Editor’s Note: This is the seventh in a series of articles. To read other articles in the series, click here: article 1, article 2, article 3, article 4, article 5, article 6
Over the past six months I have interviewed over 20 women who are investment industry trendsetters and innovators through their work in the impact and sustainable finance sector. These women leaders are clear about today's capital market opportunities and risks. They are embracing both as many economic sectors transition toward a regenerative, low carbon economy with greater emphasis on the value of intangible corporate assets and social impact enterprises.
These women are using their industry experience and leadership platforms to articulate a powerful message at the system level of the financial sector. They believe non-financial data is integral to the full understanding of a company’s potential to meet its stated goals for all stakeholders. They also believe that modeling the business ecosystem for the future involves doing what pays, in addition to doing no harm.
A Decade Of ESG Value-Added Growth At MSCI
Linda-Eling Lee leads the largest research team in the industry dedicated to analyzing investment-relevant ESG issues. She has held her current position at MSCI for almost 11 years, and as the managing director and global head of environmental, social and governance (ESG) research, Lee has grown ESG research revenue at a 20 percent annualized rate. This impressive performance makes ESG research the fastest growing division within MSCI for the past decade. In addition, since 2014 $170 billion has been allocated to MSCI ESG Indexes, which use the firm’s ESG research ratings and data. (Based on publically available information in press releases published from 2014 to date.)
“We have team members working out of 16 offices around the world,” said Lee. “The analysts rate over 6,500 companies on financially material risks and opportunities arising from ESG trends.” Under Lee’s guidance the global team produces data and analysis to support screening of ESG factors for more than 1,000 institutional investors. These investors include over 100 asset owners and 47 of the 50 largest asset managers globally. MSCI’s research and analysis supports the execution of these investors’ responsible investment commitments.
Every year Lee’s team publishes a white paper on major market trends and ESG research issues. In 2018 this white paper, published in January, focused on several trends, including emerging markets and the 30th anniversary of MSCI’s emerging markets index. “Investors and asset managers often want to know if MSCI holds emerging market companies, especially in Asia, to the same governance standards as those in developed markets,” offered Lee.
The white paper research found that more than 15 percent of emerging market companies tracked in the MSCI ACWI Index outperform their country index in ESG factors and are comparable to developed market companies regarding corporate governance metrics. “During the six years that MSCI has been providing emerging markets ESG research,” said Lee, “the appetite for this data among investors has been steadily increasing.” Major risk issues in many emerging markets revolve around company governance and these market dynamics require that investors pay attention to ESG factor analysis.
Historically, according to Lee, ESG data outperformance in emerging markets is a stronger signal related to superior market returns than it is in developed markets. “This confirms the value-added aspect of ESG data as a differentiator for analysis of companies in these markets,” in Lee’s opinion. As a result, MSCI will develop more ESG ratings and follow more companies in developing markets during 2018.
Expanding ESG Coverage Of Developing And Developed Markets
Lee is excited that MSCI analyst teams in Beijing, Hong Kong, Seoul and Tokyo will expand in 2018. “It’s really important to have local language speaking analysts on the ground in these markets,” stressed Lee, “especially as you move down the market cap curve.” Despite the lack of ESG company disclosure available in these markets, team members cultivate the abundance of local government, NGO and academic information that is available and relevant to company analysis.