Natural background of the sky and clouds
© photografier / 123RF Stock Photo

Amid growing climate change risks, all investors should integrate environmental, social and governance (ESG) factors throughout their investment processes, says MSCI Inc.

The industry research firm published a paper today that sets out a framework for investors to incorporate ESG considerations into everything from setting investment strategy and carrying out research to portfolio construction.

In the paper, MSCI calls on all investors to build ESG considerations into their investment processes.

“There should not be specialized ‘ESG investing’ on one side and ‘non-ESG investing’ everywhere else,” the firm said.

“We believe this is a permanent change to how investment strategies will be constructed and how investments will be allocated and managed,” the paper said. “To that end, we are calling on all investors to embrace fully and rapidly accelerate this evolution. It is the right thing to do, it is the smart thing to do, and it is the right time to do it.”

The firm said that it sees a fundamental shift underway, and wants to catalyze that change, as it “strongly believes” that systematic ESG integration will enhance the efficient allocation of capital and help drive the transition to a more sustainable, inclusive economy.

“The world is rapidly evolving due to dramatic environmental, social and governance shifts, including the effects and implications of climate change and the move to a low carbon economy, which will significantly impact the pricing of financial assets and the risk and return of investments, and lead to a large-scale re-allocation of capital over the next few decades,” said Henry Fernandez, chairman and CEO of MSCI.

“The need for a set of guidelines that will help all investment institutions around the world manage emerging opportunities and inherent risks associated with ESG considerations in pursuit of long-term, sustainable investment performance has never been greater,” Fernandez said.

“Sustainable investing is a critically important part of the long-term investment process, and our framework is designed to help investors understand approaches to effectively integrate ESG criteria as a core component of building a resilient portfolio,” said Remy Briand, head of ESG at MSCI.