MSCI to Include Chinese A-Shares from June 2018 Subject to ESG Rating
Xu Wei
/SOURCE : Yicai
MSCI to Include Chinese A-Shares from June 2018 Subject to ESG Rating

(Yicai Global) July 26 -- MSCI Inc. (NYSE: MSCI), a leading provider of global equity indexes, said Chinese A-shares will be included in the MSCI Emerging Markets Index and MSCI Global Index in June next year.

MSCI will conduct an environmental, social and governance (ESG) study and rating of all the listed companies included in its indexes. More than 200 A-share companies to be included in the MSCI indexes will be subject to ESG ratings by more international investors.

Hong Kong-listed China Huishan Dairy Holdings Co. [HKG:6863] saw stock plunge 85 percent on March 24 this year, wiping HKD30 billion (USD3.84 billion) off the company's market value. Renowned short-selling firm Muddy Waters Research issued two reports in December last year, accusing Huishan Dairy of fabricating earnings results and saying it will short on stock. Muddy Waters' its projections and resolute shorting positions in this case make it a key example.

Few people realized that MSCI's ESG Research group downgraded Huishan Dairy from BB to B as early as last September over concerns about its aggressive accounting practices and corporate governance risks.

Huishan Dairy is not alone, Volkswagen AG's [FWB:VOW] emissions test cheating and Wells Fargo's scandal resulted in ESG lowering the company's rating or removing them from the ESG index altogether.

These cases exemplify the importance of incorporating ESG into investment strategies as institutions can avoid or remove companies that exhibit high risks in their portfolios to achieve higher risk-adjusted returns, Linda-Eling Lee, global head and executive director of MSCI's ESG Research group, said recently.

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Keywords: ESG , MSCI , A-Share