All around us, the disparate impacts of a warming world are hard to miss. A summer of deadly heat, wildfires and flooding have triggered devastating losses for people, the planet and our economy.
No wonder society is looking to capital markets to tackle global challenges such as climate change and contribute to a better future for all of us. Whether driving the transition to a clean-energy economy or addressing other long-term risks, companies, investors and financial institutions are increasingly expected by many to create value that contributes positively to lives and livelihoods.
We are launching the MSCI Sustainability Institute to drive progress by capital markets to create sustainable value.
The Sustainability Institute
The Institute embodies our belief that addressing the biggest global challenges demands that leaders across capital markets, academia, business, government and civil society work in concert. It requires analysis underpinned by methodological rigor and the highest-quality data. It necessitates policy that supports the efficient allocation of capital. It also demands honest debate that can produce clearer thinking and less rhetoric about the way forward.
That’s not to suggest that many aren’t doing their part. It’s that they’re often doing it out of sync with one another. Companies and investors commit to ambitious climate action but can struggle to translate commitments into action when governments don’t move accordingly. Academics may produce sophisticated analysis that loses sight of practitioners’ biggest problems. Policymakers may write much-needed rules of the road that can be impracticable to implement or create unintended consequences. NGOs can reach the limits of their advocacy without data that the industry can apply. Investors may uphold their fiduciary duty without fully understanding the dimensions of their decisions.
The MSCI Sustainability Institute aims to address that. The Institute will leverage MSCI’s experience and expertise as a leading provider of sustainability data and metrics to the investment industry to inspire greater collaboration among financial, academic, business, policymaking and civil-society leaders. We will align data, analysis, policy and action. We will draw on MSCI’s decades of experience in making sense of sustainability data and in developing blueprints for investability to help collaborators fine-tune their approaches for maximum practicability and effectiveness. The Institute, in short, aims to connect conversations that currently take place in parallel.
Questions we’re focused on
To mark the Institute’s launch, we are investigating three key questions. We are examining them with collaborators from across the sustainable-finance ecosystem, leveraging MSCI’s experience in developing new ways to measure both financial and extrafinancial factors.
Is 1.6°C the new 1.5°C?
Soon, delegates from nearly 200 countries, investors, business leaders, policymakers, activists and members of civil society will gather in Dubai for the COP28 climate conference. There they will take stock of action to combat climate change with the aim of boosting the immediacy and ambition of those efforts.
The Institute and its partners are pursuing a series of initiatives designed to advance those aims. They include our teaming with investment firm Galvanize Climate Solutions to explore investment pathways to speed deployment of technologies that help decarbonize the most stubbornly emissive industries such as cement, steel and chemicals.
We are analyzing simulated impacts of the early phasing out of coal-fired power plants in the Asia-Pacific region to underpin guidance from the Glasgow Financial Alliance for Net Zero. We are probing new frontiers in carbon accounting, starting with an initial examination and debate on an exploratory approach to accounting for supplier emissions developed by Professors Robert Kaplan and Karthik Ramanna. And we are at work on a forthcoming edition of the award-winning MSCI Net-Zero Tracker that will compare how climate action by companies stacks up to that of their governments – a private sector global stocktake ahead of COP28.
When does sustainability drive value?
Though a large and growing body of academic research examines corporate sustainability factors, investors can struggle to understand which insights tie to financial performance in ways that should shape their decisions about allocating capital. The Institute aims to highlight the most practitioner- relevant academic research into the relationship between sustainability factors and the value of financial assets, risk and performance. We are curating a searchable repository, which we will regularly update and expand with expert input, that will gather a diversity of studies examining sustainability in the context of investment strategy.
To help bridge the gap between theory and practice, the Institute will equip academic and policy researchers with sustainability data, metrics and models that investors use to inform decision-making. We also plan to collaborate with select academic institutions, including Stanford University’s Graduate School of Business, to host seminars that help academic researchers keep abreast of the rapidly evolving investor uses for new climate metrics.
Is climate resilience an attractive investment?
The perils of an overheating planet demonstrate a growing need for climate-proofing our built environment, nature-based solutions, policy and other mechanisms that can improve the ability of communities to withstand a changing environment. While investor focus on decarbonization has ramped up dramatically in recent years, there is as yet comparatively little attention in capital markets to climate resilience.1The lion’s share of global climate finance focuses only on mitigation. “Tracking Investments in Climate Resilient Infrastructure.” Climate Policy Initiative, December 2022. Decarbonization and climate resilience are entwined, and our economy and society will need to rapidly adjust to both imperatives in the coming decades.
The Institute is providing analytical support to the investor-led Global Adaptation and Resilience Investment Working Group (GARI) for an initiative to redefine and demonstrate climate resilience as an attractive theme to consider for private investment. The initiative, which is supported by the Bezos Earth Fund and ClimateWorks Foundation, is designed to channel capital toward investment strategies that can produce a climate-resilient transition.
We expect the questions we investigate to evolve and expand over time, and look forward to introducing additional collaborations in the coming months. We are also planning a series of events that bring together researchers, policymakers and practitioners to explore emerging topics and innovations that can accelerate the creation of sustainable value.
We’re just getting started.
Linda-Eling Lee is founding director and head of the MSCI Sustainability Institute.
Photo credit: Guerin Blask/New York Times/Redux/eyevine