More than 30,000 funds about to have ESG ratings downgraded at MSCI

The new methodology, which takes effect at the end of next month, comes as ESG score providers continue to draw criticism for using inconsistent approaches that have yet to be properly regulated.

- NATASHA WHITE & FRANCES SCHWARTZKOPFF

MORE THAN 30,000 funds are about to have their ESG scores lowered at MSCI Inc, as the firm's rating unit works through a major overhaul of its methodology in response to feedback from market participants. Clients had voiced concerns about "an upward drift in ratings across the fund universe," which is now being addressed, according to MSCI ESG Research. The changes mean that only 0.2% of funds will have a AAA rating in the future, compared with roughly 20% now, according to MSCI estimates.

The measures include giving managers of swap-based exchange-traded funds six months to provide data on their underlying index constituents, which MSCI will start using to generate environmental, social, and governance scores instead of collateral, it said.