ESG (Environmental Social Governance) scores or ratings measure a company’s ESG efforts. These scores help communicate a company’s sustainable business practices to both stakeholders and investors. They also assist companies in understanding their ESG shortcomings and how they might improve their ESG strategy or ESG reporting.
In this guide we’ll discuss the importance of ESG scores, known challenges with score standardization, how to find your score, and how to improve your score. We additionally detail the 9 most popular ESG rating agencies to help compare and contrast their value and relevance for your company.
Table of Contents
- What Is an ESG Score?
- ESG Score vs ESG Rating
- What Is a Good ESG Score?
- Why Are ESG Ratings Important?
- Challenges With ESG Scores
- How to Find a Company’s ESG Score
- ESG Rating Agencies Comparison [INFOGRAPHIC]
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- Bloomberg ESG Ratings
- CDP Scores
- FTSE Russell’s ESG Ratings
- MSCI ESG Ratings
- Refinitiv ESG Scores (formerly “Reuters ESG Scores”)
- RepRisk ESG Risk Scores
- Sustainalytics ESG Risk Ratings
- How to Improve an ESG Score
What Is an ESG Score?
An ESG score or rating is the measure of a company’s environmental, social, or governance perceived risk or overall performance. These scores are used by investors who want to understand a company’s long-term risk as well as by consumers who wish to make more informed purchasing decisions.
Most of the time, an ESG score or rating is given based on how a company performs when compared to its peers. These scores take into account everything from how a company manages environmental risks to how well it emphasizes workplace diversity.
Of course, score and rating criteria will differ depending on the rating agency delivering the score.
ESG Score vs ESG Rating
ESG “score” and ESG “rating” are used often interchangeably. A key difference lies in the use of numerical scores and letter ratings, which differs between rating agencies.
For example, MSCI uses letter ratings ranging from CCC (Laggard) to AAA (Leader). ISS uses numerical scores ranging from 1 (best) to 10 (worst). Other organizations such as publish sustainability ratings in classes, like “S&P Global Silver Class.”
Regardless of whether an agency uses a score or a rating, the goal of the result is still the same: to show a company’s ESG performance in a tangible, comparable way.
What Is a Good ESG Score?
A “good” ESG score will differ depending on the rating system. High scores aren’t necessarily best. For example, using DJSI, Refinitiv, or Bloomberg a score of 0 is poor. However, using Sustainalytics, a score of 0 is best (negligible risk.)
For companies who wish to achieve a good ESG score, the goal should be to meet ESG best practices. Companies can do so in many ways. For example, they can perform materiality assessmentsto determine ESG goals, follow ESG frameworks, and publish relevant ESG disclosurereports to communicate their efforts.
Why Are ESG Ratings Important?
ESG ratings are important to communicate ESG goals and progress with stakeholders and potential investors. For example, ESG ratings:
- Assist investors in understanding business risk: Many potential investors believe there’s a connection between ESG performance and business success. For the sake of good returns, many investors prioritize investing in companies with promising ESG scores.
- Underscore a company’s dedication to ESG for employees: Potential employees want to ensure a company’s values align with their own. This is why many often look to a company’s ESG strategyand applicable ratings when considering employment.
- Highlight a company’s ESG efforts to consumers: Consumers are becoming more and more conscious of the products and services they purchase. Many are looking to do their part in protecting our planet and society by purchasing from companies with strong ESG policies. ESG scores shed light on a company’s ESG efforts on behalf of consumers.
- Help companies pinpoint ESG shortcomings: One of the key benefits of an ESG score is its ability to pinpoint opportunities and risks within a company’s ESG strategy. For example, poor performance in a specific area can help companies understand the changes required to reduce risk and reach their goals. The shortcomings might simply be with how clear the company did (or did not) report on specific factors.
Challenges With ESG Scores
Although ESG scores are useful tools for stakeholders, they can be problematic as various challenges exist.
- Data quality is often subpar: Perhaps the most pressing challenge with ESG scoring is the lack of quality data. Companies must report data on their own, which leaves room for data manipulation, lack of transparency, or simply incomplete data. Rating agencies might also use third parties to obtain a company’s ESG data. Data or assumptions used to determine an ESG score might not be accurate and could be a poor or exaggerated reflection of a company’s ESG efforts.
- ESG score regulation is non-existent: While calls have been made to regulate ESG ratings, no regulation currently exists. Rating agencies are free to follow their own methodologies and requirements for scoring.
- Different methodologies exist between agencies: The different methodologies between agencies leave room for discrepancies. For example, a company might have a different score depending on the rating system used. This can lead to confusion for companies and stakeholders.
How to Find a Company’s ESG Score
Do you know your company’s ESG score? Even if you didn’t disclose an ESG report, you still might have a public score.
To find a company’s ESG score, first try Googling the company’s name plus “ESG score”. (Google query example: microsoft esg score) For specific scores, visit the rating agency website directly. Some popular score lookups include:
- MSCI – Corporate ESG Ratings & Climate Search Tool
- ISS ESG Gateway - Corporate Scores & Fund Ratings
- Sustainalytics – Company ESG Risk Ratings
- Refinitiv – Company ESG Scores (formerly Reuters ESG Scores)
ESG Rating Agencies
Many ESG rating agencies exist around the world today. The following are some of the most commonly used for ESG scoring.
