Fund Industry Faces Mass Downgrades as MSCI Reviews ESG Ratings

MSCI Inc. is planning a sweeping overhaul of how it applies ESG ratings to the fund industry, in a move that’s likely to lead to mass downgrades and fuel debate around the value of such scores.

The changed methodology will affect up to 73% of the entire public fund universe, including exchange-traded funds, mutual funds, index funds and actively-managed funds, MSCI ESG Research told Bloomberg on Friday. The firm, which provides ESG ratings for tens of thousandsof equity and fixed-income funds, said it will in the future only take the scores of underlying holdings into account.

The decision, which ...