Our analysis suggests that incorporating ESG and sustainability considerations into Islamic finance not only aligns with the ethical mandates of Sharia law but also has the potential to improve financial outcomes. 

Companies with high climate-change risk scores have consistently outperformed, underscoring the value of integrating carbon data into equity analysis. Incorporating environmental opportunities into portfolios has been less straightforward, though the outlook is more optimistic.  

What goes into an analysis of financially material social risks and opportunities? And what does it mean for a company’s market performance? Our analysis found that scoring on social-risk themes was a key indicator of performance. 

Good governance is foundational to effective capital markets, promoting accountability, transparency and sound decision-making aligned with investor interests. But how do those potential benefits translate into market performance? 

Better governance practices by Japanese companies appear to be linked to stronger fundamental metrics, a possible contributor to the recent rally in Japanese equities.  

MSCI Implied Temperature Rise (ITR) can be used to assess the temperature alignment of companies and portfolios with global climate goals. Here, we offer an attribution framework to understand what causes a portfolio’s ITR to change over time.

Over the long term, companies with higher MSCI ESG Ratings have outperformed in the Asia Pacific equity markets. Among the three pillars, governance demonstrated the highest outperformance, followed by the social and environmental pillars. 

Based on a quintile analysis for MSCI ESG Ratings for the MSCI Europe Index, we found that companies in the highest quintile have consistently outperformed those in the lowest quintile since 2013, when these ratings were first introduced. 

 Controlling for sectors, regions and company size, we assessed the financial performance of MSCI ESG Ratings in global and developed markets and found that companies with higher ratings outperformed their lower-rated counterparts over the long term.