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The move represents MSCI’s efforts to promote environmental, social and governance (ESG) standards in China, where the government seeks a difficult balance between reducing pollution and sustaining growth in a coronavirus-hit economy.
The newly created climate change indexes were based on the MSCI China Index and the MSCI China A Index. Compared with their parent indexes, the new indexes allocate more weighting to less polluting companies.
For example, internet giant Tencent enjoys an additional weight of 1.61% in the MSCI China Climate Change Index, while LONGi Green Energy Technology is awarded an extra weight of 1.4% in the China A Climate Change Index.
Jack Lin, head of APAC client coverage at MSCI, expects investors to increasingly focus on the climate change indexes.
“It’s not about the world outlook. It’s about economic efficiency. It’s about higher returns and lower risks,” Lin said. “The market will discount share prices of companies with poor ESG compliance.”
MSCI China Climate Change Index outperformed its parent gauge by an annualized 0.4% in the past 6.5 years, MSCI said.
Shuo Xu, Vice President MSCI Research, said the index publisher is already in talks with quite a few institutions about creating investment products based on the new indexes.
The index launch comes amid China’s push to open up its capital markets. The participation of ESG-conscious foreign investors is putting pressure on listed companies in China, where ESG disclosure is often seen as sporadic, non-standard, and inconsistent.
