Index Methodology

MSCI Sharing
Economy Index
Methodology
December 2021

December 2021

MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

Contents

1

MSCI Sharing Economy Index

3

2

MSCI ESG Research

4

3

4

2.1

MSCI Impact Solutions: SDG Alignment

4

2.2

MSCI ESG Ratings

4

2.3

MSCI ESG Controversies

5

2.4

MSCI Climate Change Metrics

5

Constructing the MSCI Sharing Economy Index

6

3.1

Selection Universe

6

3.2

ESG Filtered Universe

6

3.3“Circular Technologies” Universe

7

3.4

Weighting Scheme

8

Maintaining the MSCI Sharing Economy Index

9

4.1

Semi-Annual Index Review

9

4.2

Quarterly Index Reviews

9

4.3

Annual Index Review

10

4.4

Ongoing Event-Related Maintenance10

Appendix 1: What is a Circular Economy?

12

Appendix 2: Sharing Economy-specific Exclusions Criteria

13

Appendix 3: Sharing Economy Relevance Score Calculation14© 2021 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

1

MSCI Sharing Economy Index
The MSCI Sharing Economy Index (the ‘Index’) aims to represent the performance ofa set of companies from MSCI ACWI IMI that are associated with the development of
new products and services that potentially replaces resource-intensive products orprocesses, 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”), as defined using the following measures:•

Sharing Economy•

Smart Mobility•

E-commerce•Social Media•

Digital Payments•

Cloud Computing

The MSCI Sharing Economy Index also applies a set of exclusions criteria to screencompanies with business activities that are not considered aligned with the overall
objective of promoting sharing economy or circularity. Additionally, the Index utilizes
a weighting strategy at security level, as well as applies issuer capping.

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MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

2

MSCI ESG Research
The MSCI Sharing Economy Index uses company ratings and research provided by
MSCI ESG Research LLC. In particular, the Index uses the following MSCI ESG
Research products: MSCI Impact Solutions, MSCI ESG Ratings, MSCI ESG
Controversies, 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: 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.

2.2

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.

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MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

2.3

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.

2.4

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.

© 2021 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

3

Constructing the MSCI Sharing Economy Index

3.1

Selection Universe
The underlying universe for the MSCI Sharing Economy Index is defined by theconstituents of the MSCI ACWI Investable Market Indexes (IMI, the ‘Parent Index’1),
from which two separate universes of stocks are constructed (as described in
Sections 3.2 and 3.3).

3.2

ESG Filtered Universe
The MSCI Sharing Economy Index applies two sets of exclusions criteria todetermine eligibility in the ESG Filtered Universe.

3.2.1 Sharing Economy-specific Exclusions
The MSCI Sharing Economy Index uses MSCI ESG Controversies and MSCI Impact
Solutions’ SDG Alignment to identify companies that are assessed as negatively
impacting the index objective. The criteria are as follows:−

Customer Privacy & Data Security Controversies−

SDG 9 Net Alignment

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

3.2.2 Circular Economy-related Screens
The MSCI Sharing Economy Index uses MSCI ESG Research data to apply a set of
exclusions standards which either address headline risks and/or contributenegatively 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.

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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MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

4. 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).
5. 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.
6. Thermal Coal Mining: All companies deriving 5% or more 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),
intracompany sales of mined thermal coal, and revenue from coal trading.
Notes on Unrated Securities or Securities with Missing Coverage:

3.3•

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 and 4) are not excluded from the final
universe.

“Circular Technologies” Universe
The Circular Technologies Universe is constructed by selecting companies in the
ESG Filtered Universe with relevance score of 25% or more from the shared mobility
and internet economy themes, which consist of the following business activities:•

Sharing Economy•

Smart Mobility•

E-commerce•Social Media•

Digital Payments•

Cloud Computing

The detailed selection rules for the theme are outlined in Appendix 3.

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MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

MSCI may seek input from outside market experts on the ongoing evolution of thethemes underlying the index. However, such input is only advisory in nature. MSCI
alone decides whether to use such input at all or to what extent. Receipt of such
input, like any other feedback on MSCI indexes, may or may not lead to a change tothe index or index methodology.

3.4

Weighting Scheme
The MSCI Sharing Economy Index constituents that are determined to be part of the
Circular Technologies Universe are weighted as follows:

3.4.1 Security Weighting•

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

3.4.2 Issuer Capping
The maximum weight of any issuer in the MSCI Sharing Economy Index is thencapped at 5% in accordance with the MSCI Capped Indexes methodology2. The
excess weight of the capped issuers is distributed among the remaining constituentsin proportion of their existing weights in the Index.

2 Please refer to the MSCI Capped Indexes methodology at www.msci.com/index-methodology© 2021 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

4

Maintaining the MSCI Sharing Economy Index

4.1

Semi-Annual Index Review
The MSCI Sharing Economy Index is reviewed on a semi-annual basis, as of the closeof the last business day of May and November, coinciding with the May andNovember Semi-Annual Index Reviews of the Parent Index. The pro forma index isgenerally announced nine business days before the effective date.
As a rule, MSCI uses the latest available company business segment names,business description and revenue as of rebalancing date of the Semi-Annual Index
Review.
Moreover, MSCI uses MSCI ESG Research data (including MSCI SDG Alignment,
MSCI ESG Ratings, MSCI ESG Controversies, and MSCI Climate Change Metrics) asof 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 theend of the month 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
MSCI Sharing Economy Index.
At each Semi-Annual Index Review, the Eligible Universe and Final Universe are
updated based on the criteria outlined in Sections 3.2 and 3.3.

4.2

Quarterly Index Reviews
The MSCI Sharing Economy Index is also reviewed on a quarterly basis to coincidewith 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, MSCISDG Alignment, and MSCI Climate Change Metrics data are taken as of the end of
the month preceding the Index Reviews, i.e., January and July. For some securities,
this data may not be published by MSCI ESG Research by the end of the month
preceding the Index Review. For such securities, MSCI will use ESG data publishedafter the end of month, when available, for the rebalancing of the MSCI Sharing
Economy Index.
At the Quarterly Index Reviews, existing constituents are deleted from the MSCI
Sharing Economy Index if they do not meet the exclusions criteria described in
Section 3.2. Existing constituents that meet the criteria are retained in the Index.

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MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

4.3

Annual Index Review
The set of relevant words (as described in Appendix 3) are reviewed annually by
MSCI during the May Semi-Annual Index Review. In general, MSCI completes thisreview of relevant words nine business days before the effective date of the May
Semi-Annual Index Review.

4.4

Ongoing Event-Related Maintenance
The general treatment of corporate events in the MSCI Sharing Economy Index aims
to minimize turnover outside of Index Reviews. The methodology aims toappropriately 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.
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 Sharing Economy Index between Index
Reviews on account of a security becoming ineligible because of decrease in MSCIESG Controversies Score, change in SDG Alignment assessment, and/or change inbusiness 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 in© 2021 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

deal 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.
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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MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

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,3 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

3 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© 2021 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

Appendix 2: Sharing Economy-specific Exclusions
Criteria
Companies are excluded based on the following MSCI ESG Controversies and MSCI
Impact Solutions filters:•

Customer Privacy & Data Security Controversieso•All companies that are involved in privacy and data security-related
controversies assessed as Red and Orange (Score of 1 and below).

SDG 9 Net Alignmento

All companies that are assessed as Strongly Misaligned and
Misaligned on their Net Alignment to SDG 9 (Industries, Innovation,and Infrastructure).

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MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

Appendix 3: Sharing Economy Relevance Score
Calculation
Stocks from MSCI ACWI IMI with high exposure to the identified business activities
listed in Section 3.3 are selected based on the following rules:
1. The set of relevant words and phrases4 used for constituent selection
MSCI uses a broad set of relevant words and phrases derived from the index
objective which are important to describe the products and services ofcompanies that try to replace resource-intensive products and processes.
2. Company level data used for assessing company exposure
The following data is used at the company level:•

Business segment information from company annual reports and vendor
data sources: business segment names, assigned SIC codes5 and related
revenue•

English language summary description of the company’s business activities
from public sources

3. Eligible universea.

Selection on business segments
The identified business segment names are compared against the set of relevant
words. Companies which include at least one relevant word in their businesssegment names are included in the eligible universe.

b. Selection on company’s summary description
Each company’s summary business description is compared against the set of
relevant words. Companies which include at least two distinct relevant words intheir summary description are included in the eligible universe.

4. Selected business segments‘Selected business segments’ are business segments which include at least one
relevant word. These are the business segments based on which stocks are selected
in section Step 3a.

4 For more details on the steps followed to generate the set of relevant words and phrases, please refer tohttps://www.msci.com/www/research-paper/indexing-change-understanding/01647260939
5 Companies’ business segments are assigned with a specific Standard Industry Classification (SIC) description

for products and services, used by official agencies within the US government. These descriptions provide
additional information on the nature of the segment.

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MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

5. SIC Code selection
Company business segments are mapped to a SIC code. The SIC code selection
is a set of all the SIC codes which satisfy the following criteria:•

The SIC code is mapped to at least one of the ‘selected business segments’as described in Step 4.

•

The SIC code is assigned to the business segments of at least two different
stocks from the eligible universe. The SIC code 9999 is not selected.

6. Calculating the stock relevance score
A relevance score for all stocks in the eligible universe is calculated. The
relevance score for a company is calculated by taking into account the portion of
a company’s revenue which is derived from the selected business segments (asdescribed in Step 4) and business segments mapped to any SIC Code selected in
the SIC Code selection step (as described in Step 5).
The relevance score is not an explicit measurement or estimate of the proportionof revenue that the company derives from business activities exposed to thetheme.
a. Relevance score discount factor
A stock level relevance score discount factor is calculated by normalizing the
cumulative frequency of relevant words in the company’s summary
description relative to all companies selected on summary businessdescriptions as described in Step 3b.
At a company’s business segment level, the revenue discount factor isapplied on revenue from each selected SIC code as described in Step 5. The
revenue discount factor is 1 for revenue derived from ‘selected businesssegment’.
b. Relevance score
Relevance score for stocks in the eligible universe is calculated as follows:
Relevance score = [revenue from the selected business segments (asdescribed in Step 4) + relevance score discount factor * revenue from theselected SIC code (as described in Step 5)] / Total company revenue.

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MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

After identifying the stocks that meet the criteria detailed in Steps 1-6, the Eligible
Universe applies an additional filter, as follows:
1. GICS®6 Sub-industry Filtering
Stocks mapped to the following GICS® sub-industries are excluded from theselected universe:•

GICS® Sub-industry
GICS® Sector
10Energy20

Industrials

25
30
40
45

Consumer
Discretionary
Consumer
Staples
Financials
Information
Technology•••

GICS® Sub-industry
10101020 Oil & Gas Equipment & Services
10102010 Integrated Oil & Gas
10102030 Oil & Gas Refining & Marketing20104020 Heavy Electrical Equipment
20105010 Industrial Conglomerates
20106010 Construction Machinery & Heavy
Trucks20201060 Office Services & Supplies
20303010 Marine
20305030 Marine Ports & Services•

25301010 Casinos & Gaming•

30202030 Packaged Foods & Meats

•
•
•
•
•

40203040 Financial Exchanges & Data
45102010 IT Consulting & Other Services
45203030 Technology Distributors
45301010 Semiconductor Equipment
50101020 Integrated Telecommunication
Services
50102010 Wireless Telecommunication
Services
50201010 Advertising
50201020 Broadcasting
50201030 Cable & Satellite
50201040 Publishing
50202010 Movies & Entertainment
50202020 Interactive Home Entertainment
55101010 Electric Utilities
55103010 Multi-Utilities

•
•
•
•
•
•

•
50

Communication
Services

55

Utilities

•
•
•
•
•
•
•
•

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

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MSCI SHARING ECONOMY INDEX METHODOLOGY | DECEMBER 2021

GICS® Sector•
60

Real Estate•

GICS® Sub-industry
55105010 Independent Power Producers &Energy60101080 Specialized REITs© 2021 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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