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Sustainable Business

ESG Ratings

ESG Ratings, also referred to as 'scores', are used as a measure of a company's environmental, social, and governance performance. They are intended to be used as metrics that inform investment decisions alongside traditional financial and industrial indicators. A range of ESG criteria is used in scoring.

 

Key ESG Scoring Criteria (source: OECD)

Table of ESG scoring criteria, with three columns. Column 1 is "Environmental Factors", which are listed as natural resource use, carbon emissions, energy efficiency, pollution/waste, and environmental opportunities. Column Two is "Social Factors", which are workforce, human rights, diversity, and supply chain. Column Three is "Governance factors" which are board independence, board diversity, shareholder rights, management compensation, and corporate ethics.

 

ESG Ratings are calculated by well-known agencies and firms, including Bloomberg, Dow Jones, MCSI, Sustainalytics, Refinitiv, S&P Global, FTSE Russell, and Moody's, as well as sustainability-focused firms and organizations like CDP, Corporate Knights, and RepRisk. 

Limitations of ESG Ratings

  • Standardization: ratings agencies use varying approaches and measures in the determination of ESG Ratings, including differing categorization and weighting of environmental, social, and governing criteria
  • Greenwashing: companies have been found to misrepresent their sustainability efforts, which can falsely inflate their ESG Rating. This is further complicated by the wide variance in sustainability standards and reporting practices among firms in the U.S.

Learn more about the components and providers of ESG Ratings here.

ESG Ratings on the Web

Subscription Databases for ESG Ratings

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