ESG Ratings – An Overview
There are several ESG (Environmental, Social, and Governance) rating systems used by investors and analysts to assess companies’ sustainability performance. Here are a few prominent ones:
MSCI ESG Ratings
MSCI ESG Ratings measure a company’s management of financially relevant ESG risks and opportunities. They use a rules-based methodology to identify industry leaders and laggards based on exposure to ESG risks and how well those risks are managed relative to peers. Ratings range from leader (AAA, AA), average (A, BBB, BB), to laggard (B, CCC).1
Sustainalytics ESG Risk Ratings
Sustainalytics provides ESG risk ratings for over 13,000 companies. These ratings help investors compare corporate sustainability performance and understand material ESG risks.2 [3].
ESG Enterprise’s Materiality Framework
ESG ratings help investors identify and understand financially material ESG risks at the security and portfolio level. They are based on a two-dimensional materiality framework that measures a company’s exposure to industry-specific material risks and how well it manages those risks.3 [2].
Other Providers
Various other organizations, such as Bloomberg, Refinitiv, and CDP (formerly the Carbon Disclosure Project), also offer ESG ratings and data.
Remember that each rating system may have its own methodology and focus areas. To get a comprehensive view of a company’s ESG performance I would recommend using multiple sources. If you’d like to explore specific companies’ ESG ratings, you can use tools like the MSCI ESG Ratings & Climate Search Tool to search by company name or ticker [4].4
How are ESG Ratings Calculated?
Data Collection
ESG rating agencies collect data from various sources, including company reports, regulatory filings, news articles, and third-party databases. They analyze both quantitative (e.g., emissions data) and qualitative (e.g., corporate policies) information.
Scoring Methodology
Each agency has its own scoring methodology. Some use a numerical scale (e.g., 0-100), while others assign letter grades (e.g., A, B, C). Companies are compared to peers within their industry.
Weighting Factors
Agencies assign different weights to E, S, and G factors based on their materiality to the industry.
For example, environmental factors may be more critical for a mining company than a software firm.
Aggregation
Finally, the scores for E, S, and G are aggregated to calculate an overall ESG rating. Some agencies also provide separate scores for each category
References
- MSCI (2024). ESG Ratings – Measuring a company’s resilience to long-term, financially relevant ESG risks. https://www.msci.com/our-solutions/esg-investing/esg-ratings ↩︎
- ESG Enterprise (2020). Introduction to ESG Ratings. https://www.esgenterprise.com/esg-reporting/what-is-esg-ratings/ ↩︎
- Sustainalytics (2024). Company ESG Risk Ratings and scores. https://www.sustainalytics.com/esg-ratings ↩︎
- MSCI (2024). ESG Ratings & Climate Search Tool – Explore the potential ESG & Climate risks and opportunities of over 2,900 companies. https://www.msci.com/our-solutions/esg-investing/esg-ratings-climate-search-tool ↩︎
