ESG Ratings and Scores: Methodology Differences, Provider Comparison, and Rating Improvement Strategy
Published March 18, 2026 | BC ESG
The ESG Ratings Landscape and Divergence Challenge
ESG ratings have become central to investment decision-making, corporate strategy, and stakeholder engagement. Yet a critical reality persists: two different rating providers can assign significantly different scores to the same company. This divergence—with correlation coefficients hovering around 0.6 between major providers—represents a substantial challenge for investors, corporations, and policymakers relying on these assessments.
The divergence stems from fundamental differences in methodology, data sources, weighting schemes, and conceptual frameworks. Understanding these differences is essential for organizations seeking to improve their ESG performance and for investors interpreting ESG ratings in investment analysis.
Major ESG Rating Providers
MSCI ESG Ratings
MSCI is the dominant ESG ratings provider, covering approximately 7,000 public companies globally. MSCI’s approach emphasizes financially material issues.
- Scale: 0-10 (AAA to CCC letter grades)
- Methodology: Issues-based approach assessing company exposure to key ESG risks and management effectiveness
- Data sources: Company disclosures, regulatory filings, news sources, specialized databases, and proprietary research
- Sector focus: Identifies 30+ sector-specific ESG issues and weights them based on financial materiality research
- Time horizon: Emphasizes forward-looking indicators and emerging risks
- Update frequency: Ratings updated continuously as new information emerges
Sustainalytics ESG Ratings
Sustainalytics, acquired by Morningstar in 2020, rates approximately 16,000 companies with emphasis on impact materiality alongside financial materiality.
- Scale: 0-100 (Risk Rating; lower scores indicate higher ESG risk)
- Methodology: Risk-based framework assessing material ESG issues and management track record
- Data sources: Company information, government databases, NGO reports, research institutions, and ESG expert analysis
- Sector approach: ESG issue relevance weighted by materiality for each sector
- Stakeholder focus: Incorporates broader stakeholder perspectives beyond shareholders
- Update frequency: Regularly updated with research and disclosure reviews
ISS ESG Ratings
ISS ESG (Institutional Shareholder Services) provides ratings for approximately 4,000 companies, commonly used by institutional investors.
- Scale: 1-10 (decile ranking; higher scores indicate better performance)
- Methodology: Performance-based assessment comparing companies to peers on material ESG metrics
- Data sources: Company sustainability reports, regulatory disclosures, third-party data, and ISS research
- Benchmarking: Peer-relative performance assessment within industry groups
- KPI focus: Emphasizes specific, quantifiable key performance indicators
- Governance strength: Detailed governance assessment informing voting recommendations
CDP Environmental Ratings
CDP focuses specifically on climate change, water security, and forest conservation, rating approximately 18,000 companies.
- Scale: A-D letter grades (A being leadership performance, D being disclosure/awareness)
- Methodology: Disclosure-based assessment of environmental risk management and strategy
- Data sources: Direct company responses to detailed questionnaires
- Thematic focus: Climate change (Scope 1, 2, 3 emissions), water management, forest supply chains
- Action orientation: Assesses concrete actions and progress toward science-based targets
- Investor engagement: Used by asset managers representing ~$130 trillion in assets
Understanding Rating Methodology Differences
1. Issue Selection and Materiality Determination
Different providers identify different issues as material to different sectors. MSCI’s financially material approach may prioritize climate risks for oil companies while emphasizing supply chain labor practices for apparel manufacturers. Sustainalytics broadens beyond financial materiality to include impact considerations. ISS focuses on issues with measurable KPIs, while CDP specializes in environmental disclosure.
2. Data Sources and Information Availability
Provider differences in data sources significantly impact ratings. Organizations with comprehensive ESG disclosures may score higher with disclosure-focused providers like CDP, while companies with strong operational performance but limited disclosure may score better with providers emphasizing proprietary research and regulatory data.
3. Weighting and Aggregation Methods
Providers weight ESG issues and metrics differently. Some use equal weighting across the three pillars; others weight based on materiality assessment. Some aggregate component scores using mathematical formulas; others apply qualitative judgment. These methodological choices significantly influence final ratings.
4. Time Horizons and Forward-Looking Assessment
MSCI emphasizes forward-looking risk indicators, while ISS focuses on current performance metrics. This temporal difference can result in different ratings for the same company—one provider might rate highly a company implementing strong transition plans (forward-looking), while another rates current emissions performance (backward-looking).
5. Benchmarking and Comparative Assessment
ISS emphasizes peer-relative performance, meaning a company’s rating depends heavily on competitor performance within the industry. Absolute-assessment providers rate companies against universal standards, making geographic and industry comparisons more meaningful.
Comparative Analysis: MSCI vs. Sustainalytics vs. ISS ESG
| Dimension | MSCI | Sustainalytics | ISS ESG |
|---|---|---|---|
| Scale | 0-10 (AAA-CCC) | 0-100 (Risk Rating) | 1-10 (Decile) |
| Coverage | ~7,000 companies | ~16,000 companies | ~4,000 companies |
| Primary Focus | Financial Materiality | Financial + Impact Materiality | Comparative Performance |
| Update Frequency | Continuous | Regularly | Annually/As updated |
| Governance Depth | Standard | Comprehensive | Detailed (voting focus) |
| Disclosure Emphasis | Moderate | High | Moderate |
Rating Divergence: Causes and Implications
Root Causes of Low Correlation (~0.6)
The approximately 0.6 correlation coefficient between major ESG rating providers indicates substantial divergence. Key causes include:
- Issue selection: Providers identify different material issues for the same company
- Data gaps: Incomplete company disclosure requires different providers to make different assumptions
- Weighting differences: Different mathematical approaches to combining component scores
- Conceptual frameworks: MSCI’s financial focus differs from Sustainalytics’ impact consideration
- Update timing: Different refresh cycles mean providers work with different-vintage data
- Expert judgment: Proprietary research and judgment calls vary across providers
Practical Implications for Organizations
ESG rating divergence creates several challenges:
- Conflicting signals: A company receiving AAA from MSCI but low ratings from others sends mixed market signals
- Investor confusion: Portfolio construction and risk assessment become more complex with divergent ratings
- Corporate strategy: Organizations face ambiguity about which ESG issues require priority focus
- Capital access: Different investors using different rating providers may value the company differently
Strategies to Improve ESG Ratings
1. Comprehensive ESG Disclosure and Transparency
The single most impactful strategy is comprehensive ESG disclosure. Specific actions include:
- Publish detailed sustainability reports aligned with GRI Standards for transparency
- Respond comprehensively to CDP questionnaires (especially critical for climate ratings)
- Disclose material metrics across all ESG dimensions with multi-year historical data
- Implement third-party verification and assurance of ESG data (accounting firm or specialized auditor)
- Respond to investor ESG questionnaires and information requests promptly
- Maintain dedicated investor relations resources for ESG inquiries
2. Conduct Double Materiality Assessment
As detailed in the Double Materiality Assessment guide, organizations should conduct comprehensive assessments to identify material issues. This provides a foundation for strategic ESG priorities aligned with rating provider focuses.
3. Set Science-Based Targets and Measure Progress
All major rating providers reward organizations with clear, measurable targets and demonstrated progress:
- Climate: Set science-based targets (SBTi) covering Scope 1, 2, and 3 emissions with clear interim milestones
- Water: Establish reduction targets if material to operations
- Diversity: Set quantifiable diversity and inclusion targets with accountability mechanisms
- Governance: Implement specific governance improvements (board composition, executive compensation linkage, risk oversight)
4. Strengthen Governance Systems and Processes
Governance is increasingly important in ESG ratings. Key improvements include:
- Board composition: Diverse boards (gender, ethnicity, expertise) with independent oversight
- Board committees: Dedicated ESG, sustainability, or risk committees with clear authority
- Executive compensation: Link executive pay to ESG performance metrics
- Risk management: Formal enterprise risk management including ESG risks
- Ethical business practices: Anti-corruption policies, ethics training, whistleblower programs
- Regulatory compliance: Track and minimize violations across all regulatory areas
5. Implement Effective Supply Chain Management
Supply chain social and environmental performance increasingly impacts ratings:
- Supplier assessment: Comprehensive ESG assessment of critical suppliers
- Labor practices: Audits ensuring fair wages, working hours, and safety across supply chain
- Environmental standards: Supplier compliance with environmental regulations and improvement targets
- Grievance mechanisms: Accessible channels for stakeholders to report supply chain concerns
- Remediation: Documented process for addressing identified supply chain issues
6. Develop Material-Specific Improvement Programs
Organizations should prioritize specific actions relevant to their industry and material issues:
- Energy-intensive sectors: Renewable energy adoption, energy efficiency investments, Scope 3 emissions reduction
- Labor-intensive sectors: Living wages, worker development, supply chain labor practices
- Financial services: Responsible lending policies, sustainable finance instruments, ESG risk integration
- Tech companies: Data privacy, responsible AI, supply chain transparency
7. Engage Directly with Rating Providers
Proactive engagement with rating providers can improve ratings:
- Correct factual inaccuracies in published ratings through formal feedback processes
- Provide missing data and updated information that rating providers may not have accessed
- Explain strategic decisions and context that may not be apparent from public disclosures
- Understand each provider’s specific priorities and weighting systems
- Monitor rating updates and emerging assessment areas
Provider-Specific Optimization Strategies
For MSCI ESG Ratings Improvement
- Focus on financially material risks identified through formal materiality assessment
- Demonstrate management effectiveness through quantified metrics and targets
- Provide forward-looking information about risk mitigation and emerging opportunities
- Address key risk areas specific to your industry sector
For Sustainalytics Rating Improvement
- Disclose both financial and impact materiality through comprehensive sustainability reports
- Document stakeholder engagement and responsiveness processes
- Demonstrate governance systems and risk management effectiveness
- Address both shareholder and broader stakeholder concerns
For ISS ESG Rating Improvement
- Focus on quantifiable KPIs with peer-competitive benchmarking
- Ensure governance quality, board independence, and executive compensation alignment
- Provide detailed performance data comparing to industry peers
- Demonstrate governance best practices beyond minimum legal requirements
For CDP Climate Leadership
- Complete CDP Climate questionnaire comprehensively (response is critical for any climate rating)
- Disclose Scope 1, 2, and 3 emissions with transparency about data sources and boundaries
- Set science-based targets aligned with SBTi requirements
- Demonstrate concrete actions and progress on emissions reduction pathways
- Develop climate governance structures with board-level oversight
Frequently Asked Questions
ESG rating divergence stems from fundamental differences in methodology, data sources, materiality frameworks, and weighting schemes. Providers emphasize different issues, use different data (some proprietary, some public), and aggregate scores differently. Financial materiality providers (MSCI) focus on investor-relevant issues, while impact-oriented providers (Sustainalytics) consider broader stakeholder concerns.
Rather than chasing individual provider ratings, organizations should focus on genuine ESG performance improvement addressing material issues identified through double materiality assessment. Good underlying ESG performance typically improves ratings across providers, though understanding each provider’s focus areas helps with strategic disclosure and engagement priorities.
Both matter. However, rating providers can only assess what they can measure, and inadequate disclosure automatically limits ratings regardless of underlying performance. Comprehensive disclosure paired with solid performance produces the highest ratings. Some discrepancies exist where strong performance goes unrecognized due to poor disclosure, or weak performance benefits from selective disclosure.
Most rating providers update ratings annually or semi-annually. Organizations should review ratings at least quarterly to track trends, understand rating drivers, identify data gaps, and respond to material changes. Regular engagement with rating providers helps organizations understand their assessment logic and optimize their ESG strategies accordingly.
Short-term yes, but this creates reputational risk. Better disclosure may improve ratings if previous ratings were based on incomplete information. However, sustained rating improvement requires underlying ESG performance improvements. Ratings eventually decline if organizations disclose well but don’t deliver performance, damaging credibility with investors.
Related Resources
- Double Materiality Assessment: Methodology and CSRD Compliance
- KPI Design for ESG Performance: Leading and Lagging Indicators
- ESG Metrics: The Complete Professional Guide