Cadwalader’s “ESG Ratings: A Call for Greater Transparency and Precision” explains the aim of ESG ratings, and discusses ESG factors, weightings, and other methodology approaches used by five of the major ratings providers (MSCI, Refinitiv, Sustainalytics (owned by Morningstar), RepRisk, and S&P Global), accompanied by illustrative graphics that show how the ratings are applied to one company in practice, frequently resulting in wildly divergent ratings for the same company from different providers. A “cheat sheet” table summarizes the data sources, company involvement (if any), methodology, rating scale, public accessibility, and updating cadence of each of the foregoing providers. The memo also provides a brief overview of asset managers’ use of ESG ratings (which varies widely across investors) and regulatory approaches (or the absence thereof) in the US and worldwide.
See our recent reports: “Study Shows Widespread Use of 3rd Party and Proprietary ESG Ratings”; “ESG Ratings Variances Increase”; “ESG Ratings Management: Here’s How” and "ESG Ratings are in the Eye of the Beholder"; and additional resources on our Sustainability page >>Ratings/Raters.
This post first appeared in the weekly Society Alert!