources relative to their sector peers.
The Circular Transition Universe is constructed by selecting stocks in the top 10% of
the Intermediate Universe (as described in Section 3.4.1) based on their SectorRelative Management Score, which is computed using the following key issue
management score/s:•

Biodiversity & Land Use•

Raw Material Sourcing3•

Toxic Emissions & Waste

Please refer to Appendix 3 detailing the computation steps.

3.4.1 Intermediate Universe
The Intermediate Universe is constructed by selecting stocks in the ESG Filtered
Universe (Section 3.2) that are not part of the Circular Technologies Universe(Section 3.3).

3 There is no single management score for the Raw Material Sourcing Key Issue, as the underlying data

incorporates six raw materials. As a result, the Raw Material Sourcing Key Issue Score is used in lieu of the
management score.

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3.5

Weighting Scheme
The MSCI Natural Resources Stewardship Index constituents that are determined tobe part of the Circular Technologies and Circular Transition universes are weighted
as follows:

3.5.1 Security Weighting•

Circular Technologies Universe
Securities that meet the selection criteria outlined in Section 3.3 are weighted
by the product of the aggregated ESG Revenue and their free float-adjusted
market capitalization. The weights are then normalized to sum to 100%.

•

Circular Transition Universe
Securities that meet the selection criteria outlined in Section 3.4 are weighted
in proportion of their free float-adjusted market capitalization. The weights
are then normalized to sum to 100%.

3.5.2 Region Neutrality
Regions in the Circular Technologies and Circular Transition universes are each set
to be equal to the weight of the corresponding region in the Parent Index4, withconstituents re-weighted in proportion to their respective region weights.
Constituents of the Parent Index are mapped to the specified region to arrive at theregion weight. The regions, including the exceptional treatment5 for North America,
are as follows:
RegionDeveloped Asia Pacific
Developed Europe & Middle East
CanadaUSA
Emerging Asia
Emerging Europe, Middle East &AfricaEmerging Latin America

Parent Index
MSCI Pacific Index
MSCI Europe & Middle East Index
MSCI Canada Index
MSCI USA Index
MSCI Emerging Markets Asia Index
MSCI Emerging Markets Europe, Middle East
& Africa Index
MSCI Emerging Markets Latin America Index

The weights are then normalized to sum to 100% for each component.

4 Other parent indexes, as subsets of ACWI IMI, will follow the same regions listed in the table. However, region

neutrality would only apply to regions that are present in the parent index.
5 North America is not used, so Canada and the USA are considered separately.

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3.5.3 Component Weighting
Each component is scaled down to the following proportion:
Component
Circular Technologies
Circular Transition

Component Weight60%
40%

3.5.4 Issuer Capping
The maximum weight of any issuer in the MSCI Natural Resources StewardshipIndex is then capped at 5% in accordance with the MSCI Capped Indexes
methodology6. The excess weight of the capped issuers is distributed among theremaining constituents in proportion of their existing weights in the Index7.

6 Please refer to the MSCI Capped Indexes methodology at www.msci.com/index-methodology
7 Issuer capping may result in a drift in the component weights.

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4

Maintaining the MSCI Natural Resources Stewardship
Index

4.1

Semi-Annual Index Review
The MSCI Natural Resources Stewardship Index is reviewed on a semi-annual basis,
as of the close of the last business day of May and November, coinciding with the
May and November Semi-Annual Index Reviews of the Parent Index. The pro forma
index is generally announced nine business days before the effective date.
As a rule, MSCI uses MSCI ESG Research data (including MSCI Impact Solutions,
MSCI ESG Ratings, MSCI ESG Controversies, MSCI Business Involvement Screening
Research, and MSCI Climate Change Metrics) as of the end of the month preceding
the Index Reviews for the rebalancing of the Index. For some securities, such data
may not be published by MSCI ESG Research by the end of the month preceding theIndex Review. For such securities, MSCI will use ESG data published after the end ofmonth, when available, for the rebalancing of the MSCI Natural Resources
Stewardship Index.
At each Semi-Annual Index Review, the ESG Filtered, Circular Technologies, andCircular Transition universes are updated based on the criteria outlined in Sections
3.2 to 3.4.

4.2

Quarterly Index Reviews
The MSCI Natural Resources Stewardship Index is also reviewed on a quarterly basis
to coincide with the regular Index Reviews of the Parent Indexes. The changes are
implemented at the end of February and August. The pro forma indexes are generally
announced nine business days before the effective date.
For the Quarterly Index Reviews, MSCI ESG Ratings, MSCI ESG Controversies, MSCIBISR, MSCI Climate Change Metrics, and MSCI SDG Alignment data are taken as ofthe end of the month preceding the Index Reviews, i.e., January and July. For somesecurities, this data may not be published by MSCI ESG Research by the end of themonth preceding the Index Review. For such securities, MSCI will use ESG data
published after the end of month, when available, for the rebalancing of the MSCINatural Resources Stewardship Index.
At the Quarterly Index Reviews, existing constituents in the ESG Filtered Universe aredeleted from the MSCI Natural Resources Stewardship Index if they do not meet thecriteria described in Section 3.2. Existing constituents that meet the criteria areretained in the Index.

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4.3

Ongoing Event-Related Maintenance
The general treatment of corporate events in the MSCI Natural Resources
Stewardship 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 thatare involved. Further, changes in index market capitalization that occur as a result ofcorporate event implementation will be offset by a corresponding change in the
Variable Weighting Factor (VWF) of the constituent.
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.
There are no deletions from the MSCI Natural Resources Stewardship Index between
Index Reviews on account of a security becoming ineligible because of reduced ESG
revenue falling below the threshold, lower SRMS resulting in a drop in ranking,decrease in MSCI ESG Controversies Score, change in SDG Alignment assessment,
and/or change in business involvement.
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 the index.

Spin-Offs

All securities created as a result of the spinoff of an existing Index constituent will not be
added to the Index at the time of event
implementation. Reevaluation for addition in
the Index will occur at the subsequent Index
Review.

Merger/Acquisition

For Mergers and Acquisitions, the acquirer’s
post event weight will account for the
proportionate amount of shares involved indeal consideration, while cash proceeds will
be invested across the Index.
If an existing Index constituent is acquired bya non-Index constituent, the existing
constituent will be deleted from the Index andthe acquiring non-constituent will not be
added to the Index.

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Changes in Security Characteristics

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

Further detail and illustration regarding specific treatment of corporate events
relevant to this Index can be found in the MSCI Corporate Events Methodology.
The MSCI Corporate Events methodology book is available at:https://www.msci.com/index-methodology.

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Appendix 1: What is a Circular Economy?

A circular economy is an economic system wherein resources are kept as long as
possible within the system, whether by rethinking resource-intensive products andprocesses, maximizing the use of materials, extending the life of products, and/or
recycling of waste materials. This is a structural shift from the current linear
economy, where materials are taken, converted via a manufacturing process, used,
and then disposed. Underlying to the concept of a circular economy are the 9R
strategies,8 which provide a holistic view to improving circularity at each stage of a
product’s lifecycle.

For more information, please see the Circular Economy Theme Insight written by
Rachel A. Meidl:
https://www.msci.com/documents/1296102/28401354/ThematicIndexCircularEconomy-cbr-en.pdf

8 Circular Economy: Measuring Innovation in the Product Chain, Policy Report by PBLK Netherlands

Environmental Assessment Agency, (Potting, J., Hekkert, M., Worrell, E., Hanemaaijer, A.),
https://www.pbl.nl/sites/default/files/downloads/pbl-2016-circular-economy-measuring-innovation-in-productchains-2544.pdf© 2022 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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Appendix 2: Natural Resources Stewardship-specificExclusions Criteria
Companies are excluded based on the following MSCI ESG Controversies, MSCI
Business Involvement Screening Research, and MSCI Climate Change Metrics filters:•

Human Rights Controversieso•Palm Oilo•

All companies that produce biocides, covering anti-fouling products
and pesticides, such as rodenticides, avicides, molluscicides,
vermicides, piscicides, and insecticides.

Tobaccoo•

All companies that genetically modify plants, such as seeds andcrops, and other organisms intended for agricultural use or humanconsumption. This category also covers companies that haveapplied for USDA APHIS permits for field testing, notifications, orderegulated status of genetically modified crops.

Biocideo•

All companies with any tie to Palm Oil – in particular, ties throughproduction, distribution, and/or ownership categories.

Genetically Modified Organisms (GMO)o•

All companies that are involved in human rights-related
controversies assessed as Red and Orange (Score of 1 and below).

All companies that manufacture tobacco products, such as cigars,
blunts, cigarettes, e-cigarettes, inhalers, beedis, kreteks, smokelesstobacco, snuff, snus, dissolvable and chewing tobacco. This
category also covers companies that grow or process raw tobacco
leaves.

Thermal Coal Miningo

All companies deriving any 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 does
not cover 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.

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MSCI NATURAL RESOURCES STEWARDSHIP INDEX METHODOLOGY | MAY 2022•

Oil & Gas Extraction and Productiono•Oil & Gas Pipelines and Transportationo•

All companies deriving any revenue (either reported or estimated)from oil and gas pipelines and transportation. It covers revenues
from mid-stream operations but excludes revenues from terminals
and storage facilities.

Oil & Gas Refiningo•

All companies deriving any revenue (either reported or estimated)from the extraction and production of oil and gas.

All companies deriving any revenue (either reported or estimated)from refining oil and gas.

SDG 14 and 15 Net Alignmento

All companies that are assessed as Strongly Misaligned and
Misaligned on their Net Alignment to SDG 14 (Life Below Water) and
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Appendix 3: Sector-Relative Management Score(SRMS) Calculation
Companies are selected based on their SRMS. The calculation steps are as follows:

1. An average management score (AMS) is calculated for companies in MSCIACWI IMI using management scores based on the identified key issue/s,
granted that they meet the following conditions:•Companies are assessed on any of the identified key issue/s listed in
Section 3.4.

•

Companies have corresponding key issue weight/s greater than 5%.

The calculation of AMS will consider the applicable number of key issues,
meaning a company with two relevant scores are divided by two, forexample.

2. The SRMS is calculated for companies that are identified in Step 1 by dividing
the AMS by the corresponding highest (maximum) AMS based on their
GICS®9 Sector.
Exception clause: A GICS® Sector with a maximum AMS below 5 is excluded
from scope, which in turn, results in the exclusion of all companies belonging
to the excluded sector, from the calculation of SRMS.

9 GICS, the global industry classification standard, jointly developed by MSCI Inc. and S&P Global.

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MSCI NATURAL RESOURCES STEWARDSHIP INDEX METHODOLOGY | MAY 2022

The following sections have been updated as of May 2022:
Section 3.2.2: Circular Economy-related Screens•

Clarified the calculation logic for the ‘Key Issue Management Score/s’
exclusions criterion

Section 4.3: Ongoing Event-Related Maintenance•Clarified the maintenance rules© 2022 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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