MSCI ESG RESEARCH LLC

MSCI ESG and Climate

Symbols and
Definitions
MSCI ESG Research LLC

August 2023

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 MSCI ESG RESEARCH LLC

Contents

Introduction ................................................................................................................. 3
ESG Ratings ................................................................................................................. 3
MSCI ESG Ratings ............................................................................................................... 3
MSCI ESG Government Ratings.......................................................................................... 4
MSCI ESG Fund Ratings ...................................................................................................... 5
ESG assessments ........................................................................................................ 6
MSCI ESG Controversies ..................................................................................................... 6
MSCI ESG Global Norms ..................................................................................................... 6
MSCI SDG Alignment ........................................................................................................... 7
MSCI Labeled Bond and Loan Assessment ...................................................................... 7
ESG data products ....................................................................................................... 8
Business Involvement Screening Research ...................................................................... 8
Sustainable Impact Metrics ................................................................................................ 8
MSCI ESG Industry Risk Intensity ....................................................................................... 8
Climate assessments .................................................................................................. 8
MSCI Low Carbon Transition Risk Assessment ............................................................... 8
MSCI Implied Temperature Rise......................................................................................... 9
Climate data products.................................................................................................. 9
Climate VaR.......................................................................................................................... 9
Carbon emissions estimates and fossil fuels data .......................................................... 9

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 MSCI ESG RESEARCH LLC

Introduction
MSCI ESG Research develops and maintains ESG assessment and data methodologies, including
ESG Ratings. To promote public transparency, MSCI ESG Research provides a description of the
ratings, assessments, and data products that support investors consideration of ESG and climate
factors. This document also contains rating scale definitions for MSCI ESG Ratings, ESG
assessments, and climate assessments.

ESG Ratings
MSCI ESG Ratings
MSCI ESG Ratings provide an opinion of companies’ management of financially relevant ESG risks
and opportunities. MSCI ESG Research defines ESG risks and opportunities as environmental, social,
or governance-related issues that may result in financial losses or benefits to the company. MSCI
ESG Ratings are industry-relative measures and are determined at the company level. Each rating
takes into consideration the company’s exposure to potentially material ESG risks, the quality of
companies’ management systems and governance structures to mitigate such risks, and where
applicable, positioning to meet market demand for the provision of products and services that have
a positive environmental or social contribution.
MSCI ESG Rating Scale
Companies rated AAA have the highest ESG Rating assigned by MSCI ESG Research.
Compared to global industry peers, they have the strongest aggregate management
measures of their ESG risks and are often involved in products or services that provide
AAA
environmental or social solutions. Companies rated AAA must meet a minimum corporate
governance threshold and cannot be directly involved in any ongoing Very Severe
controversies.
Companies rated AA have very strong management measures relative to their aggregate
AA
ESG risks and opportunities, in comparison to global industry peers.
Companies rated A have strong management measures relative to their aggregate ESG
A
risks and opportunities, in comparison to global industry peers.
Companies rated BBB have moderate management measures relative to their aggregate
BBB
ESG risks and opportunities, in comparison to global industry peers.
Companies rated BB have weak management measures relative to their aggregate ESG
BB
risks and opportunities, in comparison to global industry peers.
Companies rated B have poor management measures relative to their aggregate ESG risks
B
and opportunities, in comparison to global industry peers.
Companies rated CCC have the lowest ESG Rating assigned by MSCI ESG Research.
Compared to global industry peers, they have very poor management measures relative to
CCC
their aggregate ESG risks and opportunities. CCC-rated companies may also be presently
or recently involved in significant ESG controversies.

MSCI ESG Leader, Average, and Laggard Categorizations 1

ESG Leader Companies rated AAA or AA.

1 ESG Leader, Average, and Laggard categories apply to ESG Ratings, Government ESG Ratings, and Fund ESG Ratings.

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 MSCI ESG RESEARCH LLC

Average Companies rated A, BBB or BB.

ESG Laggard Companies rated B or CCC.

MSCI ESG Rating Actions 2

Upgrade The ESG Rating has increased in the scale since the previous rating action.
Maintain The ESG Rating has not changed in the scale since the previous rating action.
Downgrade The ESG Rating has decreased in the scale since the previous rating action.
An ESG Rating has been assigned to a previously rated company that had a prior
Re-initiate
ESG Rating based on a different industry peer set.
Initiate An ESG Rating has been assigned to a previously unrated company.

MSCI ESG Government Ratings

MSCI ESG Government Ratings provide an opinion of sovereign and sub-sovereign entities’ exposure
to and management of ESG risks. MSCI ESG Research defines ESG risks to sovereign and sub-
sovereign entities as environmental, social, or governance-related issues that could impact the long-
term sustainability of economies. MSCI ESG Government Ratings are determined for countries, local
authorities and supranational administrative bodies and are relative to a global peer set. Each rating
takes into consideration measures of environmental risk and management, knowledge and social
capital and the strength of financial, judicial and political systems.
MSCI ESG Government Rating Scale
Sovereign and sub-sovereign entities rated AAA have the highest ESG Rating assigned by
AAA MSCI ESG Research. Compared to a global peer set, they have the strongest aggregate
management measures relative to their ESG risks.
Sovereign and sub-sovereign entities rated AA have very strong management measures
AA
relative to their aggregate ESG risks, in comparison to a global peer set.
Sovereign and sub-sovereign entities rated A have strong management measures relative
A
to their aggregate ESG risks, in comparison to a global peer set.
Sovereign and sub-sovereign entities rated BBB have moderate management measures
BBB
relative to their aggregate ESG risks, in comparison to a global peer set.
Sovereign and sub-sovereign entities rated BB have weak management measures relative
BB
to their aggregate ESG risks, in comparison to a global peer set.
Sovereign and sub-sovereign entities rated B have poor management measures relative to
B
their aggregate ESG risks, in comparison to a global peer set.
Sovereign and sub-sovereign entities rated CCC have the lowest ESG Rating assigned by
CCC MSCI ESG Research. Compared to a global peer set, they have very poor management
measures relative to their aggregate ESG risks.

MSCI ESG Government Rating Outlook

Sovereign and sub-sovereign entities with a Positive outlook have ESG scores that are
Positive
in the upper buffer zone of the current ESG Government Rating. Buffer zones are

2 Rating actions apply to ESG Ratings and Government ESG Ratings

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 MSCI ESG RESEARCH LLC

centered at each ESG Rating band boundary to maintain greater stability in ESG
Ratings.
Sovereign and sub-sovereign entities with a Neutral outlook have ESG scores that are
Neutral not in a buffer zone. Buffer zones are centered at each ESG Government Rating band
boundary to maintain greater stability in ESG Ratings.
Sovereign and sub-sovereign entities with a Negative outlook have ESG scores that are
Negative in the lower buffer zone of the current ESG Rating. Buffer zones are centered at each
ESG Rating band boundary to maintain greater stability in ESG Ratings.

MSCI ESG Fund Ratings

MSCI ESG Fund Ratings are a quantitative assessment of a fund’s holdings’ management of
financially relevant ESG risks and opportunities. Fund ESG Ratings are based on the weighted
average of holdings’ ESG Ratings and ESG Government Ratings. Fund ESG Ratings do not consider
the investment strategy, management or performance of the fund.
MSCI ESG Fund Rating Scale
Funds rated AAA have the highest ESG Rating assigned by MSCI ESG Research. AAA-
rated funds have holdings that are rated AAA, on average. Holdings rated AAA have the
AAA strongest management measures relative to their aggregate ESG risks and opportunities,
in comparison to global peers. The fund may include holdings that are rated lower than
AAA.
AA-rated funds have investments that are rated AA, on average. Holdings rated AA have
very strong management measures relative to their aggregate ESG risks and
AA
opportunities, in comparison to global peers. The fund may include holdings that are
rated higher or lower than AA.
A-rated funds have holdings that are rated A, on average. Holdings rated A have strong
management measures relative to their aggregate ESG risks and opportunities, in
A
comparison to global peers. The fund may include holdings that are rated higher or lower
than A.
BBB-rated funds have holdings that are rated BBB, on average. Holdings rated BBB have
moderate management measures relative to their aggregate ESG risks and opportunities,
BBB
in comparison to global peers. The fund may include holdings that are rated higher or
lower than BBB.
BB-rated funds have holdings that are rated BB, on average. Holdings rated BB have weak
management measures relative to their aggregate ESG risks and opportunities, in
BB
comparison to global peers. The fund may include holdings that are rated higher or lower
than BB.
B-rated funds have holdings that are rated B, on average. Holdings rated B have poor
management measures relative to their aggregate ESG risks and opportunities, in
B
comparison to global peers. The fund may include holdings that are rated higher or lower
than B.
Funds rated CCC have the lowest ESG Rating assigned by MSCI ESG Research. CCC-rated
funds have holdings that are rated CCC, on average. Holdings rated CCC have very poor
CCC management measures relative to their aggregate ESG risks and opportunities, in
comparison to global peers. The fund may include holdings that are rated higher than
CCC.

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 MSCI ESG RESEARCH LLC

ESG assessments
MSCI ESG Controversies
MSCI ESG Controversy Scores and Flags provide an opinion of a company’s involvement in ESG-
related controversies and incidents. Controversy severity is assessed based on the nature and scale
of the alleged adverse impact on society or the environment. MSCI ESG Controversy Scores and the
corresponding color-coded Flag are determined for individual controversy cases and consequently
applied at the company level. Each controversy case assessment is based on a qualitative
evaluation of the case severity based on the nature and scale of alleged impact from Minor to Very
Severe, the company’s direct or indirect role in the case, and the case status.
MSCI ESG Controversies Flag Scale
Companies with a Red Flag are directly involved in one or more Very Severe ongoing
Red Flag
controversies.
Companies with an Orange Flag may have either settled some stakeholders’
Orange concerns related to their direct involvement in a Very Severe controversy, continue to
Flag be indirectly implicated in a Very Severe controversy related to its business partners,
or are directly involved in one or more Severe cases.
Companies with a Yellow Flag may have either settled most or all of stakeholders’
Yellow
concerns related to their involvement in Severe or Very Severe controversy cases or
Flag
continue to be directly involved in one or more cases of Moderate severity.
Companies with a Green Flag may either be involved in one or more controversies of
Green Flag
lesser severity or not involved in any controversies.

MSCI ESG Global Norms

MSCI ESG Global Norms provides an opinion of companies’ alignment on each of the following
global norms: the Organisation for Economic Co-operation and Development (OECD) Guidelines for
Multinational Enterprises, the United Nations Global Compact Principles (UNGC), the International
Labour Organization’s (ILO) fundamental conventions and the United Nations Guiding Principles on
Business and Human Rights (UNGP). Companies are assigned a Pass, Fail or Watch List designation
based on their involvement in ESG Controversies that potentially conflict with the principles defined
by each global norm.
MSCI ESG Global Norms Scale
Companies with a Pass designation are not involved in controversies that are severe
Pass enough to warrant a Fail or Watch List designation.
Companies with a Watch List designation are involved in one or more controversies
Watch List that potentially conflict with the principles of a given convention, but at a lesser
severity than companies on the Fail list.
Companies with a Fail designation are directly involved in one or more unresolved
Fail Very Severe controversies that potentially conflict with the principles defined for a
given convention.

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 MSCI ESG RESEARCH LLC

MSCI SDG Alignment

MSCI SDG Alignment Scores and Assessments are a quantitative assessment of companies’
alignment with the 17 United Nations Sustainable Development Goals (SDG). SDG Alignment Scores
and their corresponding Alignment Assessments are determined at the company level for each of
the 17 UN SDGs. Each SDG Alignment Assessment is based on the company’s product portfolio and
operating practices (including policies, initiatives, and performance metrics where available), which
are evaluated on the balance of positive and negative attributes related to each SDG.
MSCI SDG Alignment Assessment Scale
Companies that are Strongly Aligned on an SDG offer products and services that
Strongly
facilitate implementation of the goal and conduct their business in line with the
Aligned
intent of the SDG.
Companies that are Aligned on an SDG offer products and services that facilitate
implementation of the goal and/or conduct their business in line with the intent of
Aligned
the SDG. Misalignment on one characteristic may be offset by strong alignment on
another.
Companies that are Neutral on an SDG have minimal or no impact on the
Neutral advancement of the goal through their products or practices. Misalignment on one
characteristic may be offset by alignment on another.
Companies that are Misaligned on an SDG offer products and services that are
misaligned with the intent of the SDG or whose operating practices do not show
Misaligned
alignment with the goal. Misalignment on one characteristic may be offset by
alignment on another.
Companies that are Strongly Misaligned on an SDG either generate most of their
Strongly revenue from products and services that are misaligned with the goal or are involved
Misaligned in practices or events that suggest severe adverse impact on society, environment,
or economies.

MSCI Labeled Bond and Loan Assessment

MSCI Labeled Bond and Loan Assessments are instrument-level opinions of the environmental and
social characteristics of issued bonds, syndicated loans, and revolving credit facilities. The MSCI
Labeled Bond and Loan Assessment methodology defines the criteria that are used to determine an
instrument’s eligibility to be labeled as green (for proceeds that have a positive environmental
impact), social (for proceeds that have a positive social impact), or sustainability (for proceeds that
have a combination of green and social impacts). The criteria are defined across four attributes: use
of proceeds, process for project evaluation and selection, process for management of proceeds and
ongoing reporting.
The instrument meets the eligibility criteria to be labeled as green, social, or
Pass
sustainability.
The instrument does not meet the eligibility criteria to be labeled as green, social, or
Fail
sustainability.

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 MSCI ESG RESEARCH LLC

ESG data products

Business Involvement Screening Research
Business Involvement Screening Research provides company-level data on the extent of involvement
in products, services or events that may cause, contribute to, or be associated with adverse social or
environmental impacts. Business Involvement Screening Research also provides data on
companies’ involvement in products and services that may conflict with certain investors’ values.
The data is based on disclosed revenue and estimates of revenue that are based on extrapolations
from related company disclosures.

Sustainable Impact Metrics

Sustainable Impact Metrics provides company-level data on the extent of involvement in products or
services that contribute positively to environmental or social outcomes. The data is based on
disclosed revenue and estimates of revenue that are determined by extrapolations from company
disclosures.

MSCI ESG Industry Risk Intensity

MSCI ESG Industry Risk Intensity Scores provide a quantitative assessment of industry ESG risk. ESG
Risk Intensity Scores are determined at the industry-level and evaluate each industry’s level of ESG
risk relative to all other industries.

Climate assessments
MSCI Low Carbon Transition Risk Assessment
MSCI Low Carbon Transition (LCT) Scores and Categories are a quantitative assessment of
companies’ exposure to and management of climate transition risks and opportunities. Climate
transition risks and opportunities arise from changes in demand for products and services due to
policy or regulatory action to address climate change. LCT Scores and their corresponding LCT
Categories are determined at the company level. Each company is evaluated on the estimated
carbon emissions intensity of their disclosed product segments, including scope 1 (direct emissions
generated by companies’ operations), scope 2 (indirect emissions generated from energy supply),
and scope 3 emissions (upstream and downstream emissions generated in the supply chain or
through product usage).
MSCI Low Carbon Transition Category Scale
Companies in the Solutions LCT Category have a low total carbon emissions
Solutions footprint and have the potential to benefit from the growth in demand for low-
carbon products and services.
Companies in the Neutral LCT Category have limited exposure to climate transition
Neutral risks. Companies in this category may have indirect exposure to climate transition
risks through their investment and lending activities.
Companies in the Operational Transition LCT Category have exposure to climate
Operational
transition risks through potential increased operational costs arising from carbon
Transition
costs and/or capital investments in emissions reduction.

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 MSCI ESG RESEARCH LLC

Companies in the Product Transition LCT Category have exposure to climate

Product
transition risks through potential reduced demand for carbon-intensive products
Transition
and services.
Companies in the Asset Stranding LCT Category have exposure to climate transition
Asset
risks through potential stranding of physical or natural resource assets due to
Stranding
regulatory, market or technology forces.

MSCI Implied Temperature Rise

MSCI Implied Temperature Rise (ITR) provides a forward-looking quantitative assessment of
companies’ alignment with global temperature goals, expressed in degrees Celsius. Implied
Temperature Rise is calculated at the company level. The Implied Temperature Rise of a company is
calculated based on its projected emissions considering disclosed emissions reduction targets and
the over- or undershoot in emissions relative to its share of the global carbon budget.
MSCI Implied Temperature Rise Bands
Companies that are 1.5°C Aligned are aligned with the Paris Agreement’s maximal
1.5°C
objective of limiting the global mean temperature rise to 1.5°C compared with pre-
Aligned
industrial levels.
2°C Companies that are 2°C Aligned meet the Paris Agreement’s minimum objective of
Aligned limiting the global mean temperature rise to 2°C compared with pre-industrial levels.

Companies that are Misaligned are not aligned with the Paris Agreement goals. Their
Misaligned
implied temperature rise falls between 2°C and 3.2°C.

Strongly Companies that are Strongly Misaligned have an implied temperature rise that is
Misaligned greater than 3.2°C, which exceeds even the business-as-usual climate projection.

Climate data products

Climate VaR
Climate Value-at-Risk (Climate VaR) provides a forward-looking and return-based valuation
assessment to measure climate-related risks and opportunities. Climate VaR is a quantitative
assessment calculated at the company and security level. The aggregated company Climate VaR is
calculated as a percentage of market value (from -100% to +100%) for multiple climate scenarios
and includes the valuation impacts arising from technology opportunities, policy risks and physical
risks.

Carbon emissions estimates and fossil fuels data

Carbon emissions estimates provide a representation of companies’ carbon emissions footprint.
Carbon emissions estimates are based on a quantitative model to calculate scope 1 (direct
emissions generated by companies’ operations), scope 2 (indirect emissions generated from energy
supply), and scope 3 emissions (upstream and downstream emissions generated in the supply chain
or through product usage). Fossil fuel data, power generation data, and associated estimates,

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 MSCI ESG RESEARCH LLC

including potential carbon emissions from fossil fuel reserves, provide a measure of companies’
involvement in fossil fuel ownership and production.

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