Sept 11 (Askume) – The views expressed in this article are those of the Askume columnist author. This column is part of Askume Sustainable Finance Weekly, which you can subscribe to here
For those who strongly believe that environmental, social and governance factors will continue to be a major investing trend, buying or shorting MSCI (MSCI.N) stock is a great way to express your belief.
The New York-based firm, best known for its large index business, also operates a significant “ESG and Climate” segment that evaluates key issues facing companies and helps investors choose a position under its guidelines.
However, the division’s operating income growth rate fell to 12% in the second quarter , remaining below 50% in the first quarter of 2022.
Analysts say the slowdown is due to broader challenges to sustainable finance, including resistance from US Republican politicians and questions about how new regulations can be implemented.
Craig Huber, an analyst at Huber Research Services, said low earnings growth has dampened enthusiasm for MSCI shares. “Investors think too highly of the business,” he said of the business. “Now that its growth has slowed in line with the growth of the rest of MSCI’s businesses, people are no longer as excited,” Huber told me.
Cost pressures are also increasing on companies, putting pressure on their research budgets, said Keith Houssem, an analyst at Northcoast Research. He added that many ESG-related investments have performed poorly. “I think ESG-related investing is booming because investors are focusing on performance first,” he said.
MSCI shares are essentially unchanged so far in 2024, while the S&P 500 index (.SPX) of which it is a part, is up about 15%.
However, MSCI has not given up on ESG. Speaking at the Barclays Global Financial Services Conference on Monday, MSCI chief financial officer Andrew Weichman said there were still huge opportunities.
“The market needs a common framework for thinking about sustainable investing,” he said. “They need the underlying data to understand where the risks are and how to address them and then they need to understand the tools and ultimately the products that enable them to manage the risk or the money they need to take advantage of opportunities.”
“We believe there is still a long way to go,” he added, although the growth rate will not be linear quarter over quarter.
As an example, he cited a partnership MSCI struck in July that gives Moody’s (MCO.N) access to MSCI data for products it creates for banking, insurance and corporate clients. Moody’s will replace some of its proprietary content with MSCI’s ESG content, Wichmann said.
EU regulations have increased the demand for good data by pressuring companies to state their ESG statements more precisely. But US regulators postponed long-awaited rules on corporate climate disclosure pending a court challengeESG disclosure rules for funds and financial advisers have not yet been finalised .
MSCI makes sense as a representative of the future of ESG investing. A March report from research firm Opimas found that MSCI captured 25% of the $1.9 billion market for ESG data providers last year, the largest share in an industry that competes with companies such as S&P Global and ISS.
MSCI said it had 6,059 employees worldwide as of June 30 and served 7,000 clients. Asset manager BlackRock (BLK.N) alone earns 10% of MSCI’s operating income, mainly through fees on ETFs and other products based on MSCI indexes.
During a conference call on Monday, Barclays analyst Manav Patnaik told Weichsman that many doubt MSCI can raise its ESG growth rate to 25% or more.
“We can’t ignore how big the opportunity is for sustainable investing and climate investing and how big the impact of climate factors is across broader financial services, and we’re still at the early stages of this journey,” Weichman said.
The views expressed are those of the author. They do not reflect the views of Askume News, which is committed to integrity, independence and non-partisanship in accordance with the principles of trust.
