MSCI sees strong demand for combined ESG & factor indices — as ESG revenue rises 24%

Company says it’s working on new products to meet demand

Index firm MSCI says it is seeing increasingly strong demand for a combination of ESG and factor indices – and that it is working on new products to meet the demand.

It comes as MSCI reported a $2.7m, or 24.7%, increase in second-quarter ESG revenues to $13.7m. “The increase in ESG revenues was driven by higher ESG Ratings product revenues, which benefited from increased investments and selling and marketing efforts,” it said in its earnings statement. Overall, the company reported an 8.8% increase in operating revenues to $316.1m.

Factors are defined as variables that drive equity returns and MSCI Chief Executive Henry Fernandez said: “We are increasingly seeing strong demand for a combination of ESG and factor indices. We are working on new products to meet this demand and we feel we are extremely well positioned in this area.

Speaking on an earnings call, he said: “For example, one of the world’s largest pension funds recently selected our MSCI Japan Empowering Women index and the MSCI Japan select leaders index as benchmarks for their ESG benchmark strategy.”He added the growth potential of each of its product segments – index content, real estate & ESG content and factor analytics – is “magnified” then they are brought together.

“What is compelling about this integration is that the strong growth potential of each individual part of our product line on a standalone basis is getting magnified when brought together and integrated.” Their value was “well in excess of the sum of the parts” — providing clients with a “holistic view” of the equity markets.

Fernandez noted that of the 973 exchange traded funds (ETFs) benchmarked to MSCI indices, 204 are based on factors and 71 related to ESG.

The firm also had four benchmark wins in ESG indices for the quarter.

At an MSCI client event in London in May, Fernandez expanded on how he sees ESG issues as “mispriced” in the market, saying: “We’re still living in yesterday’s world.” There were simple reasons for this: greater disclosure and the growth of social media, which acts as a watchdog.