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Hundreds of funds set to lose ESG rating

Unpublished research by the world’s largest ETF provider, iShares, reveals that a tightening of ESG criteria from index provider MSCI will result in major downgrades in the ESG ratings of ETFs. 
The environmental, social and governance ratings of exchange-traded funds are set to be downgraded by index provider MSCI. | Photo: Delcia Lopez/AP/Ritzau Scanpix
The environmental, social and governance ratings of exchange-traded funds are set to be downgraded by index provider MSCI. | Photo: Delcia Lopez/AP/Ritzau Scanpix
by PHILIP MADSEN

Hundreds of exchange-traded funds (ETFs) are set to be stripped of their ESG ratings, while thousands of funds will get their rating downgraded, Financial Times reports.

According to unpublished research by Blackrocks iShares, and a consultation of ESG-ratings by MSCI seen by the paper, the number of European exchange-traded funds with the highest ESG score, the triple A-rating from MSCI is set to go down from 1,120 to just 54, and funds with no rating will surge from 24 to 462. 

The changes reflect a push by index providers to tighten up the criteria for what qualifies as an ESG-compliant fund amid pressure from regulators. 

ESG-rated funds accounted for 65% of inflows into European ETFs in 2022, according to data from Morningstar.

The changes are due to be effective from the end of April and will apply to all ETFs and mutual funds globally.

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