What do these ESG ratings for a company mean?
- MSCI – A
- Sustainalytics – 16.6
- Refinitiv – 69
- S&P Global Corporate Sustainability Assessment (CSA)– 57
If you are an investor with an ESG focus, should you add this company to your portfolio?
If you are a lender – should you lend money to this company, what are the ESG risks you face?
If you lead or manage the sustainability strategy at the company – did you do your job well?
Comparison of Rating Methodologies
Let’s do a deeper dive into the methodology behind these scores to get a better understanding of the four publicly available ESG ratings mentioned above.
| Score Provider | MSCI | Sustainalytics | Refinitiv | S&P Global CSA |
| Description | Overall ESG exposure and management of key risks and opportunities in its industry in comparison to a company’s global peers. | Company’s economic value risk from ESG factors with a focus on the magnitude of a company’s unmanaged ESG risks. | Company’s relative ESG performance in its industry category, based on considerations around impact. | Awareness of ESG factors and implementation of strategies to manage ESG risks and opportunities. Emphasis on transparency in communication and validation or audit of results. |
| Sources for the Scoring Data | Publicly available data – Reports – SEC Filings – Government databases – Media – NGOs – Other stakeholders | Self-Reported data – Enhanced with data from: – Media – NGOs – Other sources | Publicly available data – Websites – Reports – SEC Filings – Media – NGOs | Data from answers to CSA questionnaire Damaging incidents from: – Government – Regulators – Thinktanks – Media – NGOs – Other sources |
| What’s measured | 35 key issues that cover 10 themes in the 3 pillars: Environment, Social, and Governance. | Three building blocks: Corporate Governance, 20 material ESG issues (MEIs), and idiosyncratic ESG issues. | 10 Categories rolled into 3 pillars: Environment, Social, and Governance. | 100 industry-specific questions cover three dimensions: Environmental (“E”), Social (“S”), and Governance & Economic (“G”). |
| Metrics: The Scoring Methodology | – ESG Industry Materiality Map – Industry-specific weights for relevant ESG risks and opportunities. | Three-stage process: – Determining exposure. – Assessing management and the degree to which risk is managed. – Calculating unmanaged risk. | – Relative sum of category ESG Score – Industry-specific category weights E&S, Industry agnostic weights for G. – ESG Controversy (ESGC) score captures negative ESG news. | – 61 industry-specific sets of questions and weights. – Multiplier to adjust criterion scores downward in proportion to any negative ESG news. |
| Scoring Scale | Letter Grade from CCC to AAA classifies company as Laggard, Average, or Leader in ESG. | Score categorized across five risk levels: Negligible (0-10), Low (10-20), Medium (20-30), High (30-40) and Severe (40+). | A score between 1-100 indicates relative ESG performance and position in the First, Second, Third, or Fourth Quartile. | Overall ESG score as well as individual scores for the three dimensions, with 100 being the best score in each case. |
5 Key Takeaways
The review of the four different rating providers and their methodologies, reveals the following conclusions:
A variety of indicators and weights lead to different scores
All score ratings consider industry-specific ESG risks and opportunities and how a company manages, measures, and reports on ESG factors. The different scores are the result of considering a variety of indicators and weights for these indicators.
Your ESG disclosures and the quality of the data are important
No matter the provider, ESG ratings depend on the quality of your disclosures and the data in your disclosures. The data must be transparent and reliable; targets must be clear, and actions toward achieving the targets should be clearly defined.
Back your disclosures with clear actions
The review emphasizes the importance of actions to back the disclosures to achieve your targets. Not backing up your disclosures with clearly demonstrated actions will result in negative media coverage and lead to lower ESG scores.
ESG ratings compare you with peers in your industry and sector
In addition to the scores, ESG rating providers rank you in your industry or sector. It is critical to be aware of ESG factors material to your company. This will help you stay ahead of your competition and benefit from sustainability-related best practices for your industry.
ESG fund managers use scores to select companies
Ratings are used by fund managers to select companies for their ESG funds and to select constituents of ESG indices. This further reinforces that you need to pay attention to your ESG scores. Good scores help you capture money allocated to your company through ESG-based investment strategies.
