Ten years on from the launch of the MSCI ESG Indices, what’s changed?

By Sara Neidle

There’s nothing new about ESG, it’s just rightly gained greater prominence in recent years. Ten years ago, I was part of the communications team that launched MSCI’s ESG index series. At the time, ESG was growing in popularity and it was an opportunity to set new standards for responsible investment indices. It was still a relatively nascent term, but the acronym was to gain greater traction over the coming days, weeks, months and years.

What I find particularly interesting are the parallels that we can draw from 2010 to now. In 2010, we were just emerging from a global financial crisis. Business leaders and financial professionals had to rethink the fundamentals of asset pricing and business models. The crisis exposed the vulnerability of global capital markets and national economies to systematic shocks and the devastating effect these had on economic growth and stability. As a result, the exposure of the market to shocks demonstrated the importance of businesses and financial institutions incorporating ESG factors into fundamental analysis and business planning.  

Ten years later, we are experiencing a health crisis which has become a socio-economic crisis and is a clear reminder that financial markets are vulnerable to shocks. Not only that, the importance of integrating ESG factors and sustainability into corporate and investment decision-making is as important as ever.

ESG shouldn’t just be looked at in a silo but should be incorporated into everything a company represents. Companies need to be increasing their communications around how ESG considerations are impacting their business strategy and how they align with their employees, customers and stakeholders. This doesn’t just mean it should focus on your business, but also on the entire supply chain – from goods and services you purchase to the impact it has on your customers.

So where is the main drive for ESG coming from? We’ve seen how big institutional investors have already started embracing ESG from allocation of capital to diversity of board members. But one of the biggest shifts has been from younger investors. Research from Schroders Global Investor Study 2019 found 61 per cent of “Generation X” always consider sustainability factors when selecting an investment product, compared with 59 per cent of millennials, who are 18 to 37 years old.

It's clear that institutions need to be more proactive and take note of investors’ concerns, not just young investors but all. In doing so, companies need to embrace everything that ESG is truly about.  ESG is here to stay, and we must try to recapture the spirit of 2019 and early 2020 when we were all full focused on the crucial changes that need to happen.

It’s time that companies, asset owners, investors, policy-makers, regulators and each and every one of us acts now.