MSCI Announces Changes to Its ESG Rating Methodology, Resulting in Downgrades for Most Funds

May 16, 2023

MSCI has announced significant changes to its ESG investment fund ratings methodology that “aim to raise the requirements for a fund to be assessed as ‘AA’ or ‘AAA’ rated, improve stability in Fund ESG Ratings and add transparency through simpler attribution analysis.” However, these changes will result in downgrades to 31,000 of the funds currently rated by MSCI. MSCI also announced new coverage for 8,200 fixed income funds and a “new approach in rating funds with swap-based strategies” that “will rate swap-based ETFs based on the holdings of the replicated index instead of the fund’s collateral holdings.” According to MSCI, the methodology changes are based on client feedback, not regulatory developments in the EU or elsewhere.

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