MSCI Inc. (MSCI) Earnings Call Transcript & Summary

Okay. Good afternoon, everybody. Thank you. So thank you for being here. It's great to be back in person. For those of you who don't know me, my name is Manav Patnaik, I'm Barclays' information services analyst. But more importantly, we're very happy to have a team from MSCI here with us. To my immediate left, Andy Wiechmann, CFO; and then Eric Moen, who runs the ESG business. So I'm just going to be running the fireside chat. Towards the end, if there's some time, if you guys have any questions, we'll have the mics run around.

So Andy, before we jump in with Eric and ESG, the topic, maybe just to start off with the latest kind of macro situation that you're seeing and kind of how that ties into your downturn playbook because that slide of yours just keeps getting pretty and prettier. So maybe help us out there.

Yes. Sure. Definitely a topical question that we spend a lot of time thinking about. I think everybody is familiar with what's been going on with the post-pandemic inflationary pressures exacerbated by the terrible war in Ukraine, all that has fed into pretty aggressive Central Bank approaches and impacts interest rates. And as a result, volatility and asset values coming down. The interesting thing has been some of the -- on top of that, which has kept things interesting, but even more so, the rotations we've seen across geographic dimensions, sector dimensions, asset class dimensions, factors, all those have changed the nature of investing. But despite that, you've seen extreme resiliency in the MSCI franchise. And so we've been quite pleased by that. The area that is most directly impacted, and you highlighted this, has been the AUMs and ETFs linked to our indexes, which are down about 16% on the year. Because of that, we have gone to our downturn playbook. And I think that's been a strong reflection of the all-weather nature of our franchise where even though we have a portion of our business that is tied to market beta, we have the levers that we can pull to proactively manage the business financially and create an attractive financial profile and continued strong profit growth despite some of these market headwinds. And so you've seen us on a very disciplined basis and targeted basis, scale back some of the less critical, less time-sensitive expenses. We also have auto adjusting aspects of our expense base that have allowed us to recalibrate the financial model against these headwinds. More generally, you've seen a number of other aspects, the all-weather franchise come out here. So you've seen from an FX standpoint, this natural P&L hedge that we have where the appreciating U.S. dollar has put some pressure on the top line. About 10% to 15% of our revenue comes from non-USD sources. About 40% to 45% of our expenses come from non-USD currencies. And as a result, you've seen the benefit we get on the expense side more than offset the headwinds we've seen on the revenue side. You've seen us very aggressively capitalize on the market volatility and pull back on the share repurchase front. We've bought back close to 1.1 billion shares or over 2-point -- $1.1 billion of shares or over 2.2 million shares as a company. And then the thing that's been probably most reassuring to us has been the strength of our subscription franchise. You've seen organic subscription run rate growth of 14% in the second quarter, retention rates of 95.5%. And you've seen strength in both the first quarter and the second quarter. So we've been very encouraged by the strength of that despite some of this market volatility, which underscores, I think, the compelling secular trends that we're serving and the enormous market opportunities that we're chasing. Having said all that, we're being cautious and we recognized in past downturns when you've had several quarters of pullbacks, it starts to impact things like new fund launches, fund closures, desk restructurings, all those things can, at some point, impact our retention rates and sales cycles. And so we are proceeding with caution. But overall, we continue to be very encouraged by the strong demand and secular opportunities in front of us.

Got it. And just to follow up on that last point, I mean, to be clear, so far, the downturn playbook has been solely tied to the AUM declines, right?

Absolutely.

You're not seeing any other macro pressures like sales cycle or any other volatility.

Correct. Yes. Our going to the downturn playbook has been driven by the 16% decline in AUMs and ETFs linked to our indexes, some pullback on a lag basis on the non-ETF passive line, which is also tied to AUMs. And so that impact on the financial profile is the reason we've gone to some of our levers in the downturn playbook. Yes.

Got it. And then just one last one, tied to AUMs, obviously, the AUMs are coming down. But can you just address the resiliency historically versus today in terms of the flows? And then also your mix, I'm talking about the derivatives exchange business that maybe is an offset. Just if you could address some of those.

Absolutely. No, thank you for pointing that out. So yes, we -- to your point, there are a number of aspects of the AUMs and ETFs linked to our indexes as well as the non-ETF passive category that show resilience often in the face of market pullbacks. And so you have -- firstly, it's geographically diverse. And so we've got a nice mix of emerging market exposure in the underlying assets in the ETFs. So there's a good mix of emerging market exposure, developed markets outside the U.S. And we've also built a meaningful exposure to U.S. securities as well with a lot of the success we've had in capturing flows in -- or our partners capturing flows in U.S. exposure products, in large part on the heels of ESG and Climate indexes as well as factor indexes. So that geographic diversity insulates us from any specific market moves. To your point, inflows. So we have continued to see inflows. They've been modest. And in one area in particular, ESG and Climate, they've moderated a bit, but we've continued to see inflows into ETFs linked to our indexes, which provides an additional layer of support from asset pullback. And then the broadening of the asset-based franchise, as you pointed out, has been another dampener where the futures and options complex -- listed futures and options complex tied to our indexes has grown pretty meaningfully to the point of having a run rate north of $60 million as of the end of the second quarter, which is more than 10% of all of asset-based fees. And so that tends to benefit in periods of elevated volatility. And so with the uncertainty and market volatility, you've seen the revenue and run rates from listed futures and options, based on our indexes, jump up quite a bit, which has helped to dampen the impact of the pullback in assets. So it's been a nice addition to the all-weather franchise and really help to showcase that -- as our business grows and evolves, we have additional layers of growth that will dampen us from any sort of cyclical pressures.

Got it. Okay. Thank you, Andy. I think you're done now.

The main event.

The main event. Let's get to -- so Eric, first thing, obviously, ESG and Climate is your fastest growth segment. There's a lot of debate out there. But maybe let's just take a step back. I think we obviously see Andy a lot out there. But from your -- just a quick bio perhaps on how you got involved here and what exactly falls under your leadership.

Okay. Great. Thank you, Manav. So Eric Moen. I'm heading up the ESG and Climate product segment at MSCI. I think it was a Saturday that marked my 20-year anniversary at MSCI. So it's been a journey, really, I've been on the client coverage side for the first 10 years. I moved to London and covered the European client segment and then about 11 years ago got involved with the ESG product segment. So it's been an 11-year journey in the ESG side, and now we really focus on its ESG and Climate as we see climate as a huge opportunity. We see that's even faster growing, coming from a very small base than the ESG, which is still growing very nicely. But -- so it's been a 21-year journey, and it's been 8 years in London and 13 years in New York with MSCI. And before that was a couple of years at Merrill Lynch and before that graduate school, Columbia.

Got it. You mentioned 11 years ago, you started ESG. And I think Henry has mentioned this many times where you guys were investing in doing ESG before ESG was a thing. So can you just talk about what was it 11 years ago that had you guys see the vision to invest in this area?

I mean I would give credit to Henry Fernandez himself to see that ESG integration was going to be a additional set of data and tools and models that would help in the investment process. And it really has been that focus on the investment process, which 11 years ago, based in Europe, it was mainly the European asset managers that were driving the use of the content and data. And even then, there was, I think, misperception at the time of what is ESG. Is it just a ethical approach? Or is it an investment approach that looks at the resilience of companies to ESG factors? And so it's helping on the risk and return. That's really what the ESG ratings product is about. It's additional set of data that 7 or 11 years ago was not heavily disclosed and we had to build a infrastructure that leverage a wide range of sources of data, which we still utilize this day. So the ESG ratings model, which has driven a lot of our growth in the last 5 years, is roughly about 50% from the disclosure by companies of these data sets and then data points. The other 45%, 50% is really coming from third-party data sources to calibrate this data. So it could be governmental data sources, credible NGOs, just a wide range of data sources.

Got it. And since you brought up data here, maybe I'll just go to that question first, which is with regulation, with the SEC's efforts, the data just becomes standardized, an XML download from the SEC website. Is that a good thing or bad thing for you guys and why?

We view the regulatory push for increasing climate data, in particular. But across the board, whether it's SFDR regulations in Europe, the SEC, the general push for more disclosure is encouraged by MSCI. It's going to benefit the industry. It is -- so we really view it as a tailwind, not a headwind. The need to take and collect data to scrub it, to make it comparable, to put it into models that help in the investment process, that's all a massive effort. There's no one centralized location. It's not going to be on the SEC website. It's a large -- and the set of data that we collect continues to expand with additional climate disclosures, with additional demands from our client base. And I would put it at -- we've started to think of our product set, not just in ESG and Climate, but also from a regulatory perspective, additional data sets around SFDR disclosure in Europe, for example. So the regulatory push is really -- we're seeing it from a reporting perspective from our asset manager clients, it's a driver of business.

Got it. And maybe asked another way is -- so today, the breadth and depth of the data you're collecting, obviously, is a potential competitive advantage versus the competitors. So if that gets normalized, like how do you differentiate yourself beyond that?

First, I mean, there are -- we are collecting thousands and thousands of data points across more than 10,000 companies, which -- and across the globe. And there's no single -- while we do encourage standardization and in terms of reporting and disclosure, we don't see this gap of this giant data collection, scrubbing, normalizing and putting into models. Often, our -- ultimately, the ESG rating is a model that's indicative of how exposed to -- companies are to key ESG risk and how they're managing those risks. And so it's a risk return type of rate. We have other tools that look at more sustainable finance disclosures. We have other climate metrics that will be put into models. So in other words, right now, even with the large cap companies, only a certain percentage are disclosing scope 1, 2 and 3 data points for carbon emissions. We have to build models to estimate when companies are not disclosing. And that's kind of across the board. Models are used in conjunction with the underlying data. But I think there's -- there will be a case for both the cleanest data possible and combining that with models and, ultimately, to help in that investment decision process. I think we've really carved a good area with our clients -- our institutional clients.

And if you don't mind, to Eric's point, just to say it more explicitly, our value proposition is more than just providing carbon emissions data. And so one, as Eric said, if there is regulation that forces disclosure on it, it's probably not going to be consistent across geographies, so we need to normalize it. Two, we cover a lot more than just equities. So we cover fixed income issuers. We're increasingly broadening to cover private companies, private asset classes, mortgages, mortgage-backed municipals, all these things, we need to normalize, standardize. And then to Eric's point, we supplement it with thousands of data points. And so having forced disclosure is going to be helpful. It enhances the quality of what we do, the quality of the data we provide, but we still need to supplement it, put it in models, normalize it, standardize it. And that will be something that continues to be our competitive advantage and differentiator.

A case in point is we launched a total portfolio of footprinting tool in June of this year, which expanded the measurement of carbon emissions from beyond just equities and corporate fixed income universe to essentially the full asset class set. In some cases, where there is not disclosure or data available, we use models to estimate carbon emissions of different asset class coverage, so it including municipals and collateralized debt. So this is the areas where you have to have a combination of data and models.

Got it. So there's this potential regulatory tailwind, but let's talk about the potential regulatory risk, which is we were talking to Andy earlier like there's some more calls for, like, the opinion that you guys are providing or maybe the perceived opinion. But the question is regulatory risk, like regulating MSCI more in this business. How do you -- what do you see the landscape today? I know it feels more like chatter now, but do you perceive anything actionable?

Good question. I mean we are definitively preparing internally that -- for the very high likelihood that the European market will be regulated from an ESG rating provider perspective. IOSCO and various regulatory regimes are already -- there's been extensive consultation, and we've participated in those. And they've -- there is a high likelihood that will happen. And I think we are very well placed for regulation. We -- it's all about making sure that all the processes are documented, all the transparency of the models, which we are very -- all of our methodologies are available to our clients and extensive. So we think we're -- from that perspective, we're -- we would like to think better prepared than many of our competition because we've been looking at -- MSCI, from an index perspective, has been regulated. We can draw on that experience. And we've done a lot of planning, and then we'll continue to do so for that eventuality that could happen as early as next year.

Got it. And maybe just to take a step back, and Andy, if you can jump in here. Just to help size the ESG, the run rate, the total ESG business at MSCI, just the different pieces and growth rate, if you can.

Yes. Yes. So the One MSCI ESG and Climate run rate is about $375 million, give or take, a little bit. That's comprised of about $230 million on the ratings and research side where we're licensing our ratings, research, data modules, some of the regulatory packages that Eric was alluding to.

Climate content.

Climate content for the investment process. The balance is on the index side. We're licensing our indexes to be used for products like ETFs, other non-ETF passive mandates, but they're also being used as primary and secondary benchmarks, so licensed as both subscriptions and asset-based fees. Within the $230 million or so on the ratings and research side, there's $55 million of climate run rate -- sorry, actually, the $55 million is split across both pieces -- I correct myself. But within the $375 million, $55 million is climate-related. And the $55 million is growing at the high 80s percent year-over-year. I think I get those numbers right.

Yes. Yes. And the index side has been growing typically even faster than the underlying climate. But because of the market downdraft, the climate content side is growing 100% from -- on a year-over-year basis because it's coming from a small basis.

Got it. And maybe, Eric, just some of the qualitative aspects of sizing ESG. So the number of analysts that you have, the number of people, where the investments are, just help with that.

Yes. I mean -- and if I think back on the 11 years ago, when I joined, it was probably about 100 people, I think, at that time. We have both direct head count that is exclusively dedicated to ESG and Climate, and then we have shared services. Like I think even Andy, we get a portion of it your allocation. And it's not 100 to -- it's less than 1,000, but it's getting up near that area in terms of both direct and allocated because the -- it's growing in both technology resources, in data collection resources and in client-facing and product resources. So it's -- we've been growing commensurately in investing for this wave of -- at the end of the day, providing deeper insight and investment decision support tools around these ESG and Climate and now regulatory risk that clients are facing.

Got it. Yes. We've alluded to competition a few times here. Can you just talk about how you view the competitive landscape? We've also seen a lot of consolidation. So how active do you plan on being -- Andy said he's giving you a blank check. So what are you going to look to acquire?

I mean we are -- for one -- I mean I think a lot of these smaller acquisitions we've seen have been about other large firms coming a little bit late to the party to recognize the need for a ESG tool set. So we've been building this for -- I mean it's been longer than 10 years -- 11 years, but it's really heavy investment in that period of time. And we've made very strategic and key acquisitions when we felt that our toolkit could be expanded instantly with an acquisition. So that was the case with GMI in 2014 with -- that it filled the governance component, a governance data component, and with Carbon Delta in 2019, which was really a climate acquisition. So we are -- I think and these are the times when there might be acquisitions that would be available in a more normal pricing, for example. And so we're very active, but we will -- we've been very, I would say, prudent in our evaluations. We've had plenty of passes where we just didn't think it was going to add value to our already very large suite of tools.

So eventually, just in terms of the landscape, do you anticipate just a lot more industry consolidation and kind of a few dominant players with new providers?

I think that what we see is -- and we even saw this with our own background of the 2 acquisitions that RiskMetrics had made in 2009, Innovest and KLD, were consolidated with MSCI's acquisition of RiskMetrics. These were small niche players and they were really cutting edge and leading providers of ESG. But what -- typically, what we see in the marketplace is the smaller providers -- once you start to look to build scale and the scale of companies to cover is quite large and it has to be global, there’s that kind of limit you reach. And so that's -- we're seeing the consolidation of the smaller providers just needing to scale up and so that -- they're either acquired or they go out of business. And so I think there will be -- given the nature of the need for our deep and robust models and data across the globe, there will be a fewer set of players. And that's -- we monitor that competition very closely. I think the value proposition is really -- we're uniquely placed and that we are looking at building this tool set of ESG data and model and climate data and model that's used in the investment process from the investment process perspective because we then overlay that to our indexes and create these ESG and Climate index families. That's why we're the leader in that space as well. We have it all in-house, and then powered through our -- delivered through analytics, and the analytics infrastructure that delivers the data and helps clients assess their risk using the content. So it's really this combined One MSCI franchise value proposition that I think is the key to our value proposition.

Got it. Since the beginning of this year, I think, there's been -- if I had to easily describe it, energy funds have outperformed tech funds. And so there's this debate of maybe ESG is not worth that much. Like maybe it's a fad. But 47% growth in your research and data business obviously refutes that. So just can you talk to us about what you're hearing from your clients? And maybe if you can just take a step back, like just break out who your main clients are and then what you're hearing from them to drive this 47% plus growth.

Yes. And so the client story is interesting in that 11 years ago, again, it was predominantly -- or the thrust of it was from the European asset managers. Now in the last 5 years, that's completely changed. We have -- the highest growth region is in Asia because it's coming from a small base, but they're growing fast. Europe and then Americas is fully -- all regions are clients, our institutional client base, which is still -- the institutional asset manager is our predominant client base. And that's -- we've been working with them for 10-plus years. Increasingly, the growth has been coming from additional client segments. And so that is banks, for example, wealth managers. Corporates is a category that we're looking to grow. We've been along collecting data from corporates and interacting with the corporates in their own data usage, but we historically have not really looked at them as a client base. They, of course, are on their journey of how to improve their ESG profile and what that means for the competitive landscape for themselves. And we can provide a lot of the data of their peer sets. We don't look to charge the corporates for their own reports or data but when it comes to the peer set. So we -- that's another segment that is growing. Insurance is a final category that insurance companies increasingly looking -- they are needing to disclose, from their asset management perspective, on climate risks in the investment process. So we're seeing this expansion of the -- going from the core institutional fund manager, which we're all familiar with in the room to increasingly the wealth -- sovereign wealth funds, corporates, banks and insurance. And that -- those are the fast -- and even hedge funds is another client category we look at. So those are fast growing. What we're hearing from clients is there's no -- I think the long-term cyclical or the long-term driver of looking to understand investments from an ESG and Climate perspective, it's not the only perspective. It's additional tool. As we always said, this is -- this shouldn't be the only focus of your investment process, but it should be to understand what are the risks coming from the environmental considerations, from the social aspect, which includes labor management, health and safety, a range of things, even data privacy and security. Some of these issues that -- that's where the misperception that's a tree-hugging pursuit, which is not, it's an investment perspective. And so we're hearing continued demand from our institutional client base. We have 1,000-plus clients that -- and they rely on this information as part of the process, not the only determinant. So that trend continues. That's what's driving the growth. And a lot of them kind of filter out the noise of a more of a political nature to just look at the investment process. So the growth is coming from both the new client types. But then also from our key relationships, we extend from the existing clients new solutions and tools and also wider audience. So we might have started 10 years ago with just an ESG specialist team. Now it's the entire investment front office that has access to the data, and we license that appropriately.

Got it. And to your point on demand structural drivers and the next question is around TAM. At our June ESG event, Henry mentioned that he thought your business could be up to 10x bigger over the next 10 years. And so that's obviously a big TAM you're going after. But we've always struggled to quantify it. I think we can appreciate it's big. But just your thoughts when you look at the business, maybe if you just start with -- just the research and data piece to start, like how do you quantify the TAM there?

Yes. And I think it's a good point that you make, Manav, in that -- the difficulty in quantifying the future demand of this. Because when we look back 10 years ago, we've grown 10x in the last -- coming from 10 years ago, from the $20 million to $200 million plus in just the ESG and Climate content. And...

And by the way, the growth rate is faster than it's ever been in the last couple of quarters as well.

That's -- the last, yes, 2 years, we've seen an acceleration of the growth, which is definitely remarkable in that sense. And 10 years ago, the market didn't necessarily exist for the ESG and Climate. This is -- it's coming into the knowledge of portfolio managers that, what you do need to look at these climate risk, at the environmental, social and governance risk. Governance has probably been better understood for a longer period of time because good governance is essential for public companies. But as it relates to the entire ESG framework, this is an evolving field. And so the market has been growing as our position in the market has been growing. So we've essentially been out there helping to grow that marketplace. And I think that's going to be the case for the next 5 to 10 years as well. But we do look at the -- to quantify it, there's the range of different use cases that we see. As we start to go from just purely asset management use case to the banking and trading, the banking system is starting to qualify their loans based on climate criteria. There's just an extension of use cases that we see into the future that will help drive this growth.

Got it. And earlier, you mentioned you had about 1,000 clients in your ESG business, I think. Is that a way like is it 1,000 of, I don't know, 30,000, 100,000? How do you think about that?

We do -- well, one metric is that we look at how much penetration does the index franchise have with the institutional client base, which is our strongest franchise. And it's been at it the longest and it's had time to develop. And we're well behind the index penetration rate. And so that's one way to think about. If we were -- so we look at expanding the client base, and then -- that's in the institutional space. Interestingly, I think that the ESG and Climate content because of the different use cases, we start to see new clients that are not -- that are new to MSCI coming through the ESG and Climate channel. And that's interesting. They haven't been index clients or analytics clients before. They're first journey with MSCI is through ESG and Climate. So we have room to grow there. And then with the -- just looking at our index penetration, we have room to grow there. So there's runway in various angles.

And even looking specifically at ESG and Climate indexes just to dimension that the most visible metric, which is ETF AUM. So if you look at total ETF AUM benchmark to our indexes, it's about 1.2 trillion or so. Just over 200 billion is ESG and Climate indexes. And so it shows we've got a long way to go just to catch up to market cap indexes, and that's a fraction of the $8 trillion of total ETF AUM out there. And as Eric said, the exciting thing about ESG and Climate is it opens up markets that we historically haven't had access to and users we haven't had access to in geographies. So domestic exposure is a place where we've been less strong, other asset classes, so fixed income, even structured products, where we've been less successful in the past. And so ESG just has so many layers of opportunity in areas we haven't touched in the past. We get very excited by it.

Got it. And just in the indices business, again, I think, Andy, you had mentioned this before. But just you have a high share within the ESG indices business, right? So if you could just help us how you look at that, how do you quantify that piece? And then the other angle, you mentioned fixed income, which reminded me, I think you had partnered with Bloomberg on the MSCI or the ESG piece of the business. And I don't think Bloomberg partners with everyone. So just talk about like if that exemplifies the breadth and depth of the offering.

Yes. No, absolutely. So just on the ETF side to dimension it, so we -- I alluded to, we have just over $200 billion of AUM and ETFs linked to our indexes. That represents the majority. So we are the largest provider of ESG and Climate indexes to ETF providers. And we track the flows every quarter. So we look at how much new money is going into ESG and Climate ETFs and how much of that is going into products that are based on our indexes. And we've consistently had the majority of it. Some quarters, it's been north of 70%, but it's consistently been north of 50%. And I think overall, it's in the 70% plus. And so that compares to our overall index market share in the ETF market. So if you look at that 1.2 trillion relative to the total equity ETF AUM, it's about 18%, 19%. And so we've got, call it, 60% to 70% market share in ESG and Climate ETFs compared to 18%, 19% across all ETFs. And so with ESG and Climate growing secularly and being a huge opportunity and being -- we call it a flanking angle for a flanking strategy to get into these markets where we historically haven't been, we think that could lift our overall market share in ETFs. And that's just a representation of the total investment process. So we're similarly having success in other passive products. We call it non-ETF passive, whether that's institutional passive, index-based mutual funds, direct indexing. All of these areas, ESG and Climate is a powerful flanking strategy for us. So it's incredibly exciting for us.

And the Bloomberg relationship?

Yes, I'll let Eric comment on it.

Yes. That's -- it was my -- coming over to the ESG side from analytics and index, it was, I think, about 10 years ago that we established that partnership. And it was -- of course, it was the Barclays Global Aggregate that -- we started with Barclays, and then the index has moved over to Bloomberg. And it's been a very productive partnership actually. Because of the largest franchise of fixed income indexes being with the Bloomberg Global Aggregate and then our overlay of the ESG content, it took a -- I would say, it took a while for the acceptance -- the market acceptance of these indexes. Fixed income equity indexes, I think, grew first. And the use case in equities was first before the fixed income ESG integration, but it has really accelerated in the last several years. And it's proven to be an extremely fruitful partnership for both sides. The assets have grown very, very well in the last several years. And the -- we've expanded the partnership through additional sets of fixed income indexes. So it's a good example where we think that we can partner with -- in some cases, it's competition. But in other areas, we can partner and bring something to the market that is valued and is used by our clients, mutual clients.

Got it. All right. I have a few more here to wrap up, but I don't know if anybody has any pressing questions in the audience. Yes. Go ahead, and I'll repeat it.

What's your market share on direct indexing…

Just to repeat the question. The question was market share on direct indexing versus the ESG.

Yes. Well, the market's opaque. So it's not totally transparent there. And so it's tough to get a handle on what our market share in direct indexing is. So it's tough to say. I would highlight that it is a very high-growth area for us. It's small, and it is -- most of the revenue we get sits within the non-ETF passive line where we're licensing our indexes to the direct indexing providers, both asset managers and, to a certain degree, wealth managers who are playing there. And typically, we're charging basis points on assets under management. But the value proposition is much broader, and we do get indexing -- we do get revenue from other sources. And so many times, those direct indexing platforms are licensing our ESG and Climate data. They're licensing our risk models or factor models. They're licensing some of our analytics tools like optimizers. So the value proposition and the revenue is broader than just that non-ETF passive line. We do, over time, want to deliver a broader solution to them, so we can do more than just license the content and tools discreetly. We can offer a service to the platforms to help them much more easily, systematically, efficiently create these customized indexes for their end clients.

There's a question there. Go ahead.

Yes. So I'm just curious qualitatively, if you've seen any indication from your salespeople that people are pulling back on ESG or climate products to any extent or if they've elongated their cycle for implementation due to the financial pressures we've seen in the marketplace.

So the -- I mean, and certainly, from last quarter, that's not been the case. And I think we are closely monitoring this quarter. But in general, from our sales force, the interest is still absolutely there. The volatility markets might slow down some of the decisions a little bit. That’s still, I think, remains to be seen. But the underlying demand, and we look at and monitor pipeline, it's still strong.

Yes. So as I alluded to in the beginning, we're proceeding with caution. We've recognized in the past when you've had equity market levels and broader asset values depressed for extended periods, you start to see clients adjust their spending behaviors and their sales cycles. And so we're proceeding with caution. But to Eric's point, we continue to be very excited about the underlying demand that's there and the nature of the conversations we're having with clients.

Okay. Just a few more from my end to wrap up. So Eric, firstly, obviously, ESG and the relationship with indices is pretty clear. Can you just -- since you were at analytics before as well, can you just talk about the importance of analytics within your ESG mandate?

Yes. So I mean one great example was the launch last year of Climate Lab Enterprise, which was built on the top of analytics infrastructure. It basically allows -- with all the content of the ESG and Climate data, you need to aggregate that up. And if you're a fund manager and look at your -- the various fund sleeves at the portfolio level, what that means from an aggregate risk perspective. So it's leveraging -- Climate Lab Enterprise leverages the analytics infrastructure, piping in the ESG and Climate data, to help our asset manager and pension fund clients understand a net zero journey. And they're often now having to make net zero commitments for net zero emissions. And the investments they're making, this tool allows them to look at all aspects of the climate risk data. And so it really is, again, this One MSCI capabilities that we're unlocking, and we started to see some excellent traction with Climate Lab Enterprise.

Got it. And maybe, Andy, I'll end it with you as you try and put it all together, and that's more around the margin question with ESG and Climate you're obviously growing rapidly. You're investing rapidly in a lot of different areas. So how should we think about the margin progression and what it looks like at scale?

Within ESG and Climate?

Within ESG and Climate, yes.

Yes. I mean the focus is really on driving leadership and growth. And we talked at the beginning about the downturn playbook. I’d say, within the downturn playbook actions that we're taking, we are being very deliberate about where we are pulling back, slower in hiring, closing positions. It is not in our key growth areas like ESG and Climate. And so the focus really is investing heavily, investing for leadership, enhancing data quality, so investing in researchers, data scientists, technology to enhance the breadth and quality and depth of the ratings that we provide and the broader data that we provide as well as investing in go-to-market. So getting the feet on the ground, the sales and client service resources to really drive into all these new opportunities that Eric highlighted and the new segments that we're getting traction in. And so our goal is not to expand the margin right now. I think the nature of the business lends itself to margin expansion. Like everything we do at MSCI, we're creating IP 1s and selling it many times to many different users. And so the tendency is for the margin to rise. But the focus right now is reinvesting that growth and incremental margin into new products, leadership, penetration, innovation. And so we don't have plans to have the margin go up significantly in the ESG and Climate segment in the near future. I think longer term, you could definitely see it be above where it is today. It's naturally, I think, probably depending on the industry structure and business mix and product mix, a higher-margin business, but the focus right now is not on a margin expansion.

Got it. All right. We're out of time. So that's a great place to leave it there. Thank you, Eric. Thank you, Andy. And thanks, everyone, for being here.

Thanks, Manav. Thank you, everyone.