Learn how MSCI KLD scores help sustainably conscious investors decide which firms best reflect their ethical commitments.
Update: November 2015
MSCI KLD scores help sustainably conscious investors decide which firms best reflect their ethical commitments by evaluating companies against industry peers on triple bottom line performance. Scores are awarded based on 5 key environmental, social and governance (ESG) factors:
- Community & society
- Employees & supply chain
- Governance & ethics
Scores are awarded to those companies with demonstrated commitment to environmental and social issues, and are helpful to stakeholders who practice socially responsible investing (SRI). The list thus excludes companies whose business operations include negative or unethical practices.
KLD criteria were created by a company called KLD Research & Analytics Inc., a former SRI firm and pioneer in providing investment products like performance benchmarking, consulting services, and compliance evaluations to the financial world. In the late 2000’s, KLD became a part of the Morgan Stanley Capital International (MSCI) RiskMetrics Group, where its methods in evaluating companies’ ESG performance continue to influence investment decisions. After receiving scores, high performing companies are named to various global indexes like those created by MSCI. They include the MSCI Global Climate Indexes, the Low Carbon Indexes, the Global Sustainability Index Series, and of course the MSCI KLD 400 Social Index.
The MSCI KLD 400 Social Index
(formerly FTSE KLD 400 Social Index) is one of many in the MSCI family of Global SRI Indexes
The MSCI KLD 400 Social Index (sometimes referred to as KLD400 or Domini 400 Social Index
) is one of the more notable indexes in the MSCI Global SRI family. Created in 1990, it was one of the first benchmarking indexes to evaluate companies next to their industry peers on the ESG factors listed above. The KLD400 has since been a widely recognized standard of performance frequently used by socially conscious investors.
While 90 per cent of index holdings are dedicated to large cap companies, nine per cent are medium-sized enterprises who are given scores for diversification, and one per cent are small companies who demonstrate exceptional social commitment and environmental stewardship. Being named to the index may prove advantageous as stakeholders are increasingly careful to invest responsibly.
Conversely, companies with securities in areas such as nuclear weapons, firearms, alcohol, tobacco, gambling, and GMOs, are automatically excluded from the list. Generally, companies who do not meet certain financial standards are also ineligible for inclusion in KLD400.
KLD’s products in conjunction with MSCI’s suite of indexes allow investors and money managers a more holistic picture of a company’s triple bottom line performance when making responsible investment decisions. For this reason, the index is rebalanced quarterly to provide investors with the most up-to-date information on a firm’s performance and commitment to good corporate citizenship.