ESG scores explained: ratings, methodologies and limitations
An ESG score can help identify risks and questions to investigate, but its meaning depends on the provider and methodology. Understand the different scales, the reasons ratings diverge and the checks to make before using one in a business decision.
By Sarah Prieur · Swiss certified accountant
What is an ESG score?
An ESG score is an assessment produced using a methodology covering environmental, social and governance dimensions. Depending on the provider, it may measure risk exposure, risk management, business practices or other characteristics defined by the methodology.
There is no universal ESG grade. Two assessments may use different data, weightings and boundaries, so they are not necessarily comparable even when both present a number or a letter.
A strong rating does not automatically demonstrate an overall positive impact. Some methods primarily address ESG-related financial risks. Start by identifying the question the rating is designed to answer.
The subject of the assessment also matters: a company, group, fund or another product. A group's rating cannot automatically be presented as an assessment of a particular subsidiary or service.
How do MSCI and Sustainalytics ratings work?
MSCI and Morningstar Sustainalytics illustrate two approaches with different scales. The following comparison outlines their general principles; the detailed methodology and its version remain decisive.
| Provider and product | General purpose | How to read the scale |
|---|---|---|
| MSCI ESG Ratings | Resilience to financially relevant ESG risks and opportunities, relative to industry peers | Letter ratings from AAA to CCC; AAA is at the stronger end |
| Sustainalytics ESG Risk Ratings | Level of unmanaged material ESG risk | A lower score indicates less unmanaged risk under the methodology |
The direction of the scale is therefore not universal. It would be wrong to assume a higher number always means a better result.
Avoid artificial conversions between scales
Turning an MSCI letter into a number and averaging it with a Sustainalytics score does not automatically create a meaningful measure. The objectives, units and weightings differ.
Do not describe a Sustainalytics risk score as a universal school-style grade capped at 100. Use the exact categories and definitions of the product concerned.
Industry comparisons are not absolute impact measures
A company may compare favourably with peers while operating in an industry with significant impacts. That is a relative assessment, not a statement that the business has no impact.
Conversely, an activity viewed as environmentally beneficial may still face social, governance or execution risks. Examine the dimensions instead of inferring the rating from the sector's general image.
Why can agencies produce different results?
Differences may arise from what is measured, how it is measured and the weight given to each issue. Divergent results do not automatically mean one provider made an error.
One methodology may place more weight on governance; another may identify a particular environmental risk as critical for the industry. Available evidence and the dates it covers may also differ.
Reported data, estimates and recent events
Some data comes from company publications. Other information may be estimated or collected externally. The share of estimated data and the assumptions used affect the analysis.
A recent incident may not immediately appear in every rating. The score's publication date does not guarantee that all underlying data relates to the same financial year.
Boundaries can change the outcome
An acquisition, disposal or new activity may alter the risk profile. An assessment of a worldwide group and one limited to selected entities cover different subjects.
Check whether a rating movement reflects a change in the business or a revised methodology. An apparent improvement may not result from a recent management action.
Information availability is not performance itself
A well-documented company may be easier to assess than one that publishes little. Limited disclosure is not automatic proof of irresponsible practices, and extensive communication is not sufficient evidence of positive results.
Our explanation of ESG criteria and indicators helps you examine the data behind a rating.
How should a rating inform a decision?
A rating can identify topics for further investigation. It should not replace examination of the information and risks relevant to the actual decision.
Before using it, check the exact product name, rated entity, date, methodology, direction of the scale and main limitations. Retain the version of the document consulted.
For an investor
An ESG rating guarantees neither returns nor protection against falling value. Purchase price, profitability, debt, liquidity and other risks still require assessment.
Distinguish the objective too. Reducing certain financial risks differs from seeking measurable environmental impact or excluding particular activities. One rating may not answer all three questions.
For a customer or purchaser
A supplier assessment can help organise checks, but cannot replace verification of a specific service. Its boundary should match the entity and activities involved in the contract.
An overall rating alone does not demonstrate product traceability, site safety or compliance with a particular contractual requirement.
For SME management
The assessment may reveal missing documentation or unclear responsibilities and suggest useful questions. However, do not turn every score movement into a management priority without assessing its significance.
Corporate responsibility should remain focused on obligations, impacts and business decisions, rather than optimising questionnaire responses alone.
Prepare for or correct an ESG assessment
Identify the exact request: an agency rating, customer questionnaire, platform assessment or internal bank analysis. The process and correction rights differ.
Gather evidence supporting the responses: implemented policies, data, responsibilities, controls and outcomes. A procedure that has never been shared or used should not be described as a fully operational practice.
Correct facts rather than promise a grade
If the assessment contains an error about the boundary, workforce or a document, use the provider's feedback process. Supply dated evidence and a precise explanation.
A factual correction differs from disagreement with the methodology's weighting. A provider may correct an input without changing the overall rating.
No provider should be presented as guaranteeing a particular score in return for document preparation alone. Understand the commercial terms and any potential conflicts of interest.
Maintain reusable evidence
An internal register can record each response, source, date and owner. This helps avoid inconsistent answers to two questionnaires covering the same period.
GRI Standards can structure some information, but a GRI report does not automatically produce a particular rating. Likewise, ISSB sustainability disclosures serve a reporting purpose distinct from a provider's rating methodology.
What regulatory framework applies in 2026?
The EU regulation on the transparency and integrity of ESG rating activities has applied since 2 July 2026. ESMA supervises providers within its scope.
The framework includes notification, authorisation and transitional arrangements. Its application date does not establish that every provider has already obtained final authorisation. Verify the provider's actual status and the scope of the relevant rating product.
Regulation does not merge all methodologies into one score. It also does not guarantee investment profitability or absolute environmental quality for rated businesses.
Keep communication faithful to the assessment
FINMA highlights greenwashing risks in the presentation of financial products and services. A business or intermediary should not use a limited data point to support a much broader promise.
Accurate communication can identify the provider, date, rating product and what it measures. Respect the terms governing use of the rating and avoid implying an official endorsement that the rating does not represent.
Take particular care when using a score in marketing or investment materials. Supporting information should not become an implied guarantee.
Frequently asked questions about ESG scores
Is there one official ESG score?
No. Multiple providers and methodologies coexist. Identify the product, what it measures and how its scale works before interpreting the result.
Does an MSCI AAA rating mean a company has no negative impact?
No. Interpret it within MSCI's methodology and industry-relative assessment of financially relevant ESG risks and opportunities. It is not a declaration of zero negative impact.
Is a higher Sustainalytics score better?
For ESG Risk Ratings, a higher score indicates more unmanaged material ESG risk under the methodology. Do not read it like a school grade where a higher number is favourable.
Can a company improve its rating simply by publishing more?
Better information may address evidence gaps, but does not guarantee an improved rating. Practices, risks, events and the methodology still matter.
Does a strong rating guarantee better financial returns?
No. An ESG rating cannot independently predict investment performance or eliminate losses. Use it within a broader analysis suited to the intended objective.
