What Is the MSCI KLD 400 Social Index?

The MSCI KLD 400 Social Index, previously known as the Domini 400 Social Index, is a market cap-weighted stock index of 400 publicly-traded companies that have met certain standards of social and environmental excellence. Potential candidates for this index will have positive records on issues such as employee and human relations, product safety, environmental safety, and corporate governance. However, companies engaged in the business of alcohol, tobacco, firearms, gambling, nuclear power, and military weapons are automatically excluded.

Key Takeaways

  • The MSCI KLD 400 Social Index is a market-cap-weighted index that focuses on Socially Responsible Investing (SRI). 
  • The index owns 400 companies, out of 3,000 of the largest U.S. stocks, which must be U.S.-headquartered and have a primary listing on the NYSE or NASDAQ. 
  • The criteria for the index includes being highly rated based on Environmental, Social and Governance (ESG) ratings.
  • The MSCI KLD 400 Social Index looks to invest in companies that focus on positive human relations and environmental safety, along with other positive records, while avoiding businesses engaged in questionable practices, such as firearms and tobacco.

How the MSCI KLD 400 Social Index Works

The index is independently maintained by research firm KLD Research & Analytics and aims to maintain similar sector weights as the MSCI USA index. It owns 400 companies, chosen from a group of the 3,000 largest U.S. equities based on float-adjusted market cap. The index picks those stocks with the highest Environmental, Social and Governance (ESG) ratings. 

Companies can be eliminated from the index on a quarterly basis if their ESG ratings decline below certain standards, if they are removed from the MSCI USA IMI index, or if they no longer pass exclusion screens. They are then replaced by those with higher ESG scores to maintain the count of 400 securities. 

Special Considerations

Founded in 1990 as the Domini 400 Social Index, and renamed the MSCI KLD 400 Social Index in 2010, this index is one of the first Socially Responsible Investing (SRI) indexes, designed to help socially conscious investors weigh social and environmental factors in their investment choices.

Socially responsible investing is a growing trend across many demographic and geographic areas, and having a social conscience may become a competitive advantage for corporations through their relationships with shareholders.

Requirements for the MSCI KLD 400 Social Index

The MSCI KLD 400 Social Index owns 400 stocks, targeting to own 90% large-cap stocks, 9% mid-cap, and 1% small-cap. Key requirements for the MSCI KLD Social Index include that the companies be listed on the NYSE or NASDAQ and be headquartered in the U.S.

As of Nov. 2019, the indexes' largest holdings are Microsoft (MSFT), Facebook (FB), Google (GOOG), Procter & Gamble (PG), and Visa (V) making up 21.5% of the index. Since it was renamed in 2010, through Oct. 2019, the MSCI KLD 400 Social Index has returned 14.4% annualized. 

The key way to invest in the MSCI KLD 400 Social Index is the iShares MSCI KLD 400 Social ETF (DSI). This exchange-traded fund (ETF) was formed in 2006 and shares are up 7.9% annualized since then. The assets under management (AUM) for the ETF is $1.75 million. The dividend yield is 1.5%. The ETF has the same top five holdings as the MSCI KLD 400 Social Index. The expense ratio on the DSI ETF is 0.25% and 27.6% of the ETF is invested in the information technology sector.