Financial returns of going green: evidence from MSCI indices

Abstract This study examines how the green criteria (GCE) used by MSCI to create green equity indices influence their financial performance. We analyze the Climate Change (CC), Paris-Aligned Benchmark (PAB), Socially Responsible Investment (SRI), and SRI Filtered PAB (SRI PAB) index variants in comparison with their standard non-green counterpart in each of the four regions: the World, the USA, Europe, and Emerging Markets (EM). Overall, the green indices often matched or exceeded the returns of their standard index without adding significant risk. With few exceptions in the EM, the green indices exhibited better long-term financial performance than their standard index. Over 2015–2023, the CC, PAB, SRI, and SRI PAB indices respectively delivered cumulative excess returns of 4.7%, 5.8%, 13.7%, and 7.5% relative to the standard index. Their returns co-moved closely with the market and the standard index’s returns. The GCEs statistically and significantly contributed to green indices’ relative financial outperformance.