A very interesting back & forth happened during MSCI's earnings call last quarter that gets to the heart of the controversy surrounding ESG. I'll summarize & contextualize this back & forth below.

It all started with this question from sell-side analyst Alex Kramm:

Kramm's question is a reference to a scathing Bloomberg article published in December 2021 about MSCI's allegedly deceiving ESG brand & business model

Link to the piece below:
www.bloomberg.com/graphics/2021-what-is-esg-investing-msci-ratings-focus-on-corporate-bottom-line/

The article argues that MSCI's ESG Ratings business is NOT about scoring companies on environmental stewardship, but the impact of ESG principles on that company's bottom line.

More cliff notes below:

To me the piece strikes at the heart of what makes ESG such a polarizing topic - is the whole thing one big machine to suck more $ out of investors, or is good actually coming out of this movement?

MSCI CEO Henry Fernandez gives us an answer.

Fernandez starts by pointing out how there's no such thing as bad press - articles like the one Bloomberg published help solidify MSCI as the dominant ESG company. Interest in ESG has grown, not faded, since the article was published.

Next Fernandez gets to the crux of Bloomberg's argument and largely agrees with it. MSCI serves many types of ESG clients - those who need ESG data to meet financial goals, and those who sacrifice returns thinking it helps the world. Ratings are meant for the former.

Here's where it starts to get juicy. Fernandez continues by saying MSCI's customers find it "incredible" that investors think they can give them money & be expected to "fight social causes" with it.

This comment is true, but doesn't it go against the entire brand of ESG?

Fernandez's answer ends with the kicker.

"We serve all kinds of investors. We don't tell them what to do. We provide the tools for them to achieve their investment objectives, not ours."

I hope we're all seeing the irony here.

To review- MSCI's CEO split his customer base into three segments, implied two of the three use MSCI's products for the wrong reasons, and ends by saying "hey, it's their choice, we just provide the data."

in my opinion, this is a weird thing for a CEO to say about his business.

This is where I get heartburn - ESG-focused companies market themselves as a direct link between Wall Street and helping the world.

When you read the fine print, however, these companies are clear about their inability to do what they marketed.

This comment by MSCI's CEO is a prime example.

Which one is it?

"Better investment decisions for a better world"?

Or "their investment objectives, not ours"?

Ok, ill get off the soap box now. Feedback welcome.