2023年ESG与气候趋势展望报告（英）--MSCIVIP专享VIP免费

下载本文档

阅读 116
格式 pdf
大小 16.85 MB
约70页
2023-04-30
收藏
点赞(0)
海报
举报

MSCI ESG Research LLC

ESG and Climate

Trends to Watch

for 2023

msci.com

Welcome to MSCI’s ESG and Climate Trends to Watch for 2023.

We’re heading into the new year against a backdrop of a major war in Europe, ination, cost-of-

living crises, energy markets in turmoil, rising interest rates, pandemic fatigue, political uncertainty

and what feels like an unending stream of climate-induced disasters.

At the same time, ESG itself is being put under the spotlight. Regulators around the world

are upping the ante on everything from greenwashed fund names to stricter climate target

disclosures, while the very idea of ESG investing is increasingly politicized.

Which is to say: There’s a lot going on around the world. And it is shaping both the investment

environment and the challenges and opportunities facing companies.

Now, if you’re a longtime fan of our annual ESG trends research, you’ll notice things look a little

different this time. The large-scale trends shaping the ESG-investing world are well-known at this

point: climate change risk and the road to net-zero, the growing existential threat of biodiversity

loss, social inequalities, regulation and, lately, debate and controversy over what exactly ESG

should be.

So this year, we’ve gone back to basics and asked the experts on our research team: With

everything that is happening around us, what specically will you be watching in 2023, and why?

The following pages contain a selection of the answers to that question. Not surprisingly,

many touch on climate change across a variety of angles: from carbon credit funds to insured

emissions, and from scrutiny of net-zero targets to decarbonizing industrial real estate.

Regulation is now top of mind not just in the EU, but increasingly in the U.S. and APAC markets:

from requirements for nancial institutions to conduct climate stress tests, to deforestation-free

market-access rules, to investors getting ahead of potentially mandatory requirements to report

on the SFDR’s Principle Adverse Impact indicators.

Our team also has their eyes on supply chain issues, including the prospects for lab-grown

commodities, tracking goods through blockchain technology and the mining of e-waste to reshape

the dynamics of controversial raw material sourcing.

And to round it off, we’ve got a host of issues affecting everyday lives in what seem to be

increasingly dicult times: striking rail workers (we’re looking at you, U.K.), poor air quality, new

ground rules for internet companies and more.

We hope you’ll dive in, make yourself at home and come away with some fresh, and in-depth,

perspectives. What will you be watching in 2023?

Meggin Thwing Eastman

Global ESG Editorial Director, ESG Research Director, EMEA

London

Changing governance

1. Market conditions could test investors’ commitment to

say-on-climate voting

2. Will climate-focused boards help improve emissions trajectories?

3. As Asian companies add female directors, human capital could benet

4. As boards age, what’s the trade-off between experience and youth?

Responses to regulation

5. Regulators turn their gaze to ESG funds

6. Climate target disclosure standards: Regulatory

inconsistencies remain

7. Will banks be ready for climate stress test regulations?

8. ESG ratings may ll in some blanks for Principal Adverse

Impact indicators

9. Cutting deforestation: Market restrictions get real

10. Beyond GDPR: New regulations could alter the global digital landscape

Innovations in the supply chain

11. Cotton’s crunch point and the future of ber

12. Mining old electronics to fuel new energy tech

13. GMO regulatory resistance may be softening

14. Can blockchain help supply chains move away from controversy?

Work life

15. I’ll be working on the railroad — Not?

16. Choking on smoke: human capital risks from air pollution

17. News shifts from pandemic to climate change, but labor hangs on

18. Bargaining with labor: Managing worker shortages in hard times

Climate Workforce Investment Regulation BiodiversityGovernance Supply chain

Research Insights

MSCI ESG Research LLC

Contents

/70

下载本文档

文本预览下载提示常见问题

MSCIESGResearchLLCESGandClimateTrendstoWatchfor2023msci.comWelcometoMSCI’sESGandClimateTrendstoWatchfor2023.We’reheadingintothenewyearagainstabackdropofamajorwarinEurope,inflation,cost-of-livingcrises,energymarketsinturmoil,risinginterestrates,pandemicfatigue,politicaluncertaintyandwhatfeelslikeanunendingstreamofclimate-induceddisasters.Atthesametime,ESGitselfisbeingputunderthespotlight.Regulatorsaroundtheworldareuppingtheanteoneverythingfromgreenwashedfundnamestostricterclimatetargetdisclosures,whiletheveryideaofESGinvestingisincreasinglypoliticized.Whichistosay:There’salotgoingonaroundtheworld.Anditisshapingboththeinvestmentenvironmentandthechallengesandopportunitiesfacingcompanies.Now,ifyou’realongtimefanofourannualESGtrendsresearch,you’llnoticethingslookalittledifferentthistime.Thelarge-scaletrendsshapingtheESG-investingworldarewell-knownatthispoint:climatechangeriskandtheroadtonet-zero,thegrowingexistentialthreatofbiodiversityloss,socialinequalities,regulationand,lately,debateandcontroversyoverwhatexactlyESGshouldbe.Sothisyear,we’vegonebacktobasicsandaskedtheexpertsonourresearchteam:Witheverythingthatishappeningaroundus,whatspecificallywillyoubewatchingin2023,andwhy?Thefollowingpagescontainaselectionoftheanswerstothatquestion.Notsurprisingly,manytouchonclimatechangeacrossavarietyofangles:fromcarboncreditfundstoinsuredemissions,andfromscrutinyofnet-zerotargetstodecarbonizingindustrialrealestate.RegulationisnowtopofmindnotjustintheEU,butincreasinglyintheU.S.andAPACmarkets:fromrequirementsforfinancialinstitutionstoconductclimatestresstests,todeforestation-freemarket-accessrules,toinvestorsgettingaheadofpotentiallymandatoryrequirementstoreportontheSFDR’sPrincipleAdverseImpactindicators.Ourteamalsohastheireyesonsupplychainissues,includingtheprospectsforlab-growncommodities,trackinggoodsthroughblockchaintechnologyandtheminingofe-wastetoreshapethedynamicsofcontroversialrawmaterialsourcing.Andtorounditoff,we’vegotahostofissuesaffectingeverydaylivesinwhatseemtobeincreasinglydifficulttimes:strikingrailworkers(we’relookingatyou,U.K.),poorairquality,newgroundrulesforinternetcompaniesandmore.Wehopeyou’lldivein,makeyourselfathomeandcomeawaywithsomefresh,andin-depth,perspectives.Whatwillyoubewatchingin2023?MegginThwingEastmanGlobalESGEditorialDirector,ESGResearchDirector,EMEALondonChanginggovernance1.Marketconditionscouldtestinvestors’commitmenttosay-on-climatevoting2.Willclimate-focusedboardshelpimproveemissionstrajectories?3.AsAsiancompaniesaddfemaledirectors,humancapitalcouldbenefit4.Asboardsage,what’sthetrade-offbetweenexperienceandyouth?Responsestoregulation5.RegulatorsturntheirgazetoESGfunds6.Climatetargetdisclosurestandards:Regulatoryinconsistenciesremain7.Willbanksbereadyforclimatestresstestregulations?8.ESGratingsmayfillinsomeblanksforPrincipalAdverseImpactindicators9.Cuttingdeforestation:Marketrestrictionsgetreal10.BeyondGDPR:NewregulationscouldaltertheglobaldigitallandscapeInnovationsinthesupplychain11.Cotton’scrunchpointandthefutureoffiber12.Miningoldelectronicstofuelnewenergytech13.GMOregulatoryresistancemaybesoftening14.Canblockchainhelpsupplychainsmoveawayfromcontroversy?Worklife15.I’llbeworkingontherailroad—Not?16.Chokingonsmoke:humancapitalrisksfromairpollution17.Newsshiftsfrompandemictoclimatechange,butlaborhangson18.Bargainingwithlabor:Managingworkershortagesinhardtimes579111315171921232527293133353739ClimateWorkforceInvestmentRegulationBiodiversityGovernanceSupplychain©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage3ResearchInsightsMSCIESGResearchLLCContents©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage4ResearchInsightsMSCIESGResearchLLCTurningpoints19.Isthehoneymoonoverforgreenbonds?20.Sovereignpolicydilemma:Energysecurityvs.theclean-energytransition21.Energycrisis,Ukrainewardrivingfossilfuelagenda,butdon’truleoutrenewables22.Nuclearenergycontemplatesacomeback23.PatentactivitysuggestsenergyfirmsstilldigfossilfuelsNewfrontiersinmeasurementandtransparency24.Pullingbacktheveilonbanks’loanemissions25.Insuranceemissions:theactuarialrevolutionhasbegun26.Emissionsattributioncouldhelpkeepportfoliosalignedwithnet-zero27.Net-zero:Companiesareaiminghigh,butaretheirstrategiespractical?Newinvestments28.Lab-growncommodities:thenewfrontier?29.Turningsteelgreen(er)withblastfurnaceupgrades30.Greeningindustrialrealestateonewarehouseatatime31.Newrisksandopportunitiesinclimateadaptation32.Investinginemissions:carbonasanewassetclass?ClimateWorkforceInvestmentRegulationBiodiversityGovernanceSupplychainThisdocumentisresearchforinformationalpurposesonlyandisintendedforinstitutionalprofessionalswiththeanalyticalresourcesandtoolsnecessarytointerpretanyperformanceinformation.Nothinghereinisintendedtopromoteorrecommendanyproduct,toolorservice.Forallreferencestolaws,rulesorregulations,pleasenotethattheinformationisprovided“asis”anddoesnotconstitutelegaladviceoranybindinginterpretation.Anyapproachtocomplywithregulatoryorpolicyinitiativesshouldbediscussedwithyourownlegalcounseland/ortherelevantcompetentauthority,asneeded.4143454749515355575961636567ResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage5FlorianSommerLondonMarketconditionscouldtestinvestors’commitmenttosay-on-climatevotingMoreinvestorsvotedagainstcorporateclimatestrategiesinthe2022proxyseasoncomparedto2021,accordingtoouranalysisbelow.Wefoundthatinvestorstendedtovoteagainstclimateplansin2022wherethecompany’semissionstrajectorywasmisalignedwithglobaltemperaturetargets,asmeasuredbyMSCIImpliedTemperatureRise(ITR).1Recentturmoilinenergymarketsandafocusonenergysecuritymaychangesomeinvestors’votingbehavior.2In2023,wewillbewatchingwhetherinvestoroppositiontocorporateclimatestrategieswillcontinuetoincrease,orwhethermoreinvestorswillgivecompaniesthebenefitofthedoubtontheirclimateplansinchallengingmarketconditions.Weidentified53constituentsoftheMSCIACWIInvestableMarketIndex(IMI)thatheldmanagement-sponsoredvotesontheirclimateplaninthelasttwoyears.3Investorsapprovedallthesecorporateclimatestrategies,mostlybylargemajorities.However,theaverageproportionofvotesagainstwentfrom3.1%in2021to9.6%in2022,indicatingincreasinguneasinessamongsomeinvestors.Ouranalysisofthelimitednumberofvotesin2022(43companies)suggeststhatmanydissentinginvestorsmayhaveopposedcorporateclimatestrategiesthattheyfeltwerenotambitiousenough.Withmoresay-on-climatevotesscheduledfor2023,wewillbewatchingwhetherornotthisdynamicwillhold.DavidMuirheadLondonClimateGovernanceChanginggovernanceTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage6Companies’emissionstrajectoriesand2022say-on-climatevoteresultsAnalysiscoversall43constituentsoftheMSCIACWIIMIthatheldmanagement-sponsoredsay-on-climatevotesin2022todate.Thepercentageofvotesagainstaccountsforvotesinfavorandvoteswithheld/abstained.DataasofNov.9,2022.Source:MSCIESGResearchandcompanydisclosures1MSCIImpliedTemperatureRiseisdesignedtoshowthetemperaturealignmentofcompanies,portfoliosandfundswithglobalclimatetargets.Itcomparesacompany’scurrentandprojectedgreenhouse-gasemissionsacrossallemissionscopeswithitsshareoftheremainingglobalcarbonbudgetforkeepingglobalwarmingwellbelow2°C.Itconvertsacompany’s“undershoot”or“overshoot”ofitscarbonbudgettoanimpliedriseinaverageglobaltemperaturesthiscentury,expressedindegreesCelsius.2Masters,Brooke.“ShareholdersbackawayfromgreenpetitionsinUSproxyvotingseason.”FinancialTimes,July1,2022.3Votesineither2021or2022,dataasofNov.9,2022.ChanginggovernanceResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage7Investorsareincreasinglyshowingthemselveswillingtochallengeboarddirectorsontheircompanies’climateperformance,includingscrutinizingclimateriskmanagementdisclosuresoremissions-reductionplansinsomemarkets.4In2023,wewillbewatchingwhetherclimate-focusedboardshelpemissions-intensivecompaniesstanduptothatscrutiny.ArecentstudyfoundthatU.K.-listedcompanieswithbettergovernancepracticestendedtoachievehighercarbon-emissionsreductioncomparedtohistoriclevelsandtoindustrypeers.5Ifthisholdsmorewidely,boardsthatspendsignificanttimeonenvironmentalorsustainabilityissuesandincludedirectorswithclimateexperiencecouldhelpfirmsaddressclimatetransitionriskandreducereal-worldemissions.Specifically,dedicatedenvironmentalorsustainabilitycommitteesmayfocusdirectorattentiononclimate-relatedissues.Boardsthatincludeclimate-savvydirectorsmaybebetterabletobuildsupportforemissionstargets,comparedtothosethatdonot.Thesefactorscouldhelpcompaniesrespondtoquestionsfrominvestorsabouttheirapproachtoclimatechange.Toexploretheseissues,welookedatboardpracticesatagroupofclimatelaggards:38constituentsoftheMSCIACWIIndexinemissions-intensiveindustriesthatwerestronglymisalignedwithglobaltemperaturetargetsasofNovember2022,asmeasuredbyMSCIImpliedTemperatureRise(ITR).6Intheexhibitbelow,thesevencompanieshighlightedingreenhadaboardsustainabilitycommitteeandatleastonedirectorwithclimate-relatedexperience,basedonouranalysis.7Theirfutureemissionstrajectoriesmayanswerwhetherclimate-focusedboardscanhelpcompaniesalignwithglobaltemperaturetargets.Willclimate-focusedboardshelpimproveemissionstrajectories?DavidMuirheadLondonFlorianSommerLondonClimateGovernanceChanginggovernanceTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage8Climateboardpracticesatselectemissions-intensivecompaniesAnalysiscovers38constituentsoftheMSCIACWIIndexwithanITRabove3.2°C.UndertheGlobalIndustryClassificationStandard(GICS®),thesecompanieswereclassifiedinthesesub-industries:independentpowerproducersandenergytraders,electricutilitiesandconstructionmaterials.Thesethreesub-industrieswerethemostemissions-intensiveGICSsub-industries,basedonourdataforfiscalyear2020.GICSistheglobalindustryclassificationstandardjointlydevelopedbyMSCIandS&PGlobalMarketIntelligence.Source:MSCIESGResearchandcompanydisclosures(asofNovember2022)4Verney,Paul.“Resolutionround-up:Investorstotargetdirectorsatclimatelaggards,ISSpollsuggests.”ResponsibleInvestor,Oct.18,2022.5Luo,Le,andTang,Qingliang.2021.“Corporategovernanceandcarbonperformance:roleofcarbonstrategyandawarenessofclimaterisk.”Accounting&Finance61:2891-2934.6Pleaseseethenotebelowtheaccompanyingchartformoredetailsaboutthesecompanies.ITRisdesignedtoshowthetemperaturealignmentofcompanies,portfoliosandfundswithglobalclimatetargets.Itcomparesacompany’scurrentandprojectedgreenhousegasemissionsacrossallemissionscopeswithitsshareoftheremainingglobalcarbonbudgetforkeepingglobalwarmingwellbelow2°C.Itconvertsacompany’s“undershoot”or“overshoot”ofitscarbonbudgettoanimpliedriseinaverageglobaltemperaturesthiscentury,expressedindegreesCelsius.7Weidentifiedenvironmentalorsustainabilitycommitteesbasedonofficialboardcommitteenames.Ourevaluationofclimate-relateddirectorexperienceisbasedonareviewofdiscloseddirectorbiographies.ChanginggovernanceResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage9Whenanalyzingcompaniesandtheirboardcomposition,wehavepreviouslyobservedacorrelationbetweenthepresenceoffemaledirectorsandstrongtalent-managementpractices,aswellashighergrowthinemployeeproductivity.In2023,we’llbewatchingwhethertheAPACregion’sregulatoryeffortstoincreasethepresenceofwomenonboardsalsomanifestsinimprovementofcompanies’humancapitalmanagement.Malaysiaintroduceda30%-female-directorrecommendationinitscorporategovernancecodein2017,andIndiastrengthenedgender-diversityrequirementsin2020toincludeanindependentfemaledirectoratthetop1,000companiesbasedonmarketcap.8WhileIndiahadpreviouslymandatedtheappointmentofonefemaledirector,therewascriticismthatcompaniesweremeetingtherequirementwithfemalerelativesofcontrollingshareholdersandseniormanagers.9Generally,independentdirectorsshouldhelpenhancemanagementoversightandprotecttheinterestsofnon-majorityshareholders,whiletherequirementforanindependentfemaledirectorcouldalsohelpimprovetalent-managementpractices.Mostrecently,largeKoreancompaniesscrambledtoappointatleastonefemaledirectoraheadofanewboard-diversityregulationthatcameintoeffectinAugust2022.10Giventheprevalenceofcontrolledcompaniesandfamilyfirms11inAPAC,12manynewfemaledirectorswilllikelycomefromconnectedinterests,butwewouldalsoexpectthenumberofindependentfemaledirectorstoincrease.Willregulatoryeffortshavethedesiredeffect?Whilenotnecessarilyevidenceofcausality,theexhibitbelowshowsthat,onaverage,companieswithatleastonefemaledirectorhadhigherhuman-capital-managementperformancethanthosewithoutanyfemaledirectors(4.3vs.3.7ona0-10scale).13Thedifferencewasevengreateratcompaniesthathadatleastthreefemaledirectorsor30%womenontheboard,apotential“tippingpoint.”Wewillbewatchingwhetherthisrelationshipholdsasregulatorypressureintensifies,andwhetherothermarketswillfollowIndia’sexampletoincorporateaspectsofindependenceinthepushtoincreaseboarddiversity.AsAsiancompaniesaddfemaledirectors,humancapitalcouldbenefitMoekoPorterTokyoSKKimSeoulWorkforceGovernanceChanginggovernanceTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage10Human-capitalmanagementatcompanieswithfemaledirectorsAmongtheconstituentsoftheMSCIEmergingMarketsInvestableMarketIndex(IMI),weselectedAPACcompanieswithlabormanagementorhumancapitaldevelopmentasaweightedkeyissueintheMSCIESGRatingsmodel:China(n=529),India(n=139),Indonesia(n=29),SouthKorea(n=328),Malaysia(n=65),Philippines(n=21),Taiwan(n=103)andThailand(n=45).TheMSCIEmergingMarketsIMI(n=3,064)captureslarge-,mid-andsmall-caprepresentationacross24emergingmarkets.Datareflectsthedistributionofmanagementscoresunderourhuman-capital-developmentkeyissueforcompanieswithvaryinglevelsoffemale-directorrepresentation.DataasofOct.25,2022.Source:MSCIESGResearch8“MalaysianCodeonCorporateGovernance(Asat28April2021).”SecuritiesCommissionMalaysia,April28,2021.“SecuritiesandExchangeBoardofIndia(ListingObligationsandDisclosureRequirement)Regulations,2015.”SecuritiesandExchangeBoardofIndia,July25,2022.9Singh,Gagandeep.2020.“CorporateGovernance:AnInsightintotheImpositionandImplementationofGenderDiversityonIndianBoards.”IndianJournalofCorporateGovernance13:99–110.10KoreancompanieslistedintheKOSPIindex,withtotalassetsgreaterthanKRW2trillionarerequiredtoappointatleastonefemaledirectorasofAugust2022.11MSCIESGResearchconsidersacompanywherethelargestshareholderorshareholdergroupholds30%ormoreofthevotingrightsacontrolledcompany,andconsidersacompanyafamilyfirmwhenthefamilyholds10%ormoreofthevotingrightsandatleastoneseatontheboardofdirectors.12Porter,Moeko.“KeepingitintheFamily.”MSCIResearchInsight,Sept.17,2022.(Clientaccessonly.)13Human-capital-managementperformancereferstoaveragekeyissuescoreforthelabor-managementandhuman-capital-developmentkeyissuesundertheMSCIESGRatingsmethodology.ChanginggovernanceResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage11Theaverageageofnewlyappointeddirectorsisontracktohitarecordhighnextyear,withfirst-timemaledirectorsindevelopedmarketsapproaching60.Butwomenandemerging-marketdirectorsareyounger.Amidongoingglobaldemographicshifts,in2023we’llbewatchinghownominationcommitteesconsiderthepotentiallysignificantimplicationsofagefordirectorskillsets,aswellasforboardcontinuityanddiversity.TheaverageageofnewdirectorsforconstituentsoftheMSCIACWIIndexhasrisenfrom54.8yearsin2018to56.3yearsin2022.Globally,significantagegapsexistbetweenmaleandfemaledirectorsandbetweenthosewhoserveontheboardsofcompaniesindevelopedandemergingmarkets.14Whencombined,thesetrendsareamplified.Thismaymeancompaniesinemergingmarketshaveanedgewhenharnessingnewtechnologiesandpursuingbusinessinnovation:Youngerdirectorsmayenhanceaboard’sgenerationaldiversityandhelpcompanieschartapathforwardinanincreasinglycomplexandtechnology-dependentbusinessenvironment.However,boardsandtheirnominationcommitteeswillrequirestrongonboardingprogramstomaximizethecontributionsofyoungerdirectorswhoarelikelytobringfeweryearsofprofessionalexperienceandwhomaybelessfamiliarwiththenuancesofboardwork.15Additionally,nominationcommitteesmayneedtomonitorhownewdirectorsaffectboard-agediversitytoensureanappropriatebalance.Boardsseekingyoungertalentmayalsobeforcedtoconsiderthesedirectors’othercommitments:Theyaremorelikelytobefull-timeemployeesatothercompanies,whichcouldlimittheircapacityforboardwork.16Meanwhile,nominationcommitteesfordeveloped-marketboardswithanabundanceofoldermenmayneedtotakeafreshlookattheirapproachtodirectorrecruitingandconsiderdiversifyingtheirdirector-agedemographicstobringwiderperspectivestoboarddiscussions.TanyaMatandaTorontoAsboardsage,what’sthetrade-offbetweenexperienceandyouth?HarlanTuffordTorontoGovernanceChanginggovernanceTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage1214MarketclassificationsarebasedontheMSCIMarketClassificationFramework,July2022.15“Directors’ResponsibilitiesinCanada.”Osler,Hoskin&HarcourtLLPandtheInstituteofCorporateDirectors,Oct.1,2014.16“Episode58:Howdowegetmoreyoungpeopleservingintheboardroom.”FutureDirectorsPodcast,March1,2021.ConstituentsofMSCIACWIIndex,asofOct.18,2022.MSCIACWIIndexconstituents(n=2,625),developed-marketconstituents(n=1,397)andemerging-marketconstituents(n=1,228).Includesdirectorswhojoinedaboardinthe12monthspriortoOct.18ineachyear.Source:MSCIESGResearchAverageageofnewdirectorsbymarketandgenderChanginggovernanceResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage13RegulationFormuchofthepastdecade,ESG-orientedfundshaveoperatedwithlimitedregulatoryguidance.17Butthatlookstoberapidlychanging.Regulatoryinterestinfundnamesandfunds’classificationanddisclosureobligationsarerampingupglobally.SpearheadedbytheEU’sSustainableFinanceDisclosureRegulation(SFDR),whichimposesrequirementsonmoretransparentreportingforESGfunds,othermajormarketregulatorsarefollowingsuit.In2023,we’llbewatchingforchangesinESGfundnamesandlabelsasunfoldingdisclosureregimesholdmanagerstostricteraccount.Australia,HongKongandSingapore,forexample,haveprovidedguidancetostandardizedisclosuresontheintegrationofESGfactorsintheinvestment-selectionprocess.RegulatorsintheEUandCanadahavegonefurtherbyseekingtoclassifysustainablefunds,withmoreextensiveESGintegrationrequiringmoredisclosure.TheU.S.hastakententativestepswithasimilarbutnotdirectlycomparableproposal,asignificantmovefortheworld’slargestfundmarket(representingover60%ofglobalfundinvestments).Ifthesecollectiveproposalstakeeffect,theycouldseeUSD3.6trillionofsustainableinvestments(8%ofglobalfundassets)subjecttooversight.Forinvestors,thiscouldmeanbetter-informeddecisions.ButitcouldalsoleadtotheemergenceofamultitudeofdisconnectedregionalstandardsforESG-fundclassifications,achallengeforinvestorsinpursuitofacommonESGobjectiveacrossjurisdictions.RegulatorsturntheirgazetoESGfundsSitaSubramanianNewYorkRumiMahmoodLondonInvestmentResponsestoregulationTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage14JurisdictionswithactiveandproposedregulationsorguidelinesforESGfundsSolidtextboxesrepresentregulationsinforce,whiledashedboxesrepresentproposedorplannedregulations.ListofjurisdictionswithregulationsorguidelinesproposedorinforceforESGfunds:U.S.(proposed);Canada;EU;U.K.(planned);Singapore;India(proposed);HongKong;Australia(includingSection1013DA);Malaysia;NewZealand;Philippines(proposed);Thailand(proposed);Taiwan.DataasofOct.12,2022.Source:MSCIESGResearch17ESGfundsaredefinedasanyfundthatemploysanyESGconsiderationsinitssecurity-selectionprocess(valuesandscreening/ranking/exclusions/integration/optimization,etc.,andtheircombinations).Insimplestterms,itisthewidestpossiblenetunderwhichanyandallfundsemployinganyESGconsiderationsinsecurityselectionarecaptured.AllfundcharacterizationsbasedondatafromBroadridgeandMSCIESGResearch,asofJuly2022.ResponsestoregulationResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage15Investorsneedcomparable,consistentandmeaningfulinformationtomakedecisions.A2022surveybytheTaskForceonClimate-relatedFinancialDisclosures(TCFD)identifiedconsistentreportingofclimatetargetsasoneofthebiggestareasforcompaniestoimprove.18Yet,despitetheeffortstocreatecommonreportingstandardsacrossjurisdictions,differencespersist.Regulatorymisalignmentonclimatetargetscouldmeancriticaldatagapsremain,leadingtocontinueddifficultyinassessingandcomparingcorporatepledges.In2023,wewillbewatchingtoseehowclimatetargetdisclosureframeworksmovetowardimplementation:withfurtherconvergenceandconsistencyoraddedfragmentation?In2022,wesawtheproposeddraftsofthe“bigthree”climatedisclosurestandardsfromtheInternationalSustainabilityStandardsBoard(ISSB),theEuropeanFinancialReportingAdvisoryGroup(EFRAG)andtheU.S.SecuritiesandExchangeCommission(SEC).Weassessedtheextenttowhichthebigthreemeasuredupagainstasetofkeytargetfactors,whichinourviewrepresenttheessentialinformationneededforacomprehensivedisclosureofacompany’sclimatetargets.ThisincludesdatapointsweassessaspartoftheMSCIClimateTargetScorecard,whichcollectsinformationoncompanies’targetsandconvertsitintoastandardizedframeworktoallowforbettercomparison.Inourassessment,wefound:•TheEuropeanSustainabilityReportingStandards(ESRS),proposedbytheEFRAG,arethemostdetailed,askingcompaniestoreportfullyon11ofthe12areasweassessed.•Allthreeframeworksrequirethedisclosureofbasictargetinformationsuchastargetyearandtype(i.e.,absoluteorintensity-based).However,neithertheISSBnortheSECaskcompaniestofullyreportonmoredetailedmeasuressuchaswhetherornottheirtargetsalignwithscience-basedcriteria.•Onlyoneofthethreestandardsaskscompaniestospecifythecoverageofemissionssubjecttothetarget(coverageratioofscope).•Whenitcomestoexpressingthepercentagechangefromthebaseline,theregulationsleavespaceforcompaniestonotdisclose.Whilesomeadvanceshavebeenmadetowardmoreconsistentandmorecomparableclimatedisclosurestandards,thisclearlyremainsaworkinprogress.Climatetargetdisclosurestandards:RegulatoryinconsistenciesremainEmmaZheWuShanghaiZohirUddinLondonClimateRegulationResponsestoregulationTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage16DataasofNovember2022.Source:MSCIESGResearchGapsinalignmentbetweentheproposed‘bigthree’disclosureframeworksonclimatetargets18“2022StatusReport.”TaskForceonClimate-relatedFinancialDisclosures,October2022ResponsestoregulationResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage17Anincreasingnumberofauthoritiesacrosstheworldarerequiringfinancialinstitutionstoconductclimate-riskstresstests,withmorelikelytofollow.Yetouranalysisofbanksacrossjurisdictionswithexistingorplannedrequirementsforclimatestresstestsfoundthat,whilesomebankswerebetterplacedthanothers,nonecouldclaimtobefullyprepared(seeexhibitbelow).In2023,we’llbewatchingwhichbankscanrisetothechallengeofdevelopingclimate-riskdataandmodelingcapacitiestomeetthedemandsofregulatoryclimatestresstests.Understandingtheexposureofabank’sbalancesheettoclimate-relatedriskshasbecomeincreasinglyimportant—andnotjustforthe117signatoriestotheNetZeroBankingAlliance,withacombinedUSD70trillioninassets,thatareworkingtotransitiontheirlendingandinvestmentportfoliostonet-zero.Inatleast18jurisdictions,banksalreadyareorsoonwillbesubjecttoregulatoryclimatestresstests.19RecentclimatestresstestsconductedbytheEuropeanCentralBank(ECB),BankofEngland,HongKongMonetaryAuthorityandBankofCanadafoundthat:201.Sector-levelclimate-riskcredit-modelingcapabilitiesandtheallocationofincomeandexposuresbysector/countryandbyemissionintensityremainedamajorchallenge,withfewerthan10%ofbanksassessedbytheECBusingsufficientforward-lookingandgranularclimate-riskinformationinrisk-managementpractices.212.Addressingdatagaps—particularlythoserelatedtoScope3emissionsandtheclimate-relatedtransitionplansofcustomersandcounterparties—willbecriticalforunderstandingthefullpictureofclimate-riskexposure.3.Uncertaintyaroundthetimingofthematerializationofclimate-relatedrisksandthelackofhistoricaldataarehinderingthedevelopmentandvalidationofclimateriskmodels.Withorwithoutnet-zerotargets,comingregulationsmeanthatbanksneedtobeabletoquantifytheexposureoftheirbalancesheetstoclimate-relatedrisksgoingforward.Remediatingtheclimate-relateddataandmodelingshortfallsexposedbyclimatestressteststodatewillbeparamount.Willbanksbereadyforclimatestresstestregulations?SitaSubramanianNewYorkSimoneRuiz-VergoteFrankfurtAnqiLiangFrankfurtClimateRegulationResponsestoregulationTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage18Y-axisindicatesjurisdiction(numberofbanksincludedinanalysisshowninbrackets).Theexhibitshowsthenumberofbanksdisclosedashavingconductedclimate-riskanalysisineachofthefourcategoriesineachselectedjurisdiction.TheEUincludesmultiplememberstates,manyofwhichhavealsoannouncedregulatoryclimatestresstests.Analysisincludesbanking-industryconstituentsoftheMSCIACWIIndexasofOct.30,2022.ThebankingindustryisdefinedaccordingtotheGlobalIndustryClassificationStandard(GICS®),whichistheindustry-classificationstandardjointlydevelopedbyMSCIandS&PGlobalMarketIntelligence.Source:MSCIESGResearchBanks’performanceondisclosedclimateriskanalysisindicators19“ScenariosinAction.Aprogressreportonglobalsupervisoryandcentralbankclimatescenarioexercises.”NetworkforGreeningtheFinancialSystem,Oct.19,2021.“FederalReserveBoardannouncesthatsixofthenation’slargestbankswillparticipateinapilotclimatescenarioanalysisexercise.”FederalReserveBoard,Sept.29,2022.20“2022climateriskstresstest.”EuropeanCentralBankBankingSupervision,July7,2022.“Resultsofthe2021ClimateBiennialExploratoryScenario(CBES).”BankofEngland,May24,2022.“PilotBankingSectorClimateRiskStressTest.”HongKongMonetaryAuthority,Dec.30,2021.“UsingScenarioAnalysistoAssessClimateTransitionRisk.FinalReportoftheBoC-OSFIClimateScenarioAnalysisPilot.”BankofCanadaandOfficeoftheSuperintendentofFinancialInstitutions,Jan.14,2022.21“Walkingthetalk.Banksgearinguptomanagerisksfromclimatechangeandenvironmentaldegradation.Resultsofthe2022thematicreviewonclimate-relatedandenvironmentalrisks.”EuropeanCentralBankBankingSupervision,Nov.1,2022.ResponsestoregulationResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage19Inthecomingyear,financial-marketparticipantssubjecttotheEU’sSustainableFinanceDisclosureRegulation(SFDR)mustbeginreportingPrincipalAdverseImpactindicators(PAIs)—thenegativeenvironmentalorsocialimpacts—associatedwiththeirportfolioholdings,andfrom2024theywillalsoneedtoreportyear-on-yearchanges.ButcompaniesthemselveswillnothavetoreportPAIsuntil2024.In2023,wewillbewatchinghowassetmanagerstrytobridgethegapbetweenscarcePAIdataandanurgentneedtomonitorandmanagetheirexposure.Asustainableinvestment,asdefinedbySFDRArticle2(17),shouldnotcausesignificantharmunderanyofthemandatoryPAIs.UndertherevisedMarketsinFinancialInstrumentsDirective(MiFIDII)rules,considerationofPAIsinportfolioconstructionisonewaytoserveaninvestor’ssustainabilitypreferences.22GivendataissuesforsomePAIsandthewidespreadadoptionofESGratingsininvestmentprocesses,itispossiblethatassetmanagerswillleveragethemtoproxythePAIsoftheirportfolios.WhilethatisnottheintendedpurposeofESGratings,couldtheyprovetobeausefulguidewhilewewaitformorecompletecorporatedisclosures?Inacasestudywhereweincreasedahypotheticalportfolio’sweightedaverageMSCIESGRatingby20%throughportfoliooptimization,wefoundthatmostweightedaveragePAIsdecreased,anddatacoverageimproved.23ItmaybethatcompaniesthatbettermanagedESGissuesalsotendedtobettermanage,anddisclose,awiderrangeofexternalimpacts.PortfolioPAIsonlyscaletheholdingsofconstituentswithavailabledata;andwheredatacoverageislow,suchPAIsarenotpurposefulforcomparingdifferentportfolios.Still,forassetmanagerslookingtomanagePAIexposure,ESGratingsmightprovideausefulstartingpointuntilmoreextensivecorporatereportingrulescomeintoforceintheEUandelsewhere.ESGratingsmayfillinsomeblanksforPrincipalAdverseImpactindicatorsYuliyaFerencFrankfurtRegulationInvestmentResponsestoregulationSimoneRuiz-VergoteFrankfurtTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage20UsingMSCIESGRatingsasaproxytoimprovePAImetricsTheMSCIESGRatingscoverageuniverseencompassed8,198issuersasofJune2022.Theoptimizationwasdesignedtoachievea20%improvementintheMSCIESGScoreoverthatofthecoverageuniverse,from6.3(MSCIESGRatingA)to7.3(MSCIESGRatingAA),whileretainingthesameGICS®sectorallocationasinthecoverageuniverse.Theoptimizedhypotheticalportfoliocontained1,902stocks.Source:MSCIESGResearch22“CommissionDelegatedRegulationof21.4.2021amendingDelegatedRegulation(EU)2017/565asregardstheintegrationofsustainabilityfactors,risksandpreferencesintocertainorganisationalrequirementsandoperatingconditionsforinvestmentfirms.”EuropeanCommission,April21,2021.23Thissectioncontainsanalysisofhistoricaldata,whichmayincludehypothetical,backtestedorsimulatedperformanceresults.Adifferentsetofassumptionsfromtheonedescribedheremayproducedifferentresults.Therearefrequentlymaterialdifferencesbetweenbacktestedorsimulatedperformanceresultsandactualresultssubsequentlyachievedbyanyinvestmentstrategy.Theanalysisandobservationsinthissectionareanexampleforillustrativepurposesonlyandarelimitedsolelytotheperiodoftherelevanthistoricaldata,backtestorsimulation.Pastperformance—whetheractual,backtestedorsimulated—isnoindicationorguaranteeoffutureperformance.Noneoftheinformationoranalysishereinisintendedtoconstituteinvestmentadviceorapromotionofanyproductorarecommendationtomake(orrefrainfrommaking)anykindofinvestmentdecisionorassetallocationandshouldnotbereliedonassuch.91%ResponsestoregulationResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage21RegulationDespiteCOP26commitmentstohaltandreverseforestloss,242021sawtree-coverlossof25.3millionhectaresglobally,anarealargerthanGreatBritain.TheAmazonalonelostanareaequaltothesizeofNorthernIreland.25Inaddition,thesummerof2022sawawaveofwildfiresaroundtheglobe,burningdownmillionsofhectaresmore.COP1526isscheduledtoaddresssuchnaturalcapitallosses,whiletheEuropeanParliamentrecentlyvotedinfavorofstringentnewregulationthatwouldrequireallproductssoldintheEUtobedeforestation-free.In2023,we’llbewatchingwhichcompanieswithhighdeforestationexposurecanimprovetheirduediligenceandsupply-chainmonitoringprogramsastheyseektomaintainaccesstokeymarkets.Undertheproposedregulation,theEUwillnotacceptproductsmadeorbasedonlandthatwasdeforestedaftertheendof2019.27ThisshouldreduceitsdeforestationfootprintandwouldsignificantlyincreaseregulatorypressureforcompanieswithEUmarketexposure.Palmoil,soy,timberandbeefproductionarethemaindriversofdeforestation.28Buttheregulationisn’tlimitedtotheseobvioussuspects.Leathercarseats,rubberusedforclothingandprintedpaperproductsareamongothergoodsaffected—producersanddistributorsheremayneedtotakeactionaswell.Basedonouranalysis,however,thelevelofpreparednessdoesnotappeartobehigh.Only11.7%oflistedfood-productscompaniesand18.2%offoodretailershaddisclosedadeforestationpolicy,whilethenumbersforautocomponents(3.3%)andtextiles,apparelandluxurygoods(3.7%)wereevenlower.29Evenatpaperandforestproductscompaniesthefigurewasbelow40%.Andpoliciesareonlyafirststep—eliminatingproductsrootedindeforestedlandfromasupplychainistypicallyamajorendeavorrequiringextensiveduediligence.Complyingwiththenewregulationmaythereforerequiresignificanteffortsonthepartofcompanies.Firmsthathavebeenthinkingofdeforestationasanissueforsomebodyelseorsomedaydowntheroadmayhavetogetahandleonitandinahurry.Cuttingdeforestation:MarketrestrictionsgetrealArneKlugFrankfurtClimateBiodiversityResponsestoregulationTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage2224“GlasgowLeaders’DeclarationonForestsandLandUse.”UNClimateChangeConferenceUK2021,Nov.2,2021.25UniversityofMarylandandWorldResourcesInstitute.“GlobalPrimaryForestLoss.”AccessedOct.12,2022.www.globalforestwatch.org.Tree-coverlossisdefinedastheremovaloftreecanopythroughhuman-causedornaturalevents.26The15thConferenceofthePartiestotheConventiononBiologicalDiversityinMontreal,Canada,commonlyabbreviatedasCOP15,willtakeplacefromDec.7to19,2022.27“Climatechange:newrulesforcompaniestohelplimitglobaldeforestation.”EuropeanParliament,Sept.13,2022.Productsinclude:cattle,cocoa,coffee,palmoil,soyaandwood;andproductsthatcontain,havebeenfedwithorhavebeenmadeusingthesecommodities(suchasleather,chocolateandfurniture).Parliamentwantstoalsoincludepigmeat,sheepandgoats,poultry,maizeandrubber,aswellascharcoalandprintedpaperproducts.28“TheGlobalAssessmentReportonBiodiversityandEcosystemServices.”IntergovernmentalScience-PolicyPlatformonBiodiversityandEcosystemServices,201929ConstituentsoftheMSCIACWIIndexasofOct.12,2022.Paperandforest-productscompanieslead,butdeforestationpoliciesremainthinonthegroundShareofcompanieswithinselectedindustriesoftheMSCIACWIIndexthathavedisclosedadeforestationpolicy;industriesincludedwhereatleast2%ofthepeershavedisclosedapolicy.DataasofOct.12,2022.Source:MSCIESGResearchResponsestoregulationResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage23Overthelastseveralyears,EuropeanregulatorshavehadBigTechfirmlyintheirsights.ThelandmarkGeneralDataProtectionRegulation(GDPR),enactedin2016,changedthewaycompaniesprocessandprotectuserdata.Notonlydoesitseektosafeguardconsumers’rightstoprivacy,butitcanleadtoheftyfinesforviolators.GDPR’sprincipleshavesincebeenadoptedinseveralotherjurisdictions.30Now,thedigitallandscapemaybeseeingitsnextregulatoryrealignment,withthepassingin2022oftheEU’sDigitalMarketsAct(DMA)andDigitalServicesAct(DSA).In2023,wewillbewatchingwhichofthebiginternetplayerscanadaptfastesttothenewregulationsandwhoactstogetaheadofpossiblemovesinotherjurisdictions.Byfocusingonsizeandreach,theDMAspecificallytargetsbigtechcompanies,theso-called“internetgatekeepers.”Itsvastscopeincludesprovisionsthatmightpushthesecompaniestoopentheirwalled-gardenecosystems(platformsthatlimitusers’accesstocompetingservices),facilitatecompetitivepracticesandensuretransparencyintheiradvertisingservices.TheDSAhasanarrowerfocus:tomanagedisinformationandillegalcontentonconsumer-facingplatforms.Compliancewithbothactsstartsin2024.TherolloutofGDPR,andsubsequentadoptionofsimilarstandardsinothermarkets,mayserveasausefulcomparison.WithintheEU,GDPRimmediatelyresultedinimprovementsinprivacypractices,butsignificantenforcementactionsandfinesonlyemergedinsubsequentyears,accordingtotheCMS.LawGDPREnforcementTrackerandMSCIESGResearch.Itremainstobeseenwhetherregulatorswillrepeatthisexploratoryandprecedent-buildingapproachbeforepenaltiesstarttorollout.BelowisourinterpretationoftheapplicationoftheEuropeanCommission’sproposedquantitativeindicatorstoindicatewhetheracompanyqualifies(succeedsatbecoming)aninternetgatekeeper.BeyondGDPR:NewregulationscouldaltertheglobaldigitallandscapeGabrieladelaSernaLondonAndrewYoungLondonRegulationResponsestoregulationTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage24Identifyingthegatekeepers(thoughyouknowthemalready)ConstituentsoftheMSCIACWIIndex,asofSept.29,2022.EEAreferstotheEuropeanEconomicArea.ItincludesEUcountriesaswellasIceland,LiechtensteinandNorway.TMTreferstothecombinedinformationtechnologyandtelecommunicationsservicessectors,aspertheGlobalIndustryClassificationStandard(GICS®).GICSistheglobalindustryclassificationstandardjointlydevelopedbyMSCIandS&PGlobalMarketIntelligence.TheinterpretationofthesecriteriawasmadebyMSCIESGResearchforillustrativepurposesonlyandmaydiffersignificantlyfromtheEuropeanCommission’sultimatedetermination.Weassessedthattheregulationmaylikelyincludeatleastthesefivecompanies,whichappeartosurpassthemonthly-active-users(MAU)threshold(sources:Alphabet:10-K,2019;Meta:10-K,2018;Apple:Q22020earningscall;Microsoft:Q42021earningscall;Amazon:Annualshareholdersletter,2021).BasedonMSCIESGResearch’sgeographic-exposureassessmentandcompanyreports.Source:MSCIESGResearch30Aridor,Guy,Che,Yeon-Koo,andSalz,Tobias.2020.“TheEffectofPrivacyRegulationontheDataIndustry:EmpiricalEvidencefromGDPR.”NBER.ResponsestoregulationResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage25LizHoustonLondonCottonmakesupoveraquarterofalltheclotheswewear,butitsharmfulimpacts,likesoildegradationandwaterconsumption,havespurreddemandformoreenvironmentallysustainableoptions(seeexhibitbelow).31Apparelretailershaverespondedbyworkingwiththird-partycertifiersforsustainablecottonandexploringcottonalternatives.However,catastrophicfloodinginPakistanandthewithdrawalofsomecertificationsfrommuchofChinahavecreatedsupplyheadaches.In2023,we’llbewatchingtoseewhichretailerscannavigatenear-termshortagesinresponsiblysourcedcotton,andwhichonesarepreparedtobacknew,alternativefibers.Ashort-termsupplyshockgivesusaglimpseintohowcotton’slong-termfuturecouldplayout.Waterscarcityandextremesinrainfallareexpectedtoincreaseproductionrisksincotton’smostimportantgrowingregions,makinglifefarmoreprecariousforcottonfarmers.32Atthesametime,ballooningdemandforsustainablecottonmaymakecertificationeffortsmorechallenging.Tomeetthisdemand,BetterCotton,theindustry’slargestsustainabilityinitiative,estimatesthatthecurrentnumberoffarmerswithwhichitworkswillneedtotripletoanestimatedtotalof7.5millionby2030.33Againstthisbackdrop,theapparelindustryhasbeendevelopingalternativesourcesofsustainablefiber,includinglab-growncottonandprocessestorecyclepost-consumertextilewasteintonewmaterials.Theseinnovationsmayholdsolutionstosomeoftheenvironmentalandsocialchallengesfacingtheindustrytoday.Tobenefittextilecompaniesandinvestors,thesenewtechnologieswillhavetoshownotonlythattheycanoperateatscale,butthattheygettherequickly(andcheaply)enoughtoavoidpotentialshortagesofresponsiblematerials.Cotton’scrunchpointandthefutureoffiberClimateSupplychainInnovationsinthesupplychainTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage26Apparelretailersincreasinglyreliedonthird-partycertificationforresponsiblecottonDataisbasedonapparelretailconstituentsoftheMSCIACWIIndex,asofOct.21,2022.Source:Refinitiv,MSCIESGResearch31In2021,companiesintheapparel-retailsub-industrywithcombinedrevenuesofoverUSD100billionweresourcingcottoncertifiedtoathird-partystandard.Thisreflectsrevenuefromeightoutof12constituentsoftheMSCIACWIIndexintheapparel-retailsub-industrythatreportsourcingthird-partycertifiedcotton.Apparel-retailsub-industrydefinedaccordingtotheGlobalIndustryClassificationStandard(GICS®).GICSistheglobalindustryclassificationstandardjointlydevelopedbyMSCIandS&PGlobalMarketIntelligence.32Robinson,Noah.“Cottonindustryunpreparedforclimatechangethreattocropandfarmers.”Reuters,June23,2021.33“2021-30StrategicDirection.”BetterCottonInitiative,December2021.InnovationsinthesupplychainResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage27Inthelastfouryears,ChinaandtheEUhavestrengthenedpoliciesandguidelinesonthecirculartreatmentofmaterialsandwaste,includingelectronicwaste(e-waste).InSeptember2022,theU.S.followedsuit,passingabillspecificallyonrecyclingelectric-vehicle(EV)batteries.In2023,wewillbewatchingwhichcompaniesuptheireffortstominesecondarymetalsfrome-waste—bothasawayofkeepingregulatorshappyandboostingaccesstometalscriticalforclean-energytechnologies.Efficientlyextractingmetalsfrome-wastecouldreducedependencyonmining,includinginregionspronetoconflictandpoorlaborpractices.Italsomeansfeweremissions.Forexample,amodernMidastouchthatextractsgoldfrome-wasteemits80%lesscarbondioxidethanconventionalmining.34Inadditiontopreciousmetalslikegoldandcopper,e-wastealsocontainscriticalmetalscommonlyfoundinmanytypesofrechargeablebatteries.Turninge-wasteintoaviablesourceofsecondarymetalscouldhelpmeetrisingdemandforclean-energytechnology,includingEVsandenergystoragesolutions.Cobaltmaybeabellwetherfortheseeffortstominee-waste—recyclingprogramscouldreducetheprojected2040demandforminedcobaltby35%.35Butthereremainsasizablegapbetweentheoryandpractice.Althoughthetotalrecoveryrateforcobaltcouldtheoreticallyreach95%usingexistingtechnology,currentrecoveryratesareatjust30%.36Andmorebroadly,whileglobale-wastecontinuestorise—by9.2milliontonsbetween2014and2019,reachingatotalof53.5milliontons—thegrowthindocumentedcollectionandrecyclingrateshasbeenagonizinglyslow—from16.9%to17.4%overthesameperiod.37Thisgapisparticularlyevidentintechnology-hardwareandhousehold-durablecompanies,whichhaveyettorampupthecollectionandrecyclingcapacityofcriticalmetalsfrome-waste(seeexhibit).Butnecessityisthemotherofinvention.Adwindlingsupplyofclean-energymetals,combinedwithtighteningregulations,maybethecatalystneededtopushe-wasterecyclingintothenextphase.MiningoldelectronicstofuelnewenergytechSiyuLiuNewYorkClimateSupplychainInnovationsinthesupplychainTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage2834“ANewCircularVisionforElectronics.”WorldEconomicForum,January2019.35Dominish,Elsa,Florin,Nick,Wakefield-Rann,Rachel,“RecyclingElectricVehicleBatteryMineralsCanSignificantlyReduceNeedforNewMining.”Earthworks,April2021.36“ANewCircularVisionforElectronics.”WorldEconomicForum,January2019.37Forti,Vanessa,Baldé,CornelisPeter,Kuehr,Ruediger,andBel,Garam.“TheGlobalE-wasteMonitor2020:Quantities,flowsandthecirculareconomypotential.”UnitedNationsUniversity,July2,2022.Analysisincludes68technology-hardwareandhouseholddurableconstituentsoftheMSCIACWIIndex,asofSept.27,2022.Basedonthepublicdisclosureofthesecompanies(e.g.,annualreportsand10-Ks),weanalyzedthedifferencesinthereportingofe-wastecollectionandrecyclingmetrics,aswellasanytargetsrelatedtothesecollectionandrecyclingefforts.Source:MSCIESGResearchAlongwayofffromacirculareconomyformetalInnovationsinthesupplychainResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage29In2022,bothChinaandtheEU,twooftheworld’slargestcornproducers,continuedtopreventwidespreadcommercializationofgeneticallymodifiedorganisms(GMOs)forfoodcropssuchascornandsoybean.Thishasbeenduetorealandperceivedconcernsabouttheirhealthandenvironmentalimpacts,aswellasthebusinesspracticesofcompaniesthatsellthem.In2023,amidsignsthatChinaandtheEUmayberevisitingtheirstances,we’llbewatchingformoreconcretestepstowardGMOfoodcrops,andwhichfoodandagriculturecompaniesarereadyforanyemergingopportunities.TheEUandChina,alreadylargeimportersofGMOsoybeanandcorn,respectively,havesignaledthattheymaylooktoloosentherestrictionsonGMOseedproducts.Inparticular,theEUGreenDealmentionedthedevelopmentof“seedtechnology,”whilein2021theEuropeanCommissionlauncheda(stillongoing)reviewofEUrulesonGMOs.InChina,researchfundingforGMOdevelopmenthasincreasedandthegovernmenthasbeenamendingitsGMOregulatoryframework.38Therisingthreatofdroughts,demandforincreasingagriculturalyieldsinthecontextofnationaldecarbonizationcommitmentsandsofteningconsumerresistance,39mayallbealteringthelong-heldpolicycalculus.Meanwhile,newgene-editingtechniquescouldallowseedmakerstoengineercropswiththeabilitytowithstandharshenvironmentalconditionssuchasdroughts40orrequirelessinsecticidecomparedtonon-GMOcrops.41This,combinedwiththeincreasedadoptionofregenerativefarming,couldallowcountriestoembraceland-useandagrichemicalpolicychangesthatwoulddecreaseemissionswhilepreservingdomesticfoodsecurity.Forfoodandbeveragecompanieswhoseproductsaresourcedfromcrops,especiallycornandsoybean,additionalcommercializationofGMOscouldleadtobothreduced(orless-volatile)inputcostsandlowerexposuretowater-stressrisksduetodrought-resistantcrops.However,questionsmayremainaboutthesuccessofcommercializationduetocontinuedoppositionfromconsumersandNGOsaroundbiodiversity,patents,herbicideresistanceandtheperceivedhumanhealtheffects.GMOregulatoryresistancemaybesofteningColeMartinLondonRegulationClimateBiodiversityInnovationsinthesupplychainTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage30OuranalysisincludedallissuerswithinMSCIESGRatingscoverage,across68ESGindustries,asofOct.28,2022.Eachdotreflects,foreachESGindustry,theproportionofissuersthatwereoperatingingeographieswithmoderateorhighexposuretowater-stressrisks(y-axis),andwhoseassetswereclassifiedinbusinesssegmentswithmoderatetohighlevelsofwaterintensity(x-axis).RiskexposurewasbasedonassessmentsfromtheMSCIESGRatingsmodel.Source:MSCIESGResearchFoodandbeveragecompanies’waterdependencecoulddriveinterestindrought-resistantGMOs38Byrne,Jane,“WillGMseedplantingseeChinareduceitsdependenceonfeedimports?”FeedNavigator,Jan.18,2022.39“SpecialBarometer:FoodSafetyintheEU.”EuropeanCommission,June2019.40Nuñez-Muñoz,Leandro,Vargas-Hernández,Brenda,Hinojosa-Moya,Jesús,Ruiz-Medrano,Roberto,andXoconostle-Cázares,Beatriz.2021.“Plantdroughttoleranceprovidedthroughgenomeeditingofthetrehalasegene.”PlantSignaling&Behavior16(4),1877005.41Greenthal,Eva,andJaffe,Greg.“Intheweeds:UnderstandingtheimpactofGEcropsonpesticideuse.”CenterforScienceinthePublicInterest,April2021.InnovationsinthesupplychainResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage31AuraToaderLondonCanblockchainhelpsupplychainsmoveawayfromcontroversy?Modern-slaveryregulationsthatrequirecompaniestoidentifyhuman-rightsviolations,suchaschildlabor,forcedlabororhumantrafficking,intheirsupplychainsareeitherineffectorpendingimplementationinseveraljurisdictions,includingtheEU,Canada,U.S.andAustralia.Consumershavealsobeenexertingincreasingpressurebyincludingethicalconsiderationsintheirpurchasingdecisions.42In2023,we’llbewatchingpilotprojectsthatuseblockchainforsupply-chaintransparencyandtraceability,wheresuccessfulexperimentscouldheraldthebeginningofasea-changeinsupply-chainmanagement.Admittedly,thetaskaheadisconsiderable.Asrawmaterialsshipinbulk,certifiedandnoncertifiedmaterialscanbecomecomingled,makingbatchtraceabilitydifficult.Forlargercompanies,thisdifficultycompoundsastheylooktotracematerialsthroughmultipletiersofsuppliers.Blockchainoffersapotentialtoolforthisthornyissue,throughadecentralized,immutablerecordofallsuppliertransactions.Forexample:WalmartInc.haspartneredwithIBMtotrackporkproductsinChinainafarm-to-tableapproach;UnileverplcadoptedSAPSE’sGreenTokenblockchaintechnologytosource188,000tonsofpalmoil;andFordMotorCo.usedthetechnologytotrackcobalt—akeymineralforlithium-ionbatteries—fromminetoenduser.Sofar,thesepilotprojectshavebeenrelativelyniche.Solvingtraceabilitychallengeswillrequiremuchbroaderadoption.Thatmaymeanacombinationoffactors,includinggreaterstandardizationandinteroperabilitybetweensystems,43andcompanieswillingtoexperimentwithnewtechnology.Wedonotexpecttoseethechallengesofsupply-chaintransparencysolvedovernight,butwewillbewatchingforsignsofamuch-neededturningpoint.SupplychainInnovationsinthesupplychainTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage3242“Howconsumersareembracingsustainability.”AccessedOct.14,2022.https://www2.deloitte.com/.43Jabbar,Sohail,Lloyd,Huw,Hammoudeh,Mohammed,Adebisi,Bamidele,andRaza,Umar.2021.“Blockchain-enabledsupplychain:analysis,challenges,andfuturedirections,”MultimediaSystems27:787-806.Modernslavery:AglobalissueacrossallindustriesThemapisbasedonananalysisofallcontroversycases(withastatusof“Ongoing,”“Concluded,”“PartiallyConcluded,”“HistoricalConcern”and“Archived”).WeidentifiedtheMSCIESGRatingsindustrieswiththehighestnumberofmodern-slavery-relatedcontroversies(forcedlabor,childlabor,bondedlabor,humantraffickingandmigrantworkers)andfilteredforthosewithatleast10controversycases.Forthe15industriesidentified,weconductedadeeperanalysisandcategorizedeachcontroversycasebasedonthetypeofhuman-rightsviolation(e.g.,childlabor),country/regionwherethecontroversytookplaceandrespectivecommodity/product.Wethenidentifiedthecountrieswiththehighestnumberofcontroversiesandhighlightedonthemapthosewithatleastfivecontroversies.Themostprevalenttypesofhuman-rightsviolationswerehighlightedpercountry,alongwiththeirrespectivecommodity/product.DataasofSeptember2022.Source:MSCIESGResearchInnovationsinthesupplychainResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage33BentleyKaplanCapeTownI’llbeworkingontherailroad—Not?WithCOVID-19travelrestrictionsbeginningtolift,2022shouldhavebeenthejump-starttherailindustryneeded.Instead,theyearhasbeenfraughtwithdisruptions.We’veseenrecurrentstrikesintheU.K.’spassenger-railindustry44andanarrowlyavertedindustrywideshutdowninU.S.freightrail.45Furtherindustrialactionacrossseveralcountries,includingtheNetherlands,46France,47Australia48andSouthAfrica49suggeststhatallmaynotbewellbetweenrailcompaniesandtheiremployees.In2023,we’llbewatchingtoseewhichrailroadscanbuildoutbettercommunicationchannelstotheiremployeesandwhetherthoseeffortscanstemarisingtideoflaborstrikes.Whilecomplaintsdifferbymarket,similarthreadsrunthroughtheseagitatedworkforces,whichhavebeenhitbycompanydownsizings,COVID-19-relatedreductionsinpaypackagesandinflationarypressures.Onestartingpointtoeasethisgrowingtensionmaylieinaverybasicapproach—effortsbycompanymanagementtolistentoemployeefeedbackorgaugemorale.Astheexhibitbelowshows,railcompaniesmaybefallingshortinthisregard.Among10sub-industries50wherelabordisputesandcontroversieshavebeenmostcommon(includinghypermarketsandairlines),railcompaniesreportedoneofthelowestfrequenciesofemployeesurveys.Strikesmaywellbeaperennialriskforthishighlyunionizedindustry(averaging60.4%ofworkers).51Butfindingbetterwaystomonitorworkforcemoralecouldprovideaninitialwaytoaddressrisingdissatisfaction.WorkforceWorklifeTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage3444Georgladis,Philip.“UK’sbiggestrailunionseeksmandatetocontinuestrikesintospring.”FinancialTimes,Oct.12,2022.45Hunnicutt,Revot,Shepardson,David,andHolland,Steve.“USrailstrikeaverted,butlabordealfacestoughunionvotes.”Reuters,Sept.16,2022.46VanCampenhout,Charlotte.“OngoinglabourdisputebringsDutchtrainstoahaltagain.”Reuters,Sept.9,2022.47Sandford,Alasdair.“Francestrikes:Transporthitamidnationwidewalkoutoverpayandcostofliving.”Reuters,Oct.19,2022.48AustralianAssociatedPress.“Sydneytrainstrikes:NSWgovernmentandrailunionstoseekconciliationnextweek.”Guardian,Sept.9,2022.49Banya,Nelson.“SouthAfrica’srailandportworkerstostrikethisweekoverwages.”Reuters,Oct.4,2022.50ClassifiedaccordingtotheGlobalIndustryClassificationStandard(GICS®).GICSistheglobalindustryclassificationstandardjointlydevelopedbyMSCIandS&PGlobalMarketIntelligence.51ForrailroadcompaniesinMSCI’sESGRatingscoveragethatreportedthisdata,asofNov.7,2022.RailfaceslaborcontroversiesbutfallsshortineffortstogaugeworkforcemoraleAllissuerswithinMSCIESGRatingscoveragewereincludedintheassessment.DataasofNov.7,2022.ProportionandpercentagefiguresrepresenttheaverageforissuersbyGICSsub-industry.ControversiesweresourcedfromMSCIESGControversiesdataandincludesallcasesclassifiedas“ongoing,”“partiallyconcluded”or“concluded.”The10GICSsub-industriesshownherewerethosewiththehighestproportionofcontroversiespercompanythatwerealsoassessedintheMSCIESGRatingsmodelonthelabor-managementkeyissue.Thiskeyissueassessesacompany’smanagementprogramsinthecontextofitsexposuretoworkforce-relatedrisks.MoredetailisprovidedintheMSCIESGRatingsMethodologydocument.Source:companydisclosures;MSCIESGResearchWorklifeResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage35TheWorldHealthOrganization(WHO)hasnamedairpollutionasthenumber-oneglobalenvironmentalhealthrisk,causingmillionsofprematuredeathsandsubstantialeconomiclosses.52Whilecompaniespollutingtheairthemselvesmayfacerisksthatregulatorsorimpactedcommunitiesmightpushforfacilitiestobeshutdownoroverhauled,53itmaybeoverlookedthatcompaniesgeneratingminimalpollutioncanalsobeimpactedthroughworseningemployeehealthordifficultyretainingtalentinpollutedregions.54Asthetermsofworkcontinuetoevolvepost-pandemic,andairqualitystartstolooklikeaperk,in2023we’llbewatchingtoseewhichcompaniesworkthehardesttostoptheiremployeesfromchokingonsmoke.UsingMSCIAssetLocations,welookedatpotentialcompanyexposuretopollution-relatedrisks,includingultrafineparticulatematterPM2.5—aparticularlyharmfulpollutant.55Toillustratethisexposure,welookedatthe10constituentsoftheMSCIACWIInvestableMarketIndex(IMI)withthehighestrevenuesinIndia—acountrywithsomeoftheworstair-pollutionlevelsintheworld.56WefoundthatnotasinglecompanyassetwaslocatedinanareawheretheparticlelevelwasbelowtheWHO-recommendedthresholdof5µg/m3;57somewereinareaswheretheparticlelevelexceeded100µg/m3.Suchpollutionlevelsmaynotbesurprisingforanelectricutilityusingcoaltogeneratepower(e.g.,NTPCLtd.),butouranalysisalsocoveredbanks(ICICIBankLtd.,StateBankofIndiaandChinaConstructionBankCorp.),aretailer(RajeshExportsLtd.)andanelectronicsdistributor(WTMicroelectronicsCo.,Ltd).JurgitaBalaisyteHongKongSimonAlbrechtZurichChokingonsmoke:Thehuman-capitalrisksfromairpollutionWorkforceWorklifeTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage36Airpollutionexposuremayposehuman-capitalrisksregardlessofindustryPM2.5exposureofthe2020annualmeanvalue(averagedforalllocationsinIndia)forthe10constituentsoftheMSCIACWIInvestableMarketIndexwiththehighestrevenuegeneratedinIndia,asofJuly1,2022.RedlineshowstheWHOguidelineof5µg/m3.Theboxrepresentstheinterquartilerange/median,withsignificantoutliersexcluded(all13ofwhichwereabove805µg/m3).Source:AirQualityLifeIndex,MSCIESGResearch52“Globalairqualityguidelines:particulatematter(PM2.5andPM10),ozone,nitrogendioxide,sulfurdioxideandcarbonmonoxide.Executivesummary.”WorldHealthOrganization,2021.53Pasricha,Anjana.“Delhi’sAirPollutionCrisisPromptsShutdownofThermalPlants,Schools,Colleges.”VoiceofAmerica,Nov.17,2021.54Xue,Shuyu,Zhang,Bohui,andZhao,Xiaofeng.2021.“Braindrain:Theimpactofairpollutiononfirmperformance.”JournalofEnvironmentalEconomicsandManagement,Volume110.55Greenstone,Michael,Hasenkopf,Christa,andLee,Ken.“AirQualityLifeIndex®June2022:AnnualUpdate.”EnergyPolicyInstituteattheUniversityofChicago,June2022.56Beng,RichardFuller,Landrigan,Philip,andBalakrishnan,Kalpana.2022.“Pollutionandhealth:aprogressupdate.”LancetPlanetaryHealth6:E535-E547.57Theconcentrationofanairpollutantisgiveninmicrograms(one-millionthofagram)percubicmeterofair[µg/m3].WorklifeResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage37Since2020wehaveseenasignificantshiftinmediaattentionfromlargelypandemic-drivennewsabouthowcompaniesdealtwiththeirworkforcestowardarenewedmomentumaroundclimatechange.Ofthemarketsweexamined,thisshiftwasstarkestinChina,whileU.S.mediahasremainedmorefocusedonhumancapital.In2023,we’llbewatchinghowfurthershiftsinmediaattentionmayprovideinsightsintotheperceptionofESGrisksandissuer-engagementprioritiesastheyevolveindifferentmarkets.During2020,theglutofnewspiecesrelatedtohumancapitalwasdirectlydrivenbytheimpactofCOVID-19,asbusinessoperationsandthefutureofworkradicallyshifted.Atthesametime,boardsandexecutivesofcompaniesscrambledtoadjusttothisseachangeinworkerexpectationsandtherealityofmaintainingoperations.58However,withtheadventofCOVID-19vaccinesandsubsequentreopenings,focusquicklyshiftedbacktotacklingclimatechangeandattentiontheregrewsubstantially,especiallyinChina.IntheU.S.,though,humancapitalremainedadominantnewsworthytheme,comfortablyoutstrippingtheclimatecrisis,ascompaniescontendwithatightlabormarketinthefaceofelevatedworkerdiscontentacrossthecountry.59Althoughonemaycontendthatnewsisoftenareactivemedium,investorsmaywishtokeeptheireyesandearsopenforanyshiftsinESGrisksentimentandinterestasagaugeofnewESGrisksatthemarketlevel.Newsshiftsfrompandemictoclimatechange,butlaborhangsonSatishShindeMumbaiArunSharviralaTorontoJonathanPonderTorontoClimateWorkforceWorklifeTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage38Aproprietaryalgorithmwasusedforprimarytopiccollection,priortomanualvalidationtoensureproperclassificationofthetopicstoESGthemes.WeusedthesetopicstocollectthenewsarticlesfromSeptember2019toAugust2022.CalendaryearsareadjustedaccordinglytoreflectnewsarticlesfromSeptembertoAugust.Source:Lexis-Nexis,MSCIESGResearchTrendsinnewsmentionsglobally58Ng,MatthewA.,etal.2021.“HastheCOVID-19PandemicAcceleratedtheFutureofWorkorChangedItsCourse?ImplicationsforResearchandPractice.”InternationalJournalofEnvironmentalResearchandPublicHealth.59Gurley,LaurenK.“Labormovement’snextbigchallenge:Keepingmomentumaseconomyslows.”WashingtonPost,Oct.24,2022.WorklifeResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage39SKKimSeoulAuraToaderLondonLizHoustonLondonBargainingwithlabor:ManagingworkershortagesinhardtimesAfterthereopeningofeconomiesfollowingtheCOVID-19pandemic,labormarketshavetightenedandmanycompaniesstruggledtofillvacancies.Atthesametime,mostdevelopedandemergingeconomiessawsubstantiallyhigherinflation,pushingupthecostofliving.Thishascontributedtorisinghourlyearningsforworkers,withindustriessuchasretail,hotelsandrestaurantspotentiallyseeingthebiggestimpactonprofitsduetotheirlargeworkforcesandrelianceonrelativelylow-paidemployees.In2023,wewillbewatchingfornewwinnersandlosersasthegroundcontinuestoshiftundercompaniestacklingcomplexworkforcerelationsanddemandsforhigherwages.Risingemployeecostshavebecomeanincreasinglyimportantissueforcompaniesinconsumersectors,morebroadly,reflectedingrowingmentionsofwage-relatedtermsincompanyfilingssinceJune2015(seeexhibitbelow).Forsomeemployers,includingthoseintheU.K.,wageshavebeengrowingthroughnationallymandatedincreases.Elsewhere—e.g.,intheU.S.—companieshaveproactivelyraisedwagesaheadofapotentialincreaseinthelegalminimumwage.Evenwhenoverheatedlabormarketshavecooleddown,researchshowsthatemployeesatisfactionhasbeenapersistentindicatorofexcessreturns,particularlyintimesofcrisis.60Manyemployershavereflectedontheirstrategiesinthisarea.Committingtopayingalivingwagecouldattractandretainworkersinatightlabormarket.Reorganizingorreducingbonusesandbenefitstofundhigherbasicwageratesmaybetempting,butcouldarguablybeshort-sighted.Offeringnonstatutorybenefits,suchaspaidparentalleaveorhealthinsurance,couldhelpcompaniesmakethemselvesmoreattractive.OurresearchshowsthatasofJune2022,only10%ofhotelsandtravel,restaurants,foodandstaplesretailingandconsumerdiscretionaryretailconstituentsoftheMSCIACWIIndexofferedabroadrangeofnonstatutorybenefitstotheiremployees.Ifthesameoldstrategiesaren’tgettingthejobdone,companieswillingtotakemorecreativeapproachesmightfindanewadvantage.WorkforceWorklifeTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage40WelookedatcompanyfilingsfromJune2015toSeptember2022andusednatural-languageprocessingtoquantifytrendsindiscussionsandproactivemeasuresaroundpotentialincreasesinemployee-relatedcosts.Annualreports,10-Ks,40-Fsand20-FsofMSCIACWIInvestableMarketIndex(IMI)constituentswerematchedandanalyzedusingkeywordanalysis.Resultswereaggregatedforrelatedkeywords,whichincluded:wage,minimumwage,minimumhourlywage,wageincrease,laborcostincrease,livingwage,fairwageandminimumwageincrease.Wecomparedtheperformanceof146consumerdiscretionaryconstituentsoftheMSCIACWIIMI—retailing(n=66),food&staplesretailing(n=53),hotels(n=10)andrestaurants(n=17)—versustheoverallindexconstituents.DataasofOct.26,2022.Source:MSCIESGResearchAgrowingfocusonwagesforretail,restaurantandhotelcompanies60Boustanifar,Hamid,andKang,YoungDae.2022.“EmployeeSatisfactionandLong-RunStockReturns,1984–2020.”FinancialAnalystsJournal78:129-151.WorklifeResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage41Despiteinflationarypressures,thesupplyofgreenbondsretreatedbyjust1%duringthefirsthalfof2022,comparedwiththesecondhalfof2021.61Butthatcouldbejustthefirstsignofthingstocome.In2023,wewillbewatchingwhethergreenbondscanmaintainacrediblegrowthpathinthefaceofrisinginterestrates,lowerspreadpremiumsandgrowingconcernsaboutgreenwashing.Sincethefirstmajorlaunchofgreenbondsin2007,62theyhavebeenonarapidupwardtrajectory,growingfromatotalissuanceofUSD37billionin2014toUSD578billionin2021.63Thisgrowthreflectsabroaderenthusiasmforgreen,socialandsustainability(GSS)bonds,whichaccountedfor1.7%oftheglobalUSD100trillionbondmarketin2020.Despiteacollectiveinterest,greenbondsspecificallyhavecontinuedtoholdpoleposition,makinguproughly60%ofthetotalissuancevalueofGSSbondseachyear.Butthehoneymoonperiodmaybestartingtowane,asyieldspreadsofgreenbondshaveremainedlower(eightbasispointsonaverage)comparedwithconventionalbonds.64Inadditiontoloweryieldspreads,investorsmayalsobeweighingthecredibilityofgreenbonds—andspecificallythe“greenness”oftheactivitiestheyarefunding.65Withoutawidelyadopted,standardizedframework,issuershavehadsomeflexibilityinthelabelingoftheirbonds.BetweenJanuary2021andSeptember2022,ofthemorethan600bondsweassessed,approximatelyoneinfivefellshortofexplicitgreen-bondcriteria(seeexhibit),withsomeevengoingsofarastofundfossil-fuelgenerationortransmission.InvestorskepticismmaybesoothedbydevelopmentsthatincludetheproposedEUGreenBondStandard,butuntilthesetypesofstandardsareinplace,companiesmayhavetoworkharderagainsttheperceptionthattheyareissuing“green-ish”bondswithpotentiallyquestionablepracticesandreducedyields.Isthehoneymoonoverforgreenbonds?MeghnaMehtaMumbaiYoonYoungChungBostonVishakhaPandeyMumbaiClimateInvestmentTurningpointsTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage42Oneinfive‘green’bondsfallsshortofBloombergMSCIGreenBondIndexcriteriaAnalysisof632investment-gradeself-labeledgreenbondstrackedbyMSCIESGResearchfromJanuary2021toSeptember2022.Theuniverseofthesebondsisrestrictedtoallself-labelledgreenbondsmeetingtheBloombergGlobalAggregateIndexcriteria.Whilearound81%ofthesebondsarepartoftheBloombergMSCIGreenBondIndex,theremaining19%failedtomeettheMSCIgreenbondandgreenloanassessmentmethodology.Thesebondsarepotentiallyfundingprojectswhicharenotconsideredgreenasperthemethodology.Sources:BloombergMSCIGreenBondIndex,BloombergGlobalAggregateIndex,MSCIESGResearch61“GreenBondPricinginthePrimaryMarket:January-June2022.”ClimateBondsInitiative,Sept.16,2022.62AAA-ratedissuancefrommultilateralinstitutionsEuropeanInvestmentBank(EIB)andWorldBank.63“$500bnGreenIssuance2021:socialandsustainableacceleration:Annualgreen$1tninsight:Marketexpansionforecastsfor2022and2025.”ClimateBondsInitiative,Jan.31,2022.64Caramichael,John,andRapp,Andreas.“TheGreenCorporateBondIssuancePremium.”FederalReserveBoard,June2022.65Flood,Chris.“Fearsriseover‘greenwash’bonds.”FinancialTimes,March21,2022.TurningpointsResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage43EconomicsanctionsonRussiainresponsetoitsinvasionofUkrainehaveledtointernationalmarketsavoidingRussianenergy,highershippingcostsandgreatercompetitiontosecurealternativeenergysupplies.Nationalenergysecurityhaslongmeantpossessionof,orreadyaccessto,fossil-fuelreserves,butahandfulofcountrieshavemanagedtoalterthecalculus.In2023,we’llbewatchinghowcontinuedenergy-marketdisruptionsimpacttheglobalclean-energytransitionindifferentcountriesandwhatitcouldmeanforlonger-termsovereignriskexposure.WithEuropeangovernmentsscramblingtofindalternativeenergyoptionstosubstituteRussianhydrocarbonsupplies,themovetoazero-carboneconomyseemstohavebecomeasecondaryconcern,atleastfornow.Somegovernmentshaveresortedtoimportingcoal,themostcarbon-intensivefossilfuel,andlockedintolong-termgascontractsattheexpenseofinvestmentinrenewables.Yetseveralgovernmentshavealsocommittedtoacceleraterenewableexpansion.Thesepolicyshiftscouldhaveacrucialimpactonhowgovernmentsadjusttheirplansforenergytransition.Ouranalysis,asdetailedintheexhibitbelow,showedthatsomecountriesappearedtobebetterpositionedtomanagethetransitiontoalow-carboneconomythanothers.Forexample,DenmarkandNewZealandareamongcountrieswithsomeofthehighestenergysecurityandprogresstowardenergytransitionbecausetheydiversifiedtheirenergysuppliesandinvestedinrenewableenergyearlyenoughtostayontracktomeettheirnet-zeroemissiontargets.Thesecountriescouldbebetterplacedtousetheglobalenergy-marketdisruptionstotheirbenefitandcapturegreenopportunities.Overthemediumterm,wewouldexpectthemtobeabletomitigateenergyrisksandsustainhighergrowthdynamics.However,countrieswithpoorenergysecurityandlimitedtransitioneffortsmightbeforcedtosacrificelong-termGDPgrowthprospectsinfavorofimmediatecarbon-intensivesolutions,delayingtheglobalclean-energytransition.MagdalenaSordylNewYorkSovereignpolicydilemma:Energysecurityvs.theclean-energytransitionClimateTurningpointsTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage44MSCIassessestheexposureofcountriestoESGrisksandtheirmanagementofthoserisksintheMSCIESGGovernmentRatings.Theaxistitlesusedinthechartareasimplificationoftheanalysisundertakenforbothenergysecurityandlow-carbon-transitionpreparedness.Thepositioningofcountriesalongeachaxisreflectsanaggregationofriskexposureandmanagementintheirenergysecurityandreadinessforalow-carbontransition,respectively.Outliersarehighlightedforillustrativepurposes.DataasofOctober2022.Source:MSCIESGResearch.Atrade-offbetweenenergysecurityandenergytransitionisnotinevitableTurningpoints©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage45ResearchInsightsMSCIESGResearchLLCResearchInsightsMSCIESGResearchLLCEnergycrisis,Ukrainewardrivingfossil-fuelagenda,butdon’truleoutrenewablesTheongoingwarinUkraineandhigh-inflationaryenvironmentmaylimitnear-termpressuretoreduceglobalgreenhouse-gas(GHG)emissionsasgovernmentsprioritizeenergysecurityandaffordability.Butforpowercompanies,swappingcoalandoilfornaturalgasmaynotbetheonlypracticaloption.In2023,we’llbewatchingwhichcompaniesarekeepingtheireyesonlonger-termdecarbonizationtrendsandexpandingdeploymentofrenewables.TheU.S.isreleasingoilfromitsstrategicpetroleumreserve,whichmayencourageanear-termincreaseinhydrocarbonproduction.66Acrossthepond,theU.K.islaunchinganewoilandgaslicensinground67andsomeEUmemberstatesaredelayingtheirplannedphaseoutofcoal-powerplants.68Andifnatural-gaspricesremainelevated,thismaycontinuetoboostdemandformoreemission-intensivecoalandoilproductsascheaperalternativesforproducingpowerandheat.Butforcompaniesstickingwiththeirnet-zeroplans,thesealternativescomewithcomplications.Renewablesfacesomeshort-termuncertaintiessuchassupply-chainbottlenecks,windfalltaxesonlow-carbonpowergenerationandtradewars.Butlookingbeyond2023,long-termregulatorytailwindscouldencouragethedeploymentofrenewablesandonceagainputthemattheforefrontofthefossil-fuelagenda.ElchinMammadovLondonMathewLeeNewYorkClimateTurningpointsTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage46ResearchInsightsMSCIESGResearchLLCNetworksandrenewablesdominatecapexplansofmajorutilitiesinU.S.andEuropeDatafor26EuropeanandU.S.-basedpower-generatingconstituentsoftheMSCIACWIIndex,asofAug.5,2022.DefinitionsofcapitalexpendituresarebasedonMSCI’sESGclimate-changemetrics.66“PresidentBidentoAnnounceNewActionstoStrengthenU.S.EnergySecurity,EncourageProduction,andBringDownCosts.”TheWhiteHouse,Oct.18,2022.67Fisher,Jonah.“UKdefiesclimatewarningswithnewoilandgaslicences.”BBCNews,Oct.7,2022.68Zachová,Aneta.“EUcountrieseyecoalovergassupplyfears.”Euractiv,March15,2022.TurningpointsResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage47Aglobalenergycrunchandgreaterdemandforlow-carbonenergyhasshiftedsupporttowardnuclearpower.In2023,wearewatchingwhetheranindustrythatenjoyeditslastrisetoprominenceinthe1990s69willbeabletomanagehighcosts,longprojectleadtimesandlaborconstraintstorejuvenateitself.InJuly2022,theEUvotedtolabelnuclearenergyasustainableactivityundertheirgreentaxonomy,aimingtomakeiteasierforcapitaltoflowintonuclearassets.Whilethismovereceivedcriticismforenablingincreasedradioactivewaste,China,SouthKoreaandothercountriesdevelopingtaxonomieshavetakenthesameapproach.70Further,followingRussia’sinvasionofUkraine,severalcountriesincludingGermany,SouthKorea,Japan,Belgium,France,NetherlandsandtheU.S.haveeitherreversednuclearphaseoutplans,movedtorestartidledreactors,offeredsubsidiestoextendthelifeofexistingatomicunitsorannouncedtheadditionofnewplants.71Theneardecadelongleadtimesneededforprojectdevelopmentmeansthatnuclearenergywillalwaysbealong-termgame.72Companiesthatarealreadyoperatingnuclearplantsorhavecommittedtoplanstoaddnewnuclearcapacityinthecomingyearsarethereforelikelytobenefitthemostfrommorefavorableregulatoryconditions.However,anuclearrenaissanceisnotguaranteed:Potentialobstaclesincludeconstructiondelays,higherlevelizedcostscomparedtoothertechnologies(notonlywindandsolar,73butdispatchablehydropower,coalandgaspowerwithcarboncaptureandstorage74)andanagingworkforce(25%age55andabove75).Therefore,astutefinancialdecisionsandhumancapitalmanagementmaybecomethekeysthatunlocknewopportunitiesinnuclearenergy.NuclearenergycontemplatesacomebackHannaTruebBostonElchinMammadovLondonMathewLeeNewYorkClimateRegulationTurningpointsTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage48BiggestearnersinnuclearpowershowcleardifferencesincurrentandplannedfleetcapacityThetop10constituentsoftheMSCIACWIInvestableMarketIndexintermsofestimatedpercentageofrevenuefromnuclearpowergeneration.Plannednuclearcapacityreferstonuclearprojectsthatareannouncedorunderconstructionbutnotyetoperational.Bubblelabelsandsizecorrespondtoeachcompany’scurrentinstallednuclearcapacityingigawatts.DataasofOct.13,2022.Source:S&PCapitalIQ,MSCIESGResearch69Nuclearpowergenerationasapercentageoftotalglobalenergygenerationpeakedat17%in1996.“StatisticalReviewofWorldEnergy.”BP,Sept.21,2022.70“WhattheinclusionsofgasandnuclearintheEUTaxonomycouldmeanforinvestorsandassetmanagers.”S&PGlobal,Feb.22,2022.71Connolly,Kate.“Germanytodelayphase-outofnuclearplanstoshoreupnuclearsecurity.”Guardian,Sept.5,2022.Lee,Heesu.“Koreaparesbackrenewablesasittapsnuclearforclimategoal.”Bloomberg,Aug.30,2022.Patrick,Philip.“Japan’snuclearrenaissance:Theglobalenergycrisishasshiftedpublicopinion.”Spectator,Aug.25,2022.“Belgiumreachesinitialdealtoprolongnuclearpowerby10years.”Euractiv,Jul.22,2022.Clifford,Catherine.“Whattheclimatebilldoesforthenuclearindustry.”CNBC,Aug.22,2022.StuartLeeson,Sofia.“Dutchcabinettorevealplansfornewnuclearpowerplants.”Euractiv,Jun.27,2022.“MacronsetsoutplanforFrenchnuclearrenaissance.”WorldNuclearNews,Feb.11,2022.72“Medianconstructiontimesforreactorssince1981.”WorldNuclearAssociation,Sept.25,2020.73“LevelizedCostofEnergyAnalysis15.0.”Lazard,Oct.28,2021.74“LCOErangeforselecteddispatchablelowemissionselectricitysourcesintheSustainableDevelopmentScenario,2030,2040and2050.”InternationalEnergyAgency,Jun.29,2022.75“GlobalEnergyTalentIndexReport2022.”Airswift,Jan.2022.TurningpointsResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage49AsoilpricesareprojectedtostayaboveUSD90abarrelin2023,76energycompaniesarelikelytocontinuetogenerateheftyprofits,asin2022.Inthefirstquarterof2022,theysawmedianprofitabilitygrowthof127%year-over-year.77Historically,highenergypriceshavealsodrivenpatentingactivitytowardrenewable-energytechnologies.However,examiningthecurrentpatentportfoliosofenergycompaniesspecificallywefoundthattheywerestillfirmlyfocusedonthetraditionalbusinessoffossilfuelsandpetrochemicals.78In2023,asenergycompanieslooktocontinuebenefitingfromhighoilprices,we’llbewatchingwhattheydowiththeircash-filledcoffers:double-downonexistingbusinessmodelsorfunnelmoretowardclean-techinvestments.Viewingpatentsasaproxyforinvestmentininnovationcanofferaglimpseintohowenergycompaniesarelikelytochange(ornotchange)theirfuturebusinessstrategy.UsingMSCIESGResearch’spatentdatabase,79including57typesoflow-carbonpatents,weanalyzedthepatentportfoliosof1,714energycompaniestoidentifythe10leadingtypesoflow-carbonpatentsfortheenergyindustries.80Suchpatentscoveralltechnologiesorequipmentintendedtoreduceemissionsfromexistingprocesses,includingthosethatultimatelyyieldfossilfuels.Onaggregate,thelargestconcentrationofpatentscomplementedthetraditionalactivitiesoffossil-fuelextraction.Threeofthefourlargestintegratedoilandgascompaniesheldaclusterofpatentsrelatedtopetrochemicalsandenhancedefficiencyofrefiningandproductionmethods(ExxonMobilCorp.,ShellplcandChevronCorp.).Analternativeconcentrationofpatentsaroundrenewablesmaysignalmoreaggressiveinvestmenttowardtheenergytransition—e.g.,insolar-powertechnologies(TotalEnergiesSE).Thismeansanalyzingpatentdatamayofferinvestorsinsightintohowweddedenergycompaniesaretofossilfuelsandwhetherthismatchestheirstatedenergy-transitionambitions.PatentactivitysuggestsenergyfirmsstilldigfossilfuelsUmarAshfaqNewYorkMathewLeeNewYorkClimateTurningpointsTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage5076“Short-termenergyoutlook.”U.S.EnergyInformationAdministration,Oct.12,2022.77Milman,Oliver.“Largestoilandgasproducersmadecloseto$100bninfirstquarterof2022.”Guardian,May13,2022.78Grubb,Michaeletal.“Inducedinnovationinenergytechnologiesandsystems:areviewofevidenceandpotentialimplicationsforCO2mitigation.”EnvironmentalResearchLetters,March29,2021.79FormoreonMSCI’spatentdatabaseandvalueassessmentmethodology,pleasereferto:“MSCIClimateVaRmethodologypart3:Technologyopportunities,”MSCIESGResearch,June2020.(Clientaccessonly.)80WedefinedenergycompaniesasthosewithinMSCI’scoverageinthefollowingindustriesasofOct.5,2022:energyequipmentandservices,integratedoilandgas,oilandgasexplorationandproduction,oilandgasrefining,marketing,transportationandstorage.Top10low-carbonpatentcategoriesfortheenergyindustryThefourcompaniesdisplayedarethelargestintegratedoilandgascompanieswithinMSCIESGResearch’scoveragebylow-carbonpatentscoresandrepresentalmost30%ofthetotallow-carbonpatentvalueswithintheenergysector.MSCIESGResearch’sLow-CarbonPatentScoreseekstoestablishapictureoftherelativelevelandqualityofpatentsheldbycompanies.Eachpatentreceivesascorebasedonforwardcitations,backwardcitations,marketcoverageandCooperativePatentClassification(CPC)/InternationalPatentClassification(IPC)coverage.MSCIESGResearch’smodelcurrentlycovers96millionuniquepatentsthathavebeengrantedfromover70patentauthoritiesworldwide.DataasofOct.13,2022.Source:MSCIESGResearchTurningpointsResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage51ViragBokodiBudapestCodyDongShanghaiForbanks,greenhouse-gas(GHG)emissionsassociatedwiththeirloansarefundamentaltoanalyzingclimatetransitionrisk.Untilrecently,estimationsanddisclosureshavebeenlimited.SomebanksindevelopedmarketshavealreadystartedtopartiallyreportGHGemissionsassociatedwiththeirlendingbooks,butbanksinemergingmarketslikeChinahaveyettofollowsuit—despitelikelybeing,insomecases,someoftheworld’slargestfinancersofnewemissions.In2023,wewillbewatchingtoseeiftheincreasingregulatoryandinvestorpressurefeltbydeveloped-marketbankstodiscloseloanemissionsspreadstobigemerging-marketlenders.ThenumberofcompaniesthathavecommittedtomeasureanddisclosefinancedemissionsundertheharmonizedreportingstandardforfinancialinstitutionsdevelopedbythePartnershipforCarbonAccountingFinancials(PCAF)81hasgrownrapidly.82Buttheyareconcentratedindevelopedmarkets.UsingtheMSCITotalPortfolioFootprintingsolution,whichfollowsPCAFprinciplesandbanks’publiclyavailableloanbreakdownbysector,83wecalculatedahigh-levelloanemissionsestimationforasampleofsixstate-ownedChinesebanks(the“bigsix”).84Thesebanksaccountedforaround45%ofthetotalloanbalanceinthecountry,asoftheendof2021.85AsofOctober2022,noneofthemhadreportedloanemissions.Loansectorswithhighemissionintensityrepresentednearly30%ofthetotalloanbalanceofthesebanks,asoftheendof2021,butthesesectors’shareoftotalloanGHGemissionswasapproximately80%.Differencesinemissionsintensitymeasuredbyloansizebetweenindividualbanksweredrivenbythesectordistributionofloans.Moredetailedinputsfrombanksthemselvescouldbringhigher-qualityestimationsandhelpallstakeholdersbetterunderstandtheresultingriskexposureandfinancedcontributionstoclimatechange.Pullingbacktheveilonbanks’loanemissionsClimateNewfrontiersinmeasurementandtransparencyTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage52Breakdownofloanbalanceandemissionsforthe‘bigsix’state-ownedChinesebanksEmissiondataiscalculatedusingGHG-emissionsintensity(Scope1and2)byloansectorusingtheMSCITotalPortfolioFootprintingmethodology(qualityscoreof5).Emissionsdataincludesbothrequired(knownuseofproceeds)andoptional(unknownuseofproceeds).Inthisanalysis,high-emission-intensityloansectorsaredefinedasthosewith>100tonsCO2equivalent/USD1million,whichincludeutilities,oil,gas&consumablefuels,metals&mining,transportationandmanufacturing.Medium-emission-intensityloansectorsaredefinedasthosewith10-100tonsCO2equivalent/USD1million,whichincludecommercial-other,wholesale,hotels,restaurantsandleisure,telecommunicationservices,informationtechnologyandcommercialandprofessionalservices.Low-emission-intensityloansectorsdefinedasthosewith<10tonsCO2equivalent/USD1million,whichincluderealestate,services,financials,creditcard,consumer,retail-otherandmortgage.DataasofOct.13,2022.Source:MSCIESGResearch81“TheGlobalGHGAccounting&ReportingStandardfortheFinancialIndustry.FirstEdition.”PCAF,Nov.18,2020.82“ThePartnershipforCarbonAccountingFinancials(PCAF)welcomes200thfinancialinstitution:JapanPostBankCo.,Ltd.”PCAF,Jan.31,2022.SpecialPCAFNewsUpdate:Fall2022.”PCAF,Sept.8,2022.83MSCITotalPortfolioFootprintingmapsbank-disclosedloansectorstotheGlobalIndustryClassificationStandard(GICS®).GICSistheglobalindustryclassificationstandardjointlydevelopedbyMSCIandS&PGlobalMarketIntelligence.84AsdefinedbytheChinaBankingandInsuranceRegulatoryCommission.85CalculatedusingcompanyreportedloanbalancesdividedbytotaloutstandingloansinChinaaccordingtoPeople’sBankofChina.NewfrontiersinmeasurementandtransparencyResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage53CodyDongShanghaiSylvainVanstonParisInsuranceemissions:TheactuarialrevolutionhasbegunFinancedemissionshasbecomeamainstreamESGconcern,but“insuredemissions”—theattributionofaninsurance-companyclient’semissionstoitsinsuranceunderwriter—isanemergingconcept.In2023,wewillbewatchingwhichglobalinsurersactfirsttomeasuretheirinsured-emissionsfootprintsandpositionthemselvesaheadofinvestorpressureoranyfutureregulatory-reportingrequirementsthatmightemerge.Insurersdonot“own”theircustomers,yettheydohavean“enabling”influenceovertheiractivities.Insurersthatwishtoevaluatethecarbonemissionsoftheirassetsandliabilitiesstrivetoconnecttheirroleasassetownersandasriskcarriers.TheNet-ZeroInsuranceAlliance(NZIA)haspartneredwiththePartnershipforCarbonAccountingFinancials(PCAF)todevelopthefirstglobalstandardformeasuringinsurance-associatedemissions(IAEs).ThefinalguidancewasreleasedinNovember2022,withafocusoncommerciallinesandretail-motorlines.ThereportingandthereductiontargetofIAEsmayhelpincentivizeinsurerstoinfluencelow-carbonbehaviorsfortheircustomers.InsurersthatsupportthePCAFframeworkareexpectedtoreportontheirIAEsand,byJuly2023,NZIAmembersarealsoexpectedtopublishdecarbonizationtargetsusingthisnewmetricfortheircommercial-linesandretail-motorportfolios.Effectively,theonlywaystoachievethesetargetsaretoinfluenceinsuranceclientsorreorganizeinsurance-businessexposure,neitherofwhichmaycomeeasy.Nonetheless,withmuchoftheworldneedinginsuranceforonethingoranother,insurersdedicatedtonet-zeromayhaveaninfluentialroletoplayindrivingdecarbonizationoftheglobaleconomy.Toclaimanycreditforthat,theywillneedtomeasuretheirinsuredemissions.ClimateNewfrontiersinmeasurementandtransparencyTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage54Measuringinsurance-associatedemissionsasthefoundationforotherinitiativesSource:MSCIESGResearch(adaptedfromPCAF)NewfrontiersinmeasurementandtransparencyResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage55BhaveerShahSingaporeEmissionsattributioncouldhelpkeepportfoliosalignedwithnet-zeroFollowingavolatileyearformarkets,investorsnowfacethechallengeofaccountingfortheupsanddownsintheirportfolios’associatedfinancedemissions.Tohelpovercomethischallenge,newanalyticalmodelsinspiredbytraditionalperformance-attributionanalysisareemerging.In2023,wewillbewatchinghowinvestorsmightadoptthesemodelstohelpthemunderstandchangestotheirfinancedemissionsandworktowardstayingalignedwithlong-termdecarbonizationpathways.Thesenewmodelsmaybeabletodecomposeheadlineemissionsintotheircontributingfactors,inpartbysegmentingchangesinportfolioemissionsfromnew,exitedandexistingpositions—aparticularlyhelpfultoolduringerraticmarketperiodslike2022.Furthermore,withsharpadjustmentstoassetvaluationssometimesaffectingcarbon-footprintintensitymetrics,emissions-attributionmodelsmighthelpidentifyhowfactorslikeforeign-exchangefluctuationsaffectedemissionsintensities.Emissions-attributionmodelsmayalsohelpisolatetemporaryone-offdevelopments—suchasthesuddendivestmentsfromRussianmarkets—fromlong-termtrends.Ultimately,emissions-attributionanalysishasthepotentialtoprovideaframeworkforinvestorstounderstandthecausesbehindtemporarydeviationsintheiremissionsprofiles,helpingthemworktowardstayingalignedwithlong-termnet-zerofinanced-emissionstrajectories.Investors’stakeholdersmayalsobenefitfromadditionalgranularityandtransparencyintometricsthatmaycurrentlybereportedonlyataheadlinelevel.ClimateInvestmentNewfrontiersinmeasurementandtransparencyTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage56ExampleattributionanalysisofchangesinportfolioemissionsintensityThisanalysisisperformedonahypotheticalbasketofissuersthatisbasedontheMSCIACWIInvestableMarketIndexfromApril30,2021,toApril29,2022.Thediagramisillustrativeonlyanddoesnotconstituteanyformofinvestmentadviceoractualindexperformance.Source:MSCIESGResearchNewfrontiersinmeasurementandtransparencyResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage57KenjiWatanabeTokyoSiyaoHeBeijingNet-zero:Companiesareaiminghigh,butaretheirstrategiespractical?Climate-targetcredibilityislikelytobecomethenextfrontierforinstitutionalinvestorsaimingtodecarbonizeinvestmentportfoliosandreducereal-economyemissionsofgreenhousegas(GHG)inaccordancewithUnitedNations-lednet-zeroinitiatives,suchasNet-ZeroAssetOwnerAlliance.Wehaveobservedanincreasingnumberofcompaniessettingclimatetargets,includingnet-zeroemissiontargets.Yetquestionsremainastowhetherthesetargetsareachievable.In2023,we’llbewatchingwhichcompaniesuptheirclimatetargetgameinthefaceofwhatweexpecttobeincreasingpressurefrominstitutionalinvestorswhohavetheirownportfolionet-zerotargetstomeet.Ofthe9,238constituentsintheMSCIACWIInvestableMarketIndex(IMI)asofOctober2022,36%(3,306)havesetclimatetargets.86Ofthese,715companieshavesettargetsalignedwiththeParisAgreementandapprovedbytheScience-BasedTargetsinitiative(SBTi)87and45havesetnet-zeroemissionstargetsfor2050orearlierundertheSBTicorporatenet-zerostandard,oneofthemostrigorousnet-zerostandardsacrossindustries.Anadditional582companieshavecommittedtosettingSBTi-approvednet-zerotargetsinthenexttwoyears.Suchthird-partyvalidationscanboostinvestortrustintheinformationcompaniesdiscloseandimprovethetransparencyofclimatetargets.Withotherdisclosureframeworksandregulationsinthepipeline,companiesandinvestorsmayhaveamorestandardizedmannerofassessingclimatetargets.TheGlasgowFinancialAllianceforNetZero(GFANZ),forexample,hasproposeditsownframeworktohelpinvestorsassessthesoundnessandcredibilityofcorporateclimatetargets.WefoundcompanieswithSBTi-approvedtargetstypicallyscoredbetterintheGFANZframeworkthanthosewithout(seeexhibit).Thismaysuggestthatcompaniesthatwentthrougharigorousthird-partytarget-validationprocess(e.g.,SBTi)weremorelikelytohavedisclosedtransitionplanningandcapitalallocationfordecarbonizationactivitiesanddemonstratedsuccessfultrackrecords—increasingthetransparencyofemissions-reductionstrategiesandenhancingthefeasibilityofclimatetargets.Withthefocusoncorporateclimatetargetslikelytointensifyandregulationsarounddisclosurelikelytotighten,investorsshouldbeabletomakebetterinformedclimate-investingdecisionsgoingforward.AntoniosPanagiotopoulosLondonClimateNewfrontiersinmeasurementandtransparencyTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage58CredibilityassessmentsofconstituentsoftheMSCIACWIIMIwithclimatetargetsForthe3,306constituentsoftheMSCIACWIIMIwithclimatetargets,asofOctober2022.GFANZportfolio-alignmentmeasurements—credibilityindicatorsandCDPdatametrics.CDPisanot-for-profitcharitythatrunstheglobaldisclosuresystemforinvestors,companies,cities,statesandregionstomanagetheirenvironmentalimpacts.Source:CDP,MSCIESGResearch86TheMSCIACWIIMIconstituentsreferencedinthereportareasofOct.17,2022.Target-leveldatawasdownloadedfromMSCIESGManageronthisdate.87“CompaniestakingAction”and“SBTiCorporateNet-ZeroStandard.”SBTi,October2021.SBTiisamultinationalorganizationpromotingtheadoptionofclimatetargetsalignedwiththeParisAgreement.SBTi-relatedtarget-leveldatawasdownloadedfromthesereports.NewfrontiersinmeasurementandtransparencyResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage59HelenMarlowLondonLab-growncommodities:Thenewfrontier?Lab-growndiamondshavemovedfirmlyintothemainstream,andleather,cottonandevenfurcouldbenext.Forcompaniesfacingcontroversyorcriticismovertheenvironmentalorhuman-rightsimpactsoftheirrawmaterials,thiscouldlooklikeagame-changer.In2023,wewillbewatchingindustryinvestmentsinlab-growncommoditiestoseewhichcompaniesarelookingatpotentialenvironmentalandsocialbenefitsasreasonenoughtospendwhileconsumerappetiteisstill,forthemostpart,untested.Itisarguablymucheasiertomonitoryourfullsupplychainwhentherawmaterialsstartinanearbylabthaniftheyarecomingfrommultiplelocationsacrosstheglobe,passingthroughmanyhandsbeforetheyreachyou.Nomoreworriesaboutconflictdiamonds,deforestationoranimalwelfare.88Itisalsomucheasiertotrackandmanageyourenvironmentalrisksandimpactssuchascarbonemissionsortheuseofdangerouschemicals.89Companiesmayseethisasaneasierwaytonavigateincomingsupply-chainregulationssuchastheGermanSupplyChainAct(duetocomeintoeffectin2023)ortheEuropeanSupplyChainAct(currentlyinconsultation).90Evidenceofindustryinterestisalreadybeginningtoemergewithrecentinvestmentsinlab-grownleather.GucciparentcompanyKering,forexample,hasinvestedinVitroLabsInc.,andexpectstostartpilot-levelproductionin2023.Additionally,LVMHMoëtHennessyLouisVuittoninvestedintheIsraelilab-growndiamondstartupLusixinJune2022andFendi(partofLVMH)partneredwithImperialCollegeLondonandCentralSaintMartinsin2022toexperimentwithlab-grownfur.91Initialindustryconcernsmaybemorefocusedonquestionsofconsumerpreferenceandpricing—andthelatteriscurrentlyabarriertoentryformanyoftheselab-grownalternatives.Butthereal-worldimpactofthesenewprocessesatscaleisyettobeseen,asaretheunintendedconsequencesforcompaniesthatembracethisbrave,new,lab-grownworld.SupplychainNewinvestmentsTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage60Lab-growncommoditiesmayreshapetheriskandimpactlandscapeforcertainindustriesTheexhibitshowspotentialareasofoverlapbetweenthegrowthoflab-growncommoditiesandkeyissueswithintheMSCIESGRatingsmodel,aswellasMSCIESGBusinessInvolvementScreeningResearch.“X”indicatestherelevanceofeachcommoditytoeitherakeyissue(undertheMSCIESGRatingsmodel,indarkblue)orbusinessactivity(inyellow).DataasofOctober2022.Source:MSCIESGResearch88Constable,Harriet.“TheSparklingRiseoftheLab-GrownDiamond.”BBCFuture,Feb.10,2020.Pitcher,Laura.“Leatherisbadforanimalsandtheplanet—butwhatifwemadeitinalab?”TED,April7,2022.89Kart,Jeff.“GalyGrowsGreenerCottonInALab,10TimesFasterThanTheFarmVariety.”Forbes,April14,2020.90Here,andelsewhereinthisanalysistheinformationisprovided“asis”anddoesnotconstitutelegaladviceoranybindinginterpretation.Anyapproachtocomplywithlegal,regulatoryorpolicyinitiativesshouldbediscussedwithyourownlegalcounseland/ortherelevantcompetentauthority,asneeded.91Mundell,Ian.“Fashionindustrycollaborationtocreatelab-grownfur.”ImperialCollegeLondon,July25,2022.NewinvestmentsResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage61Globalsteelproductionisdominatedbycarbon-spewingblast-furnacetechnologythatreliesoncokingcoal,akeyingredientofthemanufacturingprocess.Yetthesteelindustryhasgottenmoreaggressivethaneverinitscarbon-reductioncommitments.ByOctober2022,17companies(51.6%ofthesteelGlobalIndustryClassificationStandard(GICS©)92sub-industryintheMSCIACWIIndex)hadstatedtheircommitmenttoreachnet-zeroorcarbonneutralityby2050orbefore.Itisanimportantstepforanindustrythataccountsforsome8%oftheworld’scarbonemissions,butlargeeconomicandtechnologicalobstaclesremaininmeetingthesetargets.In2023,wewillbewatchinghowmanysteelproducerstacklethesignificanthurdlesfacingthemtotakeconcretestepstowardlow-carbonsteelproduction.Steelisconsideredahard-to-abateindustrybecauseoftheconventionalblast-furnace/basic-oxygen-furnace(BF/BOF)steelmakingprocess,whichaccountsforabout70%ofglobalproduction.Theresultantcarbonemissionsarenotsimplyfromcoalcombustionforenergy,butalsoaninherentresultofthechemicalprocesstoreduceironoretomolteniron.Low-carbonalternativemethodstoproducesteeldoexist.Somehavestartedcommercializationinthepastfewyears,whileothersarestillindevelopment.However,thecosttoconvertglobalsteelproductiontolower-carbonprocessesisestimatedataroundUSD4.4trillionoverthenext30years,93includingUSD435billioninEuropealone.94Theindustryisbecomingincreasinglycommittedtoimprovingitscarbonemissions,butkeyquestionsremain:Howaggressivewilltheindustrybeinachievingitstargetsandhowwillthistransitionbefinanced?Ifprogressremainslow,widereffortstolimitglobalwarmingmaybeundermined.SamBlockNewYorkTurningsteelgreen(er)withblast-furnaceupgradesClimateNewinvestmentsTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage62Increasedcarbon-reductioncommitmentsfromthesteelindustryPeersetconsistedofsteel-producingconstituentsoftheMSCIACWIIndexsteelGICSsub-industry(n=33),asofOct.21,2022.Targetdatareferstoaverageannualcarbon-reductiontargetforthesecompanies,specificallythemostaggressiveScope1&2targetsforeachcompany,assuminglinearreductions.Source:MSCIESGResearch92GICSistheindustry-classificationstandardjointlydevelopedbyMSCIandS&PGlobalMarketIntelligence.93“Thenet-zerotransition:Whatitwouldcost,whatitcouldbring.”McKinsey&Co.,January2022.94Butterworth,Paul.“ThecostofdecarbonisingEuropeansteelishigh.”CRU,Dec.13,2021.NewinvestmentsResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage63GreeningindustrialrealestateonewarehouseatatimeMarkBessoudoLondonIndustrialrealestatehaslongbeenaneglectedsegmentofthegreen-buildingmarket.ButaCOVID-19e-commerceboomhasputwarehousesfrontandcenter,withstakeholdersrampingupeffortstobettermanagetheirportfolios’environmentalandsocialrisks.Anewgenerationofindustrialfacilitiesthatemitlesscarbonandneedlessenergytobuildandoperatearebeginningtoemerge.In2023,wewillbewatchingtoseewhichnewleadersingreenbuildingemergeamidaconfluenceofforcesincludingbuildingperformancebenchmarking,electrificationandfinancialincentivesfordecarbonization.Energydemandforindustrialbuildingsisexpectedtocontinuegrowing.95IntheU.S.,forexample,itisprojectedtogrowatmorethantwicetherateofanyothersectorinrealestateoverthecomingdecade.95Thisisduetoaconfluenceoffactors:anexpansionofbothestablished(warehouses,logisticsanddistributioncenters)andemerging(urbanagricultureandadvancedmanufacturing)industrialsectors;advancesinspecializedroboticsandautomationsystemsthatrequiremorepowerthantraditionalindustrialoperations;andanincreaseddemandforfleetelectrificationandcharginginfrastructure.Investorsinrealestateinvestmenttrusts(REITs)haveaddedsubstantialindustrialholdingstotheirportfoliosinrecentyears.95Althoughone-thirdofallindustrialspaceintheU.S.ismorethan50yearsold,96REITsarenoweligiblefornewrebatesandincentivesaffordedundertheU.S.InflationReductionAct(IRA)tohelpretrofitandrefurbishtheseagingassets.TheIRAalsoprovidesfinancialincentivesforbrownfieldredevelopment,renewableenergyandelectric-vehicleinfrastructure—somethingthateverywarehousewillneedasthefreightsectorshiftstoelectric.Furthermore,newindustrial-specificgreen-buildingprogramsandbenchmarkingtoolsthathavebeenrecentlylaunched—includingthoseaspartoftheFitwel,WELLandNABERSratingsystems—mayhelpattractmoreattentiontothebenefitsofgreencertificationinasectorthathashistoricallyoverlookedthem.ClimateNewinvestmentsTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage64MostindustrialREITshadfewornogreen-certifiedbuildingsintheirportfolioDatareflectstheproportionofgreen-certifiedbuildings(e.g.,LEEDandBREEAM)intheportfoliosofindustrialREITconstituentsoftheMSCIACWIIndex,asofOct.18,2022.Thepercentagevaluesrefertotheproportionofacompany’sportfolio(bynumberofbuildings)withagreencertification.Source:MSCIESGResearch95“PowerPlay:HowEvolvingEnergyNeedsWillShapetheIndustrialMarket.”Newmark,April2022.96Margolies,Jane.“AmidSoaringDemandforWarehouses,anEfforttoMakeThemGreener.”NewYorkTimes,April12,2022.NewinvestmentsResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage65Evenifglobalwarmingislimitedtobelow2°C,theworldwillstillfacerisingweatherextremes,suchasheatwaves,heavyprecipitationandintensetropicalcyclones.97It’salreadyhappening.Yetlessthanone-quarteroffirmsareestimatedtohaveadaptationplans.98In2023,asoperationalrisksrise—alongwithopportunitiesforthoseprovidingsolutions—we’llbewatchingcompaniesandinvestorstospottheearlymoverslookingtoseizeaclimate-adaptationadvantage.Thesocioeconomicimpactsfromextremeweatherwillbefeltdifferentlyacrossdifferentsectors.Tropicalcyclones,someofthecostliestdisasters,areexpectedtohavethestrongestimpactonutilities,realestateandconsumerstaples.Theprojectedmarketvaluelossesinthesesectorscouldrisebymorethan200%ifwarmingreaches5°Cascomparedto1.5°C(seeexhibitbelow).Despiteitsrisingimportance,theshortfallinfundstohelpreducesuchweather-relateddisasters—the“adaptationfinancegap”—isgrowing.99Thereare,however,somelargeinvestors,liketheWorldBankandBillGates’energyventurefund,committedtofundingadaptationmeasures,suchasdesalinationtechnologiesanddynamicmooringsystems.100,101ResearchsuggeststhateverydollarinvestedinclimateadaptationcouldresultinUSD2toUSD10ofneteconomicbenefit.102Effectiveadaptationstrategiesmaycombinestructuralmeasures(e.g.,floodprotection),nature-basedsolutionsandrisk-transferschemes(e.g.,insuranceproducts).Whilethefirsttwomaybedependentonpoliticalwillandmomentum,risktransfercanbeapowerfulmechanismforcompaniestobufferagainsteconomicimpactsofextremeweatherandmayevenincentivizecompaniestoinvestinfurtherclimateadaptationthroughdiscountedpremiums.103NewrisksandopportunitiesinclimateadaptationJaschaLehmannPotsdamPatricKellermannPotsdamKatieToweyNewYorkClimateNewinvestmentsTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage66Utilities,realestateandconsumerstaplesfacethebiggestriskfromtropicalcyclonesTheexhibitshowsthesector-averageimpactoftropicalcyclonesonthemarketvalueofcompaniesintheMSCIACWIInvestableMarketsIndex,expressedasMSCIClimateValue-at-Risk(ClimateVaR).SectorsaredefinedaccordingtotheGlobalIndustryClassificationStandard(GICS®).GICSistheglobalindustry-classificationstandardjointlydevelopedbyMSCIandS&PGlobalMarketIntelligence.DataasofSept.12,2022.Source:MSCIESGResearch97“ThePhysicalScienceBasis.”IntergovernmentalPanelonClimateChange,2021.98Li,Xia.“PhysicalClimateRiskandFirms’AdaptationStrategy.”SSRN,June22,2022.99“AdaptationGapReport2021.”UnitedNationsEnvironmentProgramme,Nov.1,2021.100“TheWorldBankGroup’sActionPlanonClimateChangeAdaptationandResilience.”WorldBankGroup,Jan.14,2019.101Temple,James.“BillGates’energyventurefundisexpandingtoclimateadaptationandlater-stageinvestments.”MITTechnologyReview,Oct.19,2022.102“Adaptnow:Aglobalcallforleadershiponclimateresilience.”GlobalCommissionofAdaptationReport,Sept.13,2019.103Jongman,Brenden.“Effectiveadaptationtorisingfloodrisk.”NatureCommunications,May29,2018.NewinvestmentsResearchInsightsMSCIESGResearchLLC©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage67RumiMahmoodLondonInvestinginemissions:Carbonasanewassetclass?Inearlierresearch,wediscussedthecomingofageofcarbonmarkets,whichhavegrowntooverUSD300billion,placingthemontheradarofmanyinvestors.And,indeed,we’veseentheemergenceofanewsubsetoffundsthatfocusspecificallyonexposuretothepriceofcarbonoverthelastyear.In2023,we’llbewatchingwhetherthenoveltyofinvestinginemissionsgainsenoughmomentumtoinfluencedecarbonizationorisundonebyunintendedsideeffects.Carbon-creditfundsvaryintheirapproaches,butmostenableinvestorstoaccessemissioncreditsviafuturescontractsorthroughphysicalcreditsofvariousemissions-tradingsystems(ETS).104Theinvestmentthesisbehindthesenewfundsisthattheseexposurescanactasportfoliodiversifiers,analogoustocommodityexposure,allowinginvestorsawaytopricecarbonrisksintheirportfolios.Iftheworldfailstodrivedowntemperaturechangetobelow2°C,suchasina“disorderly”or“toolittle,toolate”transitionscenario,105directexposuretocarbonallowancesmightofferdownsideprotection,ascarbonpriceswouldhavetorisetocompensateforthelackofpolicyactions.Ourresearchshowedthatcarbonassetsprovidedcomparablerisk-adjustedreturnsandexhibitedlowcorrelationstoglobalequityandothercommoditiesoverthelongterm(seeexhibit).Iftheinterestinsuchfundscontinuestomount,investorswouldbewithdrawingcarbonallowancesfromthemarket,potentiallydrivingupthecostoftheremainingallowances,whichmayacceleratedecarbonizationefforts.However,ifthesupplyofemissionsallowancesisrestrictedthroughmassinvestorparticipation,therecouldbeunintendedsocialoutcomessuchasrisingenergyprices.Companiescouldpassonincrementalcoststotheircustomers,furtheraddingtoinflation.Furthermore,highcarbonpricesmaydeterhighemittersfromparticipatinginamarketthatwasprimarilyintendedfortheiruse.Also,wherethesefundsfallundervariousglobalsustainable-fundclassificationsremainunclear.Forexample,carbon-creditfundsarecurrentlyunclassifiedundertheEU’sSustainableFinanceDisclosureRegulationfund-labelingscheme.106Inthepast12months,severalcarbon-creditETFshavebeenlaunched,withafocusonEUandNorthAmericanallowancesexposure.107Asemissions-tradingsystemscontinuetoexpand,sotoomaythebreadthofchoiceamongthissubsetoffunds.Additionally,asgovernmentsescalateclimatepolicymaking,carbonpricingandtheperformanceofcarbon-creditfundsmaybeagaugeofthestringencyandefficacyofsuchpolicies.ClimateInvestmentNewinvestmentsTABLEOFCONTENTS©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.ResearchInsightsMSCIESGResearchLLCMSCI.COMPage68Carbon(EUETS)largelyuncorrelatedwithotherassets,offeringdiversificationDatafromJan.1,2012,toSept.30,2022.One-monthconstant-maturitycommodityfuturepriceswereusedforBrentCrude,naturalgas,copperandgold.Forcarbon(EUETS),12-monthconstant-maturityfuturepriceswereused.Source:MSCIESGResearchLLC104Toincentivizefirmstoreducetheircarbonemissions,agovernmentmaysetacaponthemaximumlevelofemissionsandcreatepermits,orallowances,foreachunitofemissionsallowedunderthecap.Emittingfirmsmustobtainandsurrenderapermitforeachunitoftheiremissions,from/tothegovernmentorthroughtradingwithotherfirmswithinanemissionstradingsystem.Governmentsmaychoosetogivethepermitsawayforfreeortoauctionthem.TheEUEmissionsTradingSystem(EUETS),comprisedapproximately90%oftheentireglobalcarboncreditsturnoverin2022,makingittheworld’smostliquidanddevelopedETS.CarboncreditfundsprovideexposuretocarboncreditssuchasEUallowances(orEUAs),otherwiseknownaspollutionpermitsfromregulatedcarbonmarkets.EUAmeansthetradableunitundertheEuropeanUnionEmissionsTradingScheme(EUETS),givingtheholdertherighttoemitonetonneofcarbondioxide(CO2).105Adisorderly/delayedtransitioninvolveshighertransitionriskduetopoliciesbeingdelayedordivergentacrosscountriesandsectors,resultinginhigherCarbonpricesforagiventemperatureoutcome.TheNetworkofCentralBanksandSupervisorsforGreeningtheFinancialSystem(NGFS),2022.106“Regulation(EU)2019/2088oftheEuropeanParliamentandoftheCouncilof27November2019onsustainability‐relateddisclosuresinthefinancialservicessector.”OfficialJournaloftheEuropeanUnion,Dec.9,2019.107Schlesinger,Joel.“ETFsforinvestorslookingtoprofitoffthegrowingcarboncreditmarket.”GlobeandMail,Oct.24,2022.Newinvestments©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage69ResearchInsightsMSCIESGResearchLLCResearchInsightsMSCIESGResearchLLCMSCI.COMPage1of1©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.Contactusmsci.com/contact-usAMERICASAmericas18885884567Atlanta+14045513212Boston+16175320920Chicago+13126750545Monterrey+528112534020NewYork+12128043901SanFrancisco+14158368800SãoPaulo+551137061360Toronto+14166281007EUROPE,MIDDLEEAST&AFRICACapeTown+27216730100Frankfurt+496913385900Geneva+41228179777London+442076182222Milan+390258490415Paris0800915917ASIAPACIFICChinaNorth108008521032ChinaSouth108001521032HongKong+85228449333Mumbai+912267849160Seoul0079885213392Singapore8008523749Sydney+61290339333Taipei00801127513Thailand0018001562077181Tokyo+81352901555toll-freeAboutMSCIMSCIisaleadingproviderofcriticaldecisionsupporttoolsandservicesfortheglobalinvestmentcommunity.Withover50yearsofexpertiseinresearch,dataandtechnology,wepowerbetterinvestmentdecisionsbyenablingclientstounderstandandanalyzekeydriversofriskandreturnandconfidentlybuildmoreeffectiveportfolios.Wecreateindustry-leadingresearch-enhancedsolutionsthatclientsusetogaininsightintoandimprovetransparencyacrosstheinvestmentprocess.AboutMSCIESGResearchProductsandServicesMSCIESGResearchproductsandservicesareprovidedbyMSCIESGResearchLLC,andaredesignedtoprovidein-depthresearch,ratingsandanalysisofenvironmental,socialandgovernance-relatedbusinesspracticestocompaniesworldwide.ESGratings,dataandanalysisfromMSCIESGResearchLLC.ArealsousedintheconstructionoftheMSCIESGIndexes.MSCIESGResearchLLCisaRegisteredInvestmentAdviserundertheInvestmentAdvisersActof1940andasubsidiaryofMSCIInc.Tolearnmore,pleasevisitwww.msci.com.ResearchInsightsMSCIESGResearchLLCNoticeanddisclaimerThisdocumentandalloftheinformationcontainedinit,includingwithoutlimitationalltext,data,graphs,charts(collectively,the“Information”)isthepropertyofMSCIInc.oritssubsidiaries(collectively,“MSCI”),orMSCI’slicensors,directorindirectsuppliersoranythirdpartyinvolvedinmakingorcompilinganyInformation(collectively,withMSCI,the“InformationProviders”)andisprovidedforinformationalpurposesonly.TheInformationmaynotbemodified,reverse-engineered,reproducedorredisseminatedinwholeorinpartwithoutpriorwrittenpermissionfromMSCI.AllrightsintheInformationarereservedbyMSCIand/oritsInformationProviders.TheInformationmaynotbeusedtocreatederivativeworksortoverifyorcorrectotherdataorinformation.Forexample(butwithoutlimitation),theInformationmaynotbeusedtocreateindexes,databases,riskmodels,analytics,software,orinconnectionwiththeissuing,offering,sponsoring,managingormarketingofanysecurities,portfolios,financialproductsorotherinvestmentvehiclesutilizingorbasedon,linkedto,trackingorotherwisederivedfromtheInformationoranyotherMSCIdata,information,productsorservices.TheuseroftheInformationassumestheentireriskofanyuseitmaymakeorpermittobemadeoftheInformation.NONEOFTHEINFORMATIONPROVIDERSMAKESANYEXPRESSORIMPLIEDWARRANTIESORREPRESENTATIONSWITHRESPECTTOTHEINFORMATION(ORTHERESULTSTOBEOBTAINEDBYTHEUSETHEREOF),ANDTOTHEMAXIMUMEXTENTPERMITTEDBYAPPLICABLELAW,EACHINFORMATIONPROVIDEREXPRESSLYDISCLAIMSALLIMPLIEDWARRANTIES(INCLUDING,WITHOUTLIMITATION,ANYIMPLIEDWARRANTIESOFORIGINALITY,ACCURACY,TIMELINESS,NON-INFRINGEMENT,COMPLETENESS,MERCHANTABILITYANDFITNESSFORAPARTICULARPURPOSE)WITHRESPECTTOANYOFTHEINFORMATION.Withoutlimitinganyoftheforegoingandtothemaximumextentpermittedbyapplicablelaw,innoeventshallanyInformationProviderhaveanyliabilityregardinganyoftheInformationforanydirect,indirect,special,punitive,consequential(includinglostprofits)oranyotherdamagesevenifnotifiedofthepossibilityofsuchdamages.Theforegoingshallnotexcludeorlimitanyliabilitythatmaynotbyapplicablelawbeexcludedorlimited,includingwithoutlimitation(asapplicable),anyliabilityfordeathorpersonalinjurytotheextentthatsuchinjuryresultsfromthenegligenceorwillfuldefaultofitself,itsservants,agentsorsub-contractors.Informationcontaininganyhistoricalinformation,dataoranalysisshouldnotbetakenasanindicationorguaranteeofanyfutureperformance,analysis,forecastorprediction.Pastperformancedoesnotguaranteefutureresults.TheInformationshouldnotbereliedonandisnotasubstitutefortheskill,judgmentandexperienceoftheuser,itsmanagement,employees,advisorsand/orclientswhenmakinginvestmentandotherbusinessdecisions.AllInformationisimpersonalandnottailoredtotheneedsofanyperson,entityorgroupofpersons.NoneoftheInformationconstitutesanoffertosell(orasolicitationofanoffertobuy),anysecurity,financialproductorotherinvestmentvehicleoranytradingstrategy.Itisnotpossibletoinvestdirectlyinanindex.Exposuretoanassetclassortradingstrategyorothercategoryrepresentedbyanindexisonlyavailablethroughthirdpartyinvestableinstruments(ifany)basedonthatindex.MSCIdoesnotissue,sponsor,endorse,market,offer,revieworotherwiseexpressanyopinionregardinganyfund,ETF,derivativeorothersecurity,investment,financialproductortradingstrategythatisbasedon,linkedtoorseekstoprovideaninvestmentreturnrelatedtotheperformanceofanyMSCIindex(collectively,“IndexLinkedInvestments”).MSCImakesnoassurancethatanyIndexLinkedInvestmentswillaccuratelytrackindexperformanceorprovidepositiveinvestmentreturns.MSCIInc.isnotaninvestmentadviserorfiduciaryandMSCImakesnorepresentationregardingtheadvisabilityofinvestinginanyIndexLinkedInvestments.Indexreturnsdonotrepresenttheresultsofactualtradingofinvestibleassets/securities.MSCImaintainsandcalculatesindexes,butdoesnotmanageactualassets.IndexreturnsdonotreflectpaymentofanysaleschargesorfeesaninvestormaypaytopurchasethesecuritiesunderlyingtheindexorIndexLinkedInvestments.TheimpositionofthesefeesandchargeswouldcausetheperformanceofanIndexLinkedInvestmenttobedifferentthantheMSCIindexperformance.TheInformationmaycontainbacktesteddata.Back-testedperformanceisnotactualperformance,butishypothetical.Therearefrequentlymaterialdifferencesbetweenbacktestedperformanceresultsandactualresultssubsequentlyachievedbyanyinvestmentstrategy.ConstituentsofMSCIequityindexesarelistedcompanies,whichareincludedinorexcludedfromtheindexesaccordingtotheapplicationoftherelevantindexmethodologies.Accordingly,constituentsinMSCIequityindexesmayincludeMSCIInc.,clientsofMSCIorsupplierstoMSCI.InclusionofasecuritywithinanMSCIindexisnotarecommendationbyMSCItobuy,sell,orholdsuchsecurity,norisitconsideredtobeinvestmentadvice.DataandinformationproducedbyvariousaffiliatesofMSCIInc.,includingMSCIESGResearchLLCandBarraLLC,maybeusedincalculatingcertainMSCIindexes.Moreinformationcanbefoundintherelevantindexmethodologiesonwww.msci.com.MSCIreceivescompensationinconnectionwithlicensingitsindexestothirdparties.MSCIInc.’srevenueincludesfeesbasedonassetsinIndexLinkedInvestments.InformationcanbefoundinMSCIInc.’scompanyfilingsontheInvestorRelationssectionofwww.msci.com.MSCIESGResearchLLCisaRegisteredInvestmentAdviserundertheInvestmentAdvisersActof1940andasubsidiaryofMSCIInc.ExceptwithrespecttoanyapplicableproductsorservicesfromMSCIESGResearch,neitherMSCInoranyofitsproductsorservicesrecommends,endorses,approvesorotherwiseexpressesanyopinionregardinganyissuer,securities,financialproductsorinstrumentsortradingstrategiesandMSCI’sproductsorservicesarenotintendedtoconstituteinvestmentadviceorarecommendationtomake(orrefrainfrommaking)anykindofinvestmentdecisionandmaynotbereliedonassuch.IssuersmentionedorincludedinanyMSCIESGResearchmaterialsmayincludeMSCIInc.,clientsofMSCIorsupplierstoMSCI,andmayalsopurchaseresearchorotherproductsorservicesfromMSCIESGResearch.MSCIESGResearchmaterials,includingmaterialsutilizedinanyMSCIESGIndexesorotherproducts,havenotbeensubmittedto,norreceivedapprovalfrom,theUnitedStatesSecuritiesandExchangeCommissionoranyotherregulatorybody.Anyuseoforaccesstoproducts,servicesorinformationofMSCIrequiresalicensefromMSCI.MSCI,Barra,RiskMetrics,IPDandotherMSCIbrandsandproductnamesarethetrademarks,servicemarks,orregisteredtrademarksofMSCIoritssubsidiariesintheUnitedStatesandotherjurisdictions.TheGlobalIndustryClassificationStandard(GICS)wasdevelopedbyandistheexclusivepropertyofMSCIandS&PGlobalMarketIntelligence.“GlobalIndustryClassificationStandard(GICS)”isaservicemarkofMSCIandS&PGlobalMarketIntelligence.MIFID2/MIFIRnotice:MSCIESGResearchLLCdoesnotdistributeoractasanintermediaryforfinancialinstrumentsorstructureddeposits,nordoesitdealonitsownaccount,provideexecutionservicesforothersormanageclientaccounts.NoMSCIESGResearchproductorservicesupports,promotesorisintendedtosupportorpromoteanysuchactivity.MSCIESGResearchisanindependentproviderofESGdata,reportsandratingsbasedonpublishedmethodologiesandavailabletoclientsonasubscriptionbasis.Wedonotprovidecustomorone-offratingsorrecommendationsofsecuritiesorotherfinancialinstrumentsuponrequest.Privacynotice:ForinformationabouthowMSCIcollectsandusespersonaldata,pleaserefertoourPrivacyNoticeathttps://www.msci.com/privacy-pledge.©2022MSCIInc.Allrightsreserved.Pleaserefertothedisclaimerattheendofthisdocument.MSCI.COMPage70

1、当您付费下载文档后，您只拥有了使用权限，并不意味着购买了版权，文档只能用于自身使用，不得用于其他商业用途（如 [转卖]进行直接盈利或[编辑后售卖]进行间接盈利）。
2、本站所有内容均由合作方或网友上传，本站不对文档的完整性、权威性及其观点立场正确性做任何保证或承诺！文档内容仅供研究参考，付费前请自行鉴别。
3、如文档内容存在违规，或者侵犯商业秘密、侵犯著作权等，请点击“违规举报”。

碎片内容

碳中和的最新文档