ESG Scores Explained: MSCI vs Sustainalytics vs S&P Global Ratings
- Kateryna Myrko
- Aug 11
- 6 min read
Environmental, Social, and Governance (ESG) ratings have become essential tools for investors, companies, and stakeholders seeking to evaluate sustainability performance and investment risk. However, the landscape of ESG rating agencies is complex, with significant variations in methodologies, scoring systems, and outcomes. Understanding these differences is crucial for making informed decisions in today's ESG-focused investment environment.
As of 2025, three major players dominate the ESG rating space: MSCI, Sustainalytics, and S&P Global. Each employs distinct approaches to evaluating companies' ESG performance, leading to what researchers call "ESG rating disagreement" – a phenomenon where the same company can receive vastly different scores from different agencies. ESG Scores , MSCI , Sustainalytics , S&P Global Ratings
The Current State of ESG Rating Divergence
Recent academic research reveals significant disparities among ESG rating agencies. Analysis shows relatively high correlations between ratings provided by Asset4 and Sustainalytics, while MSCI's ratings exhibit negative correlations with both. This divergence has important implications: it makes it difficult to evaluate the ESG performance of companies, funds, and portfolios, which is the primary purpose of ESG ratings, and ESG rating divergence decreases companies' incentives to improve their ESG performance.
Individual company ratings are not comparable across agencies, due to a lack of uniformity of rating scales, criteria, and objectives, making it essential for investors and companies to understand each agency's specific methodology and focus areas.
MSCI ESG Ratings: Industry-Relative Performance
Methodology and Approach ESG Scores , MSCI , Sustainalytics , S&P Global Ratings
MSCI uses a rules-based methodology to identify industry leaders and laggards, assigning each company an industry-relative letter rating from AAA to CCC based on how well they manage these risks and opportunities relative to peers. MSCI rates companies according to their exposure to industry-specific ESG risks, and opportunities and their ability to manage those risks and opportunities relative to peers.
Rating Scale and Scoring
MSCI employs a seven-tier rating system:
AAA and AA: ESG leaders with strong management of financially relevant ESG risks
A and BBB: Above-average ESG performance with room for improvement
BB and B: Below-average ESG performance with material ESG risks
CCC: Significant exposure to ESG risks with poor management practices
Key Features
Industry-relative approach: Companies are evaluated against peers within the same industry
Focus on financially material risks: Emphasis on ESG factors that could impact financial performance
Weighted scoring: Different ESG themes receive varying weights based on industry relevance
Comprehensive coverage: Over 8,500 companies globally across developed and emerging markets
Recent Updates
MSCI has announced significant changes to its ESG investment fund ratings methodology that "aim to raise the requirements for a fund to be assessed as 'AA' or 'AAA' rated, improve stability", indicating ongoing refinements to maintain rating quality and consistency.
Sustainalytics: Risk-Based ESG Assessment
Methodology and Approach
Sustainalytics takes a fundamentally different approach by focusing on ESG risk rather than performance. Their methodology provides "a coherent and consistent approach to assessing financially material risks with ESG data, research and ratings".
Rating Scale and Scoring
Sustainalytics uses a numerical ESG Risk Rating system where lower scores indicate lower risk:
0-10: Negligible ESG risk
10-20: Low ESG risk
20-30: Medium ESG risk
30-40: High ESG risk
40+: Severe ESG risk
Key Features
Risk-focused methodology: Assesses unmanaged ESG risk rather than comparative performance
Material risk identification: Focuses on ESG issues most likely to impact enterprise value
Management assessment: Evaluates how well companies manage identified ESG risks
Absolute scoring: Ratings are not industry-relative but based on absolute risk levels
Extensive coverage: Over 13,000 Corporate ESG ratings, scores, and data
Advantages and Applications
The risk-based approach makes Sustainalytics ratings particularly valuable for:
Portfolio risk management and integration
Identifying potential ESG-related financial impacts
Cross-industry comparisons based on absolute risk levels
Due diligence and investment screening processes
S&P Global ESG Scores: Peer-Relative Performance
Methodology and Approach
S&P Global ESG Scores measure a company's performance on ESG risks, opportunities, and impacts compared to their peers within the same industry classification. This approach combines elements of both performance measurement and risk assessment.
Rating Scale and Scoring
S&P Global uses a percentile-based scoring system:
Score of 1-100: Percentile ranking within industry peers
Industry-specific weights: Different ESG criteria weighted based on materiality to specific sectors
Regular updates: Scores updated regularly to reflect new information and changing conditions
Key Features
Comprehensive ESG framework: Covers over 1,000 data points across environmental, social, and governance dimensions
Industry-specific materiality: Recognizes that different ESG factors matter more in different industries
Global coverage: Extensive database covering public and private companies worldwide
Integration with credit ratings: Leverages S&P's traditional credit analysis expertise
Transparency: Detailed explanations of scoring rationale and methodology
Recent Developments
S&P Global has been enhancing its ESG offerings, with companies continuing to achieve strong ESG ratings across multiple providers, reflecting leadership in sustainability and demonstrating the growing importance of consistent ESG performance measurement.
Comparative Analysis: Strengths and Limitations
Coverage and Scope
MSCI: Strong coverage of public companies with emphasis on developed markets
Sustainalytics: Broadest coverage with over 13,000 companies including private entities
S&P Global: Comprehensive global coverage leveraging traditional credit analysis infrastructure
Methodological Differences
MSCI: Industry-relative performance focus, rules-based approach
Sustainalytics: Absolute risk assessment, forward-looking risk identification
S&P Global: Peer-relative performance with credit-integrated analysis
Industry Applications
MSCI: Popular among institutional investors for index construction and portfolio management
Sustainalytics: Preferred for risk management and due diligence processes
S&P Global: Valued for integrated financial and ESG analysis
Understanding Rating Divergence and Its Implications
Causes of Rating Differences
The variation in ESG scores across agencies stems from several factors:
Different Definitions of ESG: Each agency emphasizes different aspects of environmental, social, and governance factors
Varying Methodologies: Risk-based vs. performance-based vs. peer-relative approaches
Data Sources: Different reliance on company disclosures, third-party data, and proprietary research
Weighting Systems: Varying importance assigned to different ESG criteria
Geographic and Sector Focus: Different regional expertise and sector coverage
Implications for Users
ESG ratings agencies have been criticized for a lack of standardization in what should be measured and how, as well as a lack of transparency concerning procedures used in the rankings process. This divergence means that:
Investors should use multiple rating sources and understand each methodology's focus
Companies need to engage with multiple rating agencies to understand different perspectives
Stakeholders should interpret ratings within the context of each agency's specific approach
Best Practices for ESG Score Interpretation
For Investors
Use Multiple Sources: Don't rely on a single rating agency for investment decisions
Understand Methodologies: Know whether you're looking at risk, performance, or peer comparisons
Consider Time Horizons: Different agencies may capture short-term vs. long-term ESG impacts differently
Industry Context: Understand how industry-specific factors influence ratings
For Companies
Engage Proactively: Work with rating agencies to ensure accurate data and understanding
Focus on Material Issues: Prioritize ESG factors most relevant to your industry and stakeholders
Consistent Reporting: Provide standardized, comparable ESG data across all rating relationships
Long-term Strategy: Develop ESG strategies that address fundamental risk and performance issues
For Asset Managers
Integration Strategy: Determine how ESG ratings fit within overall investment processes
Client Communication: Clearly explain which rating methodologies align with client objectives
Performance Monitoring: Track how different ESG approaches impact portfolio outcomes
Regulatory Compliance: Ensure ESG integration meets regulatory requirements and expectations
The Future of ESG Ratings
Standardization Efforts
Regulatory bodies and industry organizations are working toward greater standardization in ESG measurement and reporting. The EU's Corporate Sustainability Reporting Directive (CSRD) and similar regulations worldwide are creating more consistent data foundations for ESG ratings.
Technology and Innovation
Rating agencies are increasingly incorporating artificial intelligence, satellite data, and alternative data sources to enhance rating accuracy and coverage. This technological evolution promises more comprehensive and timely ESG assessments.
Enhanced Transparency
In response to criticism, rating agencies are improving transparency around their methodologies, data sources, and rating rationales. This trend toward greater disclosure should help users better understand and apply ESG ratings.
ESG ratings from MSCI, Sustainalytics, and S&P Global each offer valuable but distinct perspectives on corporate sustainability performance. MSCI's industry-relative approach excels at identifying sector leaders, Sustainalytics' risk-based methodology provides forward-looking risk insights, and S&P Global's integrated approach combines ESG factors with traditional financial analysis.
The key to effectively using ESG ratings lies in understanding these methodological differences and selecting the appropriate rating approach for specific use cases. As the ESG landscape continues to evolve, investors and companies alike must remain adaptable and informed about the strengths and limitations of different rating systems.
Rather than viewing rating divergence as a flaw in the system, stakeholders should recognize it as reflecting the inherent complexity of measuring sustainability performance. By leveraging multiple rating perspectives and understanding their unique contributions, users can make more informed decisions that align with their specific ESG objectives and risk tolerance.
The future success of ESG integration depends not on finding the "perfect" rating system, but on thoughtfully applying the diverse tools available to create more sustainable and resilient investment portfolios and business strategies.