Investment Product and Service Launches

MSCI new framework to evaluate decarbonization targets and Vanguard announces upcoming changes for dividend funds.

Art by Jackson Epstein

Art by Jackson Epstein

MSCI New Framework to Evaluate Decarbonization Targets

MSCI revealed its new planned framework to assess a company’s decarbonization targets against its net-zero goal. 

The MSCI Target Scorecard will allow institutional investors to make direct comparisons between a company’s climate commitments and ascertain which company has a realistic decarbonization target. This framework development occurs during a period of increase in shareholder engagement by institutional investors and climate activists. 

The MSCI Target Scorecard will evaluate a company’s climate goals across three key dimensions:

Comprehensiveness – examining how much of the total emissions of a company are covered by the published targets.  MSCI analysis looks at the emission scopes that are covered by the targets, and the activities and geographies covered by the target. Additionally, the comprehensiveness determines whether solely carbon dioxide equivalent (CO2e) emissions are considered, or all greenhouse gas emissions.

Ambition – analyzing how much and how quickly a target aims to reduce emissions. MSCI will evaluate the information on emissions reductions and timeline to draw a company-level trajectory of future emissions. This provides investors with an overview of how a company’s trajectory may deviate at the key horizons of 2030 and 2050 from the path required to achieve net-zero.

Feasibility – assessing how feasible a given target is and how much confidence investors can have in its achievement. MSCI will assess a company’s track record by comparing its expired original target emissions and the reported emissions in the target year. Similarly, the progress made by companies meeting their ongoing targets by benchmarking companies’ latest emissions against the target’s projected trajectory will also be assessed. This will inform the level of confidence that a company will achieve its targets.

MSCI will launch a public consultation in June 2021 with corporate issuers and investors to invite feedback and dialogue on the MSCI Target Scorecard. 

Vanguard Announces Upcoming Changes for Dividend Funds

Vanguard has announced plans to change the target benchmarks for two dividend-focused index funds in the third quarter of this year.

Vanguard Dividend Appreciation Index Fund will change its benchmark to the S&P U.S. Dividend Growers Index from the Nasdaq US Dividend Achievers Select Index. Vanguard International Dividend Appreciation Index Fund will change its benchmark to the S&P Global Ex-U.S. Dividend Growers Index from the Nasdaq International Dividend Achievers Select Index. The respective ETF Shares of these funds, VIG and VIGI, will also track the new benchmarks. 

“As part of our ongoing due diligence process, Vanguard determined that new benchmarks would best enable our Dividend Appreciation funds to perform in line with their investment objectives,” says Kaitlyn Caughlin, head of Vanguard Portfolio Review Department. “We believe S&P Dow Jones Indices’ approach to dividend indexing closely aligns with Vanguard’s views, and we are confident that S&P DJI is well-positioned to administer the indexes moving forward.” 

The underlying methodology of the S&P DJI’s benchmark includes three new features for the funds including:

Buffered yield screens intended to minimize excessive turnover. At each annual rebalance, all dividend-paying stocks in the investible universe are ranked in order of dividend yield with the highest-yielding at the top. A stock will not be eligible for first-time admission to the index if its dividend yield is in the top 25%. During subsequent rebalances, any stock already in the index may remain unless its yield is in the top 15%. 

Free-float adjustments to ensure each index will count only shares that are available to investors. The benchmarks will exclude closely held shares, such as those held by members of a company founder’s family.

A three-day rebalance window to help manage transaction costs and minimize tracking error. The periodic changes to add, remove, or rebalance the constituent stocks in each index will take place over three days instead of one day.  

Additionally, the performance benchmark for Vanguard Dividend Growth Fund will be changed to the S&P U.S. Dividend Growers Index. The fund will continue to be advised by Wellington Management Company LLP, and the benchmark change is expected to occur in the third quarter of 2021. The investment objectives, strategies, and overall portfolio management processes of the three funds will not change, and the expense ratios are expected to remain the same.