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MSCI ESG indices’ outperformance needs scrutiny, experts caution

The indices were not only aided by stock selection, but inclusion of oil and gas could confuse some investors

A suite of MSCI environmental, social and governance indices outperformed their non-ESG parent despite surging energy stock prices last year, but analysts say the findings deserve careful scrutiny.

Researchers from MSCI examined the performance of the MSCI All Country World Index, the provider’s flagship broad global equity index of more than 2,900 large- and mid-cap stocks, and compared performance with five ESG versions of the index.

All but one of the ESG indices, the MSCI ACWI ESG Focus index — designed to maximise exposure to positive ESG factors — outperformed in 2021. All five beat the parent benchmark over both three and five years (see table below).

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