How to Tell If a Company Has High ESG Scores

Environmental, social, and governance (ESG) scores are an essential tool for investors to assess a company’s sustainability and ethical performance. These scores typically range from 0 to 100, with a score of less than 50 considered relatively poor and more than 70 considered good.

Below, we will guide you through the basics of ESG scores, their key components, who the main rating agencies are, and how to access them—as well as provide some insight into their implications for investors.

Key Takeaways

ESG scores provide a measure of a company’s environmental, social, and governance performance.
Various criteria are used to evaluate companies on these three dimensions.
Third-party ESG rating agencies offer different methodologies and scoring systems.
ESG scores can be found online via brokerage platforms, financial portals, and rating agency websites.
Investors use ESG scores to make informed investment decisions and assess the sustainability of a company’s operations.

ESG Scores: The Basics

ESG scores are a measure of how well a company addresses risks and concerns related to environmental, social, and corporate governance issues in its day-to-day operations. These scores are important for socially responsible investors who want to invest in companies with strong ethical and sustainability practices, as they provide insight into a company’s long-term performance and resilience.

ESG scores can serve as a basis for comparing companies and funds across different factors, such as a company’s carbon footprint and labor practices. These individual factors are combined and weighted to come up with a single ESG score that can be found for a significant portion of publicly traded funds and securities.

However, it is essential to note that ESG scores come from different providers that have their own ratings scheme and evaluation metrics, which means they are not standardized. Moreover, some ratings firms place greater emphasis on the E, S, or G parts. This lack of standardization can lead to variations in scores for the same company across different rating agencies.

As a result, investors should use ESG scores as a starting point for their research and compare them across multiple providers to get a comprehensive understanding of a company’s sustainability performance. Furthermore, investors should also consider other factors, such as financial performance and industry trends, when making their investment decisions to ensure a well-rounded approach to evaluating potential investment opportunities.

What Do ESG Scores Measure?

ESG scores evaluate companies based on various criteria, which are classified into three main categories:

Environmental Issues

Social Issues

Labor practices
Pro-diversity efforts
Human rights
Community relations
Health and safety

Governance Issues

ESG Rating Agencies and Methodologies

ESG rating agencies are third-party companies that create ESG scoring systems. Each agency has a unique methodology and set of criteria for evaluating companies. Some rating agencies use a 0 to 100 scale, while others, like MSCI, classify companies as leaders, average, or laggards.

There are more than 140 ESG rating agencies in the United States alone, and each agency has its own methodology, which can be found on their respective websites or on resources such as the IRIS Carbon beginner’s guide to ESG rating agencies and methodologies. Below, we list some of the most influential ESG rating agencies and a brief overview of their scoring methodology.

Some of the Most Relevant ESG Rating Agencies & Data Providers

Bloomberg ESG Data: Bloomberg provides a variety of data and proprietary scores that investors can use to assess company or government disclosure and performance on a wide range of ESG and thematic issues. Bloomberg’s ESG and thematic scores can integrate into company research and portfolio construction. Bloomberg’s proprietary quant model is informed by sustainability and industry frameworks, research, and analysis to reduce noise, normalize data, address size bias, and reduce disclosure gaps.
Dow Jones Sustainability Indexes: The Dow Jones Best-in-Class World Index represents the top 10% of the biggest 2,500 companies in the S&P Global Broad Market Index based on long-term environmental, social, and governance criteria. The Dow Jones Sustainability North America Composite Index comprises the top 20% of the largest 600 North American companies based on the same criteria.
MSCI ESG Research: According to MSCI, a “leader” (rated AAA and AA) indicates that a company leads its industry in managing the most significant ESG risks and opportunities. “Average” (rated A, BBB, or BB) companies are described by a mixed or unexceptional track record of managing ESG risks and opportunities relative to industry peers. A “laggard” (rated B or CCC) trails its industry based on its high exposure and failure to manage significant ESG risks.

Sustainalytics: Sustainalytics is a leading ESG research and analytics firm. It produces ESG scores on a scale of 0 to 100, with a higher score indicating better environmental, social, and governance performance. The scores are normalized by industry to allow for comparability between companies operating in the same sector. In addition to the overall ESG score, Sustainalytics provides scores for each of the three dimensions (environmental, social, and governance) on the same 0 to 100 scale. This granularity enables investors to gain a more in-depth understanding of a company’s performance in each of the three ESG categories.
LSEG Data & Analytics: LSEG is another prominent provider of ESG scores. Its scores are presented on a scale of 0 to 100, with higher scores indicating better environmental, social, and governance performance. The scores are percentile-ranked—for example, a score of 80 would indicate that a company performs better than 80% of its peers in the same industry.
S&P Global: S&P Global uses its “Shades of Green” methodology to assess how a company contributes to “a low carbon and climate resilient future.” The ratings are red, yellow, light green, medium green, and dark green, with red being the lowest rating and dark green being the highest.

ISS ESG: ISS rates companies from a scale of A+ to D- with the letter rating corresponding to excellent, good, medium, or poor. It provides a holistic approach to rating sustainability, assessing the risk and impact on all stakeholders, including employees, suppliers, customers, ecosystems, and communities.
CDP Scores: CDP (formerly known as the Carbon Disclosure Project) focuses on environmental impact, or the “E” in ESG. CDP scores focus on individual companies and their efforts to disclose, manage, and reduce their environmental impact. Companies participating in the CDP disclosure process receive a score (A to D-) based on their transparency, risk management, and climate change mitigation efforts. A higher score (e.g., A or A-) indicates better environmental performance and commitment to addressing climate change. CDP scores are designed to incentivize companies to improve their environmental performance and provide investors with valuable information on corporate sustainability practices.

Climetrics: CDP also introduced Climetrics scores, the world’s first climate impact rating system for investment funds. This innovative rating system enables investors to make climate-conscious investment decisions by assessing the climate impact of various funds. Climetrics ratings use a scale of one to five green leaves, with one leaf representing a low climate impact score and five leaves indicating the highest climate impact score. The ratings take into account several factors, such as a fund’s portfolio holdings, its asset manager’s climate performance, and the company’s climate-related disclosures.
Corporate Knights Global 100: Corporate Knights has been ranking the world’s 100 most sustainable corporations since 2005, based on a rigorous assessment of public companies around the world with revenue of at least $1 billion. Companies are scored on each of the key performance indicators relative to their industry peers, and the top 100 performers are included in the Global 100 ranking. The list aims to showcase best practices and serve as a benchmark for investors and companies seeking to adopt more sustainable business models.

FTSE Russell ESG Scores: FTSE Russell’s ESG Scores and data model allow investors to understand a company’s exposure to, and management of, ESG issues in multiple dimensions measuring ESG risk and performance on 8,000 securities across 47 developed and emerging markets. The ESG Scores are composed of an overall rating that breaks down into underlying Pillar and Theme Exposures and Scores. The Pillars and Themes are built on over 300 individual indicator assessments that are applied to each company’s unique circumstances.
RepRisk: RepRisk produces The RepRisk Index (RRI). The RRI dynamically captures and quantifies reputational risk exposure related to ESG issues. The scale ranges from 0 to 100 with 0 to 24 denoting low-risk exposure and 75 to 100 denoting extremely high-risk exposure.

Note

ESG ratings can be based on qualitative or quantitative data or a combination of the two.

How to Obtain a Company’s ESG Scores for Free

Obtaining ESG scores for free can be challenging, as many ESG rating agencies charge for access to their data and research. However, there are some resources and platforms where you can find ESG scores or related information for free:

Yahoo! Finance: Yahoo! Finance provides sustainability scores for companies, powered by Sustainalytics. You can search for a specific stock or exchange-traded fund (ETF) on Yahoo! Finance and then click on the “Sustainability” tab to see the ESG scores.
MSCI ESG Ratings: MSCI offers a free search tool that allows you to check the ESG rating of select companies or funds. Visit the MSCI ESG Ratings website, and enter the company or fund name in the search bar.
Corporate sustainability reports: Many companies today elect to publish annual sustainability reports, which often include ESG-related data, policies, and achievements. You can usually find these reports on a company’s website in the “Investor Relations” or “Sustainability” sections.
CDP: CDP runs a global disclosure system that enables companies, cities, and regions to measure and manage their environmental impacts. While CDP scores are not ESG scores per se, they provide valuable insights into a company’s environmental performance. You can access CDP’s public disclosure data for free on its website.

Brokerage websites: Many online brokers today have ESG analytics and ratings available to their customers, although the metrics and scores featured may vary between platforms and may only be available to active customers.

Keep in mind that, while these resources can provide access to some ESG information for free, they may not offer the most comprehensive, in-depth data and analysis provided by paid ESG rating services.

What Is Considered a Good ESG Score?

Many ESG scores range from 0 to 100, with scores below 50 considered poor and scores above 70 deemed good. Other schemes feature a leaders-average-laggards scoring system that ranges from AAA to CCC.

Most scoring is carried out so that a company is comparable to peers in the same industry. Investors should research the specific rating agency’s methodology to understand how these scores are calculated and their implications.

What Can ESG Scores Tell Investors?

Investors use ESG scores to make informed investment decisions, evaluate a company’s long-term prospects, and assess the sustainability of its operations. High ESG scores indicate that a company is effectively managing environmental, social, and governance risks, which can lead to better financial performance and lower investment risk. Investors who are interested in socially responsible investing or who value ESG can use these scores to identify which potential investments are worthwhile and which should be avoided.

What Are Some Limitations of ESG Scores?

One limitation of ESG scores is the lack of standardization in methodologies and criteria used by the various rating agencies, which employ different approaches to assess and weigh ESG factors. This can lead to inconsistent results and make it difficult for investors to compare scores across different providers.

Another limitation is the potential for greenwashing, where companies may misrepresent or exaggerate their ESG efforts to improve their scores and attract SRI investors. Additionally, ESG data may be self-reported by companies, which raises concerns about data quality, accuracy, and reliability. ESG scores may also not capture all relevant aspects of a company’s sustainability performance, as certain issues may be overlooked or underestimated due to limitations in data availability or methodology.

Finally, ESG scores often focus on larger-cap companies and may not provide adequate coverage of small-cap and midcap companies, which could limit the investment universe for responsible investors.

In conclusion, while ESG scores can be a valuable tool for assessing companies’ sustainability performance, investors should be aware of their limitations and consider them as one of several factors in their investment decision-making process.

What Is the Most Popular ESG Reporting Framework?

For ESG scores to be calculated, companies must report and disclose relevant information and data. The Global Reporting Initiative (GRI) Standards are considered the most popular and widely adopted ESG reporting framework globally. Established in 1997, the GRI is an independent international organization that provides a comprehensive set of sustainability reporting guidelines for organizations of all sizes and sectors.

The popularity of the GRI Standards can be attributed to their flexibility, relevance across industries, and global recognition by various stakeholders, including investors, nongovernmental organizations (NGOs), and regulators. By adopting the GRI Standards, organizations can demonstrate their commitment to sustainability, identify and manage ESG risks, and communicate their progress to stakeholders.

Other notable ESG reporting frameworks include the Sustainability Accounting Standards Board (SASB) Standards, the Task Force on Climate-related Financial Disclosures (TCFD) Recommendations, and the United Nations Global Compact (UNGC).

The Bottom Line

ESG scores serve as a valuable tool for investors to assess companies’ environmental, social, and governance performance, enabling them to make informed, responsible investment decisions. By evaluating factors such as carbon footprint, energy efficiency, labor practices, and corporate governance, ESG scores provide insights into a company’s long-term sustainability and resilience.

However, due to the lack of standardization, potential for greenwashing, and other limitations, investors should consider ESG scores as one aspect of their investment decision-making process, rather than relying solely on them. ESG scores can be found online for free in some cases, or by subscription. Financial portals and brokerage websites may also contain ESG ratings and analytics.

By using ESG scores in combination with other financial and nonfinancial factors, investors can better identify companies that align with their values and contribute to a more sustainable global economy.

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Adam Hayes