The Qatar Stock Exchange (QSE), in association with MSCI, has launched the MSCI QSE (MQ) 20 ESG (environmental, social and governance) Index to address the growing demand for sustainable investment tools in the Qatar equity market.
The MQ 20 ESG Index, which will serve as a basis for index linked financial products, particularly exchange traded funds, is designed to represent the performance of the top 20 securities within the MSCI Qatar IMI (Investable Market Index) that demonstrate the best ESG profile.
Responding to the growing demand for sustainable investment tools from investors, it is the first ESG index on the Qatar equity market and marks the first co-operation between QSE and MSCI in the equity indices.
Expecting the index to act as a barometer for local companies in ESG performance, QSE chief executive Rashid bin Ali al-Mansoori said the market has been quite vocal – “sustainable investing is now a critical part of the decision-making process.”
The ESG assets under management may exceed $50tn by 2025, representing more than a third of the projected $140.5tn in total global assets under management, he said, quoting Bloomberg Intelligence’s latest ESG 2021 midyear outlook report.
Henry Fernandez, chairman and chief executive of MSCI, said the institutional investors increasingly want tradable indexes that incorporate sustainability into liquid instruments to provide access to specific equity markets.
The MQ 20 ESG index aims to represent the performance of an investment strategy, that by re-weighting free-float market cap weights based upon certain ESG metrics seeks to increase exposure to those companies, demonstrating both a robust ESG profile as well as a positive trend in improving that profile, subject to a cap on the weight of individual constituents.
The MSCI Qatar IMI is designed to measure the performance of the large, mid and small cap segments of the Qatari market.
With 26 constituents, the index covers approximately 99% of the free float-adjusted market capitalisation in Qatar.
The top 10 constituents comprise QNB with the maximum weight of 36.1%, followed by Industries Qatar (9.33%), Qatar Islamic Bank (8.3%), Masraf Al Rayan (6.83%), Commercial Bank (4.71%), Mesaieed Petrochemical Holding (4.4%), Woqod (3.49%), Nakilat (3.15%), Qatar Electricity and Water (2.88%) and QIIB (2.83%).
Each company in the eligible universe is assigned a combined ESG score, which is calculated by taking into account a company’s MSCI ESG rating and its MSCI ESG rating trend.
Using the MSCI ESG rating, companies are grouped so as to assign an ESG rating score to each company in the eligible universe.
The MQ 20 ESG Index methodology uses a ‘tilt’ approach to index weightings based on MSCI ESG rating ('AAA' through 'CCC') and MSCI ESG rating trend (whether an entity is improving its rating). A company’s weight is capped according to its weight in the MSCI Qatar IMI Index.
Those with ESG rating of 'AA' and 'AAA' and ESG rating score of 2 has been categorised as "leader". The companies with ESG rating of 'BB', 'BBB' and 'A' and ESG rating score of 1 has been categorised as 'neutral"; while those with ESG rating of 'CCC' and 'B' with ESG rating score of 0.5 would be categorised as "laggards".
The MSCI ESG rating trend shows the ESG rating change from prior to current: it is expressed as the number of levels between the current rating and the previous rating.
The rating trend is "positive" for a ratings upgrade (for example, the company’s ESG rating changed from 'BBB' to 'AAA'), "negative" for ratings downgrade (for example company’s ESG rating changed from 'AA' to 'A') and "zero" for no change in the rating.