The MSCI ESG is just but a revolution of the former ESG analysis and research. Previously, institutions relied heavily on environmental, social and governance factors as a core aspect of their ESG rating framework (MSCI, 2015). However, the new revolution has yet brought in new aspect into the methodology. Unlike in the past, MSCI ESG is now a comprehensive research combining both the areas of the environment and social attributes to analyze corporate governance. Most importantly, the methodology offers very robust ESG rating criteria that flags on an institution’s portfolio while at the same time providing the much-needed data on an organization’s ESG status and other factors that relate to performance (MSCI, 2015). In a nutshell, MSCI ESG is designed to provide more information with a primary aim of making more informed decisions for investors.
Meanwhile, Morningstar rating methodology requires managers to focus on the objectives rather than profit maximization as it has been the case (Hale, 2015). In this type of methodology, managers are allowed to reduce shareholders stake and priorities and substitute them with their own. As it is the case, while pursuing self-interest, a company is likely to allocate very little resources to their most crucial activities. Nonetheless, all the actions a company takes must always be met with the full wrath of the social issues. As a matter of fact, these problems usually befall companies adopting Morningstar rating methodology.
Research has clearly revealed that those companies being managed using the different rating methodologies are very difficult to compare. The difficulty in comparison can be derived from the fact the two methodologies base their rating on two different aspects; MSCI ESG combines all the aspect of ESG to analyze a company while Morningstar focuses on the objectivity of a firm. Furthermore, if a single company were to be rated using the two methodologies would still emerge, the reason being that the approaches focus on totally different attributes of management.
References
Hale, J. (2015). Morningstar Sustainability Rating. Morningstar Research Publishers
MSCI. (2015). ESG Ratings Methodology. MSCI ESG Research
