9 Best ESG Rating Agencies – Who Gets to Grade? | The Impact Investor

Want to know where you can rely on ESG ratings to help you improve your ESG investment strategy? These are the best ESG rating agencies to help you invest better.

Knowing where to invest your money is hard. ESG scores are a great way to ensure you’re investing in companies with the best environmental, social, and governance practices. But how do you know which ESG rating agency is right for you?

These ESG rating providers have been highly rated by some of the top ESG analysts and investment professionals. They offer a variety of services, including screening stocks, conducting research on specific sectors or industries, and conducting due diligence reviews.

The best ESG rating providers provide a fair and accurate assessment of the environmental, social, and governance (ESG) risks and opportunities associated with an investment or transaction.

ESG scores can identify companies with strong ESG performance relative to their peers. The ESG rating providers we will discuss in this blog post take into account the following investment and ESG factors:

Investment risk
Financial strength & stability
Social responsibility
Environmental sustainability

The 9 Best ESG Rating Agencies

Dun & Bradstreet

Dun & Bradstreet is an international business data and analytics provider, which provides insights into company performance, trends, and ESG factors. Through its ESG analysis, Dun & Bradstreet provides companies with a comprehensive view of their sustainability performance in relation to global peers.

They offer company-level ESG scores and ratings, sector-level analysis, and a range of other data points to help organizations identify key areas for improvement or risk management. Dun & Bradstreet also offers ESG-focused research reports tailored to specific industries or countries, as well as proprietary tools to help companies track and analyze their own ESG performance.

Knowing the environmental, social, and governance risks of doing business with third parties is key to maintaining a competitive advantage in any economic climate. That’s why they provide an easy-to-understand snapshot of these rankings, including a comparison to industry averages, so you can make informed decisions about investing.

With their analysis, you’ll be able to understand what third-party ESG ratings may be holding you back from success and pinpoint where opportunities exist for gaining higher returns and avoiding costly risks. Claim your free trial of their ESG investing product to see if it’s a right fit for your goals.

Sustainalytics ESG Risk Ratings

Sustainalytics is an ESG rating and data supplier that provides ESG ratings on 20,000 companies and 172 countries. They rate 40,000 companies worldwide. Sustainalytics is a subsidiary of Morningstar, one of the largest stock market data providers in the world.

The Sustainalytics ESG ratings measure companies’ global environmental, social, and corporate governance performance. They cover about 13,000 international equities in all regions worldwide.

ESG ratings are based on both quantitative ESG data and qualitative analysis. ESG Scores cover several different areas, including governance, environmental impact, social contribution, and financial performance, to provide a holistic view of the ESG profile of companies.

Sustainalytics’s level of consistency with its information makes it one of the top firms in reporting and data for ESG.

MSCI ESG Ratings

MSCI ESG Ratings are created by MSCI ESG Research, one of the largest rating agencies. They are released for 14,000 different equity and fixed-income issuers.

MSCI ESG Ratings is generally known as one of the industry leaders in publishing scores and ratings for ESG companies.

Bloomberg ESG Disclosures Scores

Bloomberg ESG Disclosure Scores is an ESG data system that provides ESG information for over 11,800 companies in more than 100 countries.

Their ESG data includes climate change, human capital, and shareholders’ rights. The ESG Disclosure Scores rank companies on their level of ESG disclosure and span key sustainability topics.

ESG Disclosure Scores rate companies on their ESG disclosure and span key sustainability topics, including climate change, human capital, and shareholders’ rights.

FTSE Russell’s ESG Ratings

The ESG Ratings by FTSE Russel are an ESG-based assessment system of a company’s ESG performance. The ESG Ratings consist of more than 7,200 securities from 47 countries and are based on a methodical analysis of the performance at a company level.

The ratings are a way to compare and analyze the ESG performance of issuers. The ratings consist of six ESG categories, which are listed below:

Corporate Governance
Environmental Policy
Social Policy
Labor Practices
Supply Chain Policy
Country of Origin (a proxy for economic development)

The ratings focus on companies listed in the FTSE Global Equity Index Series and other large, liquid stocks.

Therefore, ESG ratings provide better insight into mid- to large-cap issuers than small-cap or micro-cap securities.

Institutional Shareholder Services Ratings and Rankings

ISS (Institutional Shareholder Services), majority-owned by Deutsche Bourse Group, provides company, country, and fund ratings as well as data and analysis across the full range of sustainable investment issues, including climate change, human rights, labor standards, corruption, and controversial weapons.

ISS ESG ratings can also help investors determine compliance with ESGs and proactively address companies’ ESG risks.

These risks and rankings are available for companies across various geographies and industries. ESGs are assessed based on company-specific key performance indicators (KPIs).

These KPIs include climate change, human rights risk assessment, pollution prevention and reduction, and supply chain management.

S&P Global ESG Scores

Standard & Poor’s Global is one of the largest companies that provides data analytics and reporting to companies worldwide.

Many ESG scorecards take a top-down approach, arguing that ESG scores should be decided by a higher entity.

S&P Global ESG Scores is different from other ESG scoring systems because it uses a bottom-up approach. The system aims to take the ESGY Scorecard directly to the industry level, which can control ESG behavior.

S&P Global ESG Scores analyzes companies’ performance in areas such as environmental practices and employee relations.

Their reporting allows investors and consumers to better understand ESG risks and opportunities. The scores can help provide more information on a company’s ESGY score, such as how well it works to minimize ESGY risks.

The ESG scores for over 11,500 companies are calculated based on company answers to S&P’s ESG questionnaire and/or publicly available data. This ESG questionnaire has over 450 questions.

The scores are assigned at the sector level, and ESG ratings for each company can be found on S&P’s ESG webpage.

CDP Climate, Water, and Forest Scores

A not-for-profit organization called CDP, which provides investors environmental data, research, and tools, helps investors identify funds that invest in companies that are more successful at addressing material concerns linked to climate change, water security, and deforestation.

Climetrics rates almost 20,000 funds, and the ratings are available publicly for free. The CDP ESG Rating is a unique rating that identifies the best ESG-integrated investment funds, based on their ESG performance.

It includes all types of fund products (i.e., mutual funds, ETFs, and separate account portfolios) and can be used by investors to identify the ESG best-in-class funds in their portfolios.

Moody’s ESG Solutions Group

Moody’s ESG Solutions Group, a Moody’s Corp. business unit. Moody’s is well-known as one of the world’s largest credit rating agencies.

This segment of their business offers ESG ratings, analytics, sustainability ratings, and sustainable finance reviewer/certifier services using Moody’s data.

The group now includes environmental, social responsibility (ESG) assessor V.E. (Vigeo Eiris) and climate data business Four Twenty-Seven, which was acquired in 2019.

Moody’s ratings are designed for investors who want ESG-related information on companies worldwide based on more than 13,000 ESG assessments.

See Related: Best Climate Change Stocks

What is an ESG Rating Agency?

The ESG (Environmental, Social, and Governance) Rating Agencies examine a company’s environmental, social, and corporate governance policies to determine its sustainability.

Investors should use an ESG rating agency’s report to determine a firm’s sustainability, allowing them to better determine which to invest in.

Universities, pension funds, social trading funds, and other institutional investors searching for long-term financial stability consider ESG ratings when making investment decisions.

The International Organization for Standardization has announced a new initiative to help businesses measure and improve their sustainability performance and reduce their carbon footprints. With certain firms doing more harm than good in this area of environmental responsibility, rating agencies must continue to hold them accountable.

The company usually hires an ESG rating agency to perform an in-depth analysis of its practices and then help it develop better policies.

ESG rating providers are also becoming increasingly popular among companies themselves, which aim for good publicity (and increased revenue)—something that can be achieved with positive ESG developments and progress.

Why Use an ESG Rating Agency?

Rating agencies and data providers are useful tools for measuring an organization’s positive or negative impact on the environment, society, and/or governance and for valuation purposes.

In other words, these three areas of concern provide a framework for analyzing investments as required by securities law. This framework also includes information on what the issuer does with investor money and how it functions in light of environmental, social, and governance issues.

Different ratings are appearing more often in conversations about investing because institutional investors have begun demanding that companies they invest in provide ESG scores before they commit capital.

These rating providers generally address the company’s practices in 7 key areas (but not limited to these):

extractive industries or energy production;
materials management;
human rights or working conditions;
community relations or Indigenous peoples’ rights;
customer relations or consumers’ rights;
product responsibility or hazardous substances and waste management;
The company’s governance is usually about transparency.

Investors can use ratings to analyze their portfolios and for businesses seeking information on how they are performing in terms of their sustainability practices. These scores can be used to offer clarity as well as set a baseline for measuring performance.

Different ESG ratings can help you determine whether an investment is socially responsible and which ESG factors the company considers when assessing its impact on society and the environment.

The Emergence of Artificial Intelligence (AI) in Research

Mosaic, an artificial intelligence consultancy, conducted a study revealing that companies increasingly adopt machine learning to find new insights into their customers.

Traditional rating agencies have also started using cutting-edge technologies, such as AI-driven businesses, to better understand the market.

AI-based services, on the other hand, frequently provide a different answer to concerns more typically associated with traditional rating agencies, such as regular updating and coverage of the firm. However, their method has disadvantages, including opacity over the validity of the data used in the evaluation.

The Deficiency of ESG scores

The lack of regulatory oversight in the United States has allowed thousands of rating platforms to generate their ESG ratings using corporate statements.

Every agency employs its analysts and algorithms to evaluate ESG metrics through disclosures.

According to a recent SEC study, the company intended to publish information on corporate climate risk management, board diversity, and other ESG issues. This practice has led to some rating agencies focusing on the quantity of information rather than quality.

In Europe, regulatory oversight is increasing, so ESG ratings will become more reliable and useful. Scores are also developed for firms listed outside of the United States, making them somewhat useless to US investors wanting to evaluate corporate responsibility.

The Senate has already passed a comprehensive bill requiring all firms to disclose their ESG standards quarterly and annually. A new disclosure procedure is being considered, which would give shareholders a better opportunity to learn the information they can’t disclose in an audited report and avoid audit failures.

The following are the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), Institutional Shareholder Services (ISS), and the Task Force on Climate-related Financial Disclosures (TCFS). Harvard Business School is developing an “impact-weighted accounting” method, and the European Union seeks to standardize ESG policies.

Final Thoughts

The importance of ESG ratings among investors is growing rapidly. ESG data and ratings, including credit ratings, are increasingly integrated into investment decisions.

For some companies, there can be only one option for improvement, and that’s reporting. Sometimes, investors develop a contradictory or “momentum” approach to ESG investing by targeting companies with low or average ratings and engaging with them to increase performance and generate alpha.

Active engagement with the most relevant rating providers can enable companies to identify improvements necessary to obtain high ESG ratings and how to best achieve these.

FAQs

Who is the best ESG data provider?

The top ESG rating agencies and data providers include Sustainalytics, MSCI ESG Research, and ESGI. These agencies share their ratings freely to provide transparency into the data they use and help companies improve their ESG practices over time.

This is good for both investors looking at ESG investing opportunities as well as corporations who are trying to adjust their current efforts in ESG. ESGI is best for ESG data and reports on companies in emerging markets. At the same time, MSCI ESG Research provides the most detailed analysis of current ESG information that can then be used to create rankings or specific investment strategies with their clients.

Sustainalytics focuses more on ESG ratings rather than providing detailed ESG data on companies, but it does provide some ESG reports and a sector-specific ESG rating report.

What is the best ESG rating agency?

Sustainalytics, MSCI ESGI, and ESGI are all top rating agencies for ESG that offer access to their information to allow investors more transparency and to help companies improve their ESG practices.

Where can I find ESG ratings?

ESG rating agencies are third-party companies that evaluate ESG risks to determine which investments or instruments are most sustainable. You can find ESG ratings using Sustainalytics, MSCI, and Yahoo! Finance.

Are ESG rating agencies regulated?

International, regional, and national rules and requirements regulate ESG rating agencies. Currently, in the United States, the SEC does not regulate rating agencies providing ESG scores.

How many ESG data providers are there?

ESG has recently become a buzzword and is now a staple of investing, leading to several data providers for this type of research. There are more than 140 different ESG data providers that provide data research in a variety of forms. Some of the most well-known data providers include MSCI ESG Research, S&P ESG Research, Ergon Associates ESW, GMO ESGI, and Maplecroft.

Related Resources

9 Best ESG Rating Agencies – Who Gets to Grade?