Types and Providers of ESG Ratings

ESG (Environmental, Social, and Governance) ratings are key metrics that help investors, regulators, and companies assess sustainability performance and risk management practices. Understanding the different types of ESG ratings—and the agencies that provide them—can empower sustainability professionals to more effectively benchmark and improve their corporate practices.

Unsolicited ESG ratings are conducted independently by rating agencies without direct input from the companies they assess. These assessments rely on publicly available information, including sustainability reports, regulatory filings, media releases, and other open-source data. They tend to offer an external, objective view on a company’s performance in terms of ESG factors, helping investors compare companies in a similar industry based on standardized metrics.

Key Characteristics

• Independence: Companies are not actively involved; ratings are derived solely from available external data.

• Transparency: Ratings methodologies are published and follow consistent protocols across companies.

• Comparability: They enable benchmarking among peers, facilitating decisions for investors and analysts.

List of Major Unsolicited ESG Rating Providers

1. MSCI ESG Ratings

   • Assesses companies using an industry-specific approach. The ratings, ranging from AAA (leader) to CCC (laggard), reflect a company’s ability to manage ESG risks relative to its industry.

2. Sustainalytics ESG Risk Ratings

   • Focuses on a company’s exposure to ESG risks along with how effectively these risks are managed, resulting in a risk score used by many institutional investors.

3. Bloomberg ESG Ratings

   • Evaluates companies based on a broad range of ESG indicators sourced from public disclosures, news, and other data channels.

4. CDP Scores (formerly Carbon Disclosure Project)

   • Concentrates primarily on environmental performance, specifically climate change, water security, and deforestation, assessing corporate transparency and progress in environmental management.

5. FTSE Russell ESG Ratings

   • Provides ratings and data aligned with the UN Sustainable Development Goals (SDGs), tailored to support asset allocation decisions.

6. ISS ESG Ratings & Rankings

   • Offers a comprehensive view of non-financial performance, measuring material ESG risks across companies and ranking them accordingly.

7. Refinitiv ESG Scores

   • Based on a wide array of ESG data, Refinitiv’s scores reflect a company’s performance and performance trends over time.

8. RepRisk ESG Risk Scores

   • Aggregates risk-related information from multiple sources to offer insights into potential reputational and operational issues stemming from ESG controversies.

9. Moody’s ESG (through Vigeo Eiris)

   • Combines ESG insights with credit risk analysis to inform how sustainability performance impacts a company’s creditworthiness.

10. Thomson Reuters ESG Research Data

    • Uses an extensive database to generate scores and rankings that help investors identify both risks and opportunities associated with ESG performance.

11. S&P Global ESG Scores

    • Measures ESG performance through data analytics and expert assessments, providing scores that reflect sustainability practices integrated with financial analysis.

12. Egan-Jones ESG Scores

    • Provides additional insights based on both qualitative and quantitative aspects of ESG performance, supporting a deeper dive into company practices.

Solicited ESG ratings are assessments conducted at the company’s request. In this model, companies actively participate by submitting detailed information about their internal processes, sustainability strategies, and performance metrics. This collaborative process often results in a more comprehensive and context-rich evaluation, which can be useful for internal benchmarking, external communications, and in some cases, preemptive risk management.

Key Characteristics

• Collaboration: Companies can provide data that may not be publicly available, leading to a more detailed rating.

• Customization: The ratings might be tailored to reflect the company’s unique circumstances, sector-specific challenges, or sustainability initiatives.

• Enhanced Engagement: Facilitates dialogue between the company and the rating provider, which may help in addressing specific sustainability challenges.

List of Notable Solicited ESG Rating Providers

1. EcoVadis

   • Offers a platform where companies supply detailed self-reported data. Their assessments cover environmental, labor practices, ethics, and sustainable procurement, making it a popular tool for supply chain sustainability evaluations.

2. Standard Ethics Ratings (SER)

   • Provides ratings based on a direct assessment of a company’s adherence to international sustainability, governance, and ethical guidelines, often aligning with criteria from organizations such as the UN, OECD, or EU.

3. Other Emerging Assessments

   • While the above two are among the most established, there are niche players and tailored services offered by consulting firms or specialized agencies that provide bespoke ESG assessments driven by company participation. These are particularly common in sectors with specific challenges, such as resource extraction or technology, where contextual information is crucial.

Why ESG Ratings Matter

• Investor Relations: ESG ratings influence investment decisions, with many institutional investors relying on these scores to allocate capital toward sustainable enterprises.

• Risk Management: A strong ESG profile can signal lower risk exposure, especially in areas related to environmental compliance, social controversies, or governance lapses.

• Reputation and Market Positioning: High ratings may bolster a company’s reputation, offering competitive advantages and opening doors to new markets.

• Regulatory Compliance: As global regulations evolve, companies with robust ESG practices are better positioned to meet compliance requirements like the EU’s Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR).

• Transparent Reporting: Ensure that sustainability disclosures are both comprehensive and verifiable. Utilizing established frameworks like GRI or integrated reporting can help in this regard.

• Continuous Improvement: Use ratings as a benchmarking tool to identify areas for improvement and drive strategic initiatives.

• Stakeholder Engagement: Engage with investors, customers, and other key stakeholders to understand what ESG factors are most material, and update reporting practices accordingly.

• Leverage Both Solicited and Unsolicited Ratings: Recognize that while unsolicited ratings offer an independent external perspective, solicited ratings allow for a more controlled and tailored disclosure process. Companies might benefit from monitoring both to get a well-rounded view of their performance.

ESG ratings offer critical insights into a company’s sustainability performance and risk profile, whether assessed through unsolicited methods based on publicly available data or solicited processes involving direct company participation. By understanding the distinctions between these approaches and the range of providers available—from global players such as MSCI, Sustainalytics, and S&P Global in unsolicited ratings to engaged platforms like EcoVadis and Standard Ethics in solicited evaluations—sustainability professionals can better manage, communicate, and improve their corporate sustainability strategies.

For companies seeking to deepen their ESG practices, using a dual approach can provide a balanced picture that not only aligns with investor expectations but also drives internal sustainability improvements.