My qualms with ESG ratings are well documented. In my view, they lack consistency, have a large cap bias, create opportunities for greenwashing, and in the end, don’t even capture the best ESG investments around. However, a study from Columbia and Emory University
Collecting ESG data is an arduous task. Possibly, MSCI simply focusses on that task for companies that are potentially eligible in size terms for their indexes, reducing their focus on companies that cannot get into the indexes due to the various size criteria. That's not ideal but it's not evidence of an unmanaged conflict of interest.
That is a possibility, but why do ratings change for past data that is years back?
And as for data collection, MSCI uses both bits to collect data automatically and analysts to look at the data and complete and Analyse it. This means they will focus on companies that are of interest to investors (I.e. large caps with high price momentum). But this is not about new companies that have never been analyses before. This is about companies that have been analyses and in their database before but get an upgrade just before they get included in the index. That is what I do not understand.
Possibly I've not explained my point properly. The key admission criteria for almost every index is market cap, not the theme or signal that the index is representing - it's only after being "big enough" that it's even potentially possible to get into an index, even if that index is an ESG index, a tech sector index etc. So it's understandable that MSCI may prioritise ESG reviews of companies whose size has grown to a point where they're knocking on the door, in order to ensure the ratings are accurate and that they don't promote a company whose ESG attributes have gone downward - and deprioritise those who due to their size have no chance of getting into the index.
Is it possible to tell from the data whether companies that are knocking on the door size-wise but that don't get in to the index (due to size or rating) have also had their ESG ratings reassessed?
Collecting ESG data is an arduous task. Possibly, MSCI simply focusses on that task for companies that are potentially eligible in size terms for their indexes, reducing their focus on companies that cannot get into the indexes due to the various size criteria. That's not ideal but it's not evidence of an unmanaged conflict of interest.
That is a possibility, but why do ratings change for past data that is years back?
And as for data collection, MSCI uses both bits to collect data automatically and analysts to look at the data and complete and Analyse it. This means they will focus on companies that are of interest to investors (I.e. large caps with high price momentum). But this is not about new companies that have never been analyses before. This is about companies that have been analyses and in their database before but get an upgrade just before they get included in the index. That is what I do not understand.
Possibly I've not explained my point properly. The key admission criteria for almost every index is market cap, not the theme or signal that the index is representing - it's only after being "big enough" that it's even potentially possible to get into an index, even if that index is an ESG index, a tech sector index etc. So it's understandable that MSCI may prioritise ESG reviews of companies whose size has grown to a point where they're knocking on the door, in order to ensure the ratings are accurate and that they don't promote a company whose ESG attributes have gone downward - and deprioritise those who due to their size have no chance of getting into the index.
Is it possible to tell from the data whether companies that are knocking on the door size-wise but that don't get in to the index (due to size or rating) have also had their ESG ratings reassessed?
Ah, I get it. And no, from the study I can’t tell if companies are reviewed by MSCI if they are knocking on the door to being in the index or not.