ESG ratings providers are witnessing a surge in popularity as more investors and stakeholders look for trustworthy information before allocating their capital. But which providers are the best? In this list, we’ve rounded up our top choices for ESG ratings providers.
ESG ratings providers evaluate and rate companies based on their environmental, social, and governance (ESG) practices. This is done by analysts evaluating corporate disclosures, conducting management interviews, and reviewing publicly available information about an organization assessing various aspects of a business operation, policies, and performance to determine its overall sustainable and ethical behaviour.
Their ratings provide ESG benchmarks to help investors and stakeholders make informed decisions, promoting corporate transparency, accountability, and responsible business practices by highlighting ESG risks and benefits.
However, ESG ratings have some weaknesses. With so many different providers and methodologies, this may lead to inconsistent ratings for the same company, which can reduce trust among investors. There is a growing call for regulation to address this challenge.
Reputable ESG ratings providers have become influential in the market. So, below are some of the most popular ESG ratings providers on the market today.
S&P Global ESG
Main customer base: Institutional investors
Headquartered in Sweden, S&P Global ESG is a trusted name when it comes to evaluating companies’ environmental, social, and governance practices. They provide important data and ratings that help investors make sustainable investment decisions.
With their expertise, S&P Global ESG assesses how companies are performing on issues like climate change, social responsibility, and ethical governance. Their research and ratings support businesses and investors in choosing companies that prioritise sustainability.
In May, Sustainable1, S&P Global’s ESG and sustainability-focused arm, launched a new nature and biodiversity risk dataset that allows companies and investors to assess, manage and address nature-related risks and impacts too.
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MSCI ESG Research
Main customer base: Institutional investors
MSCI ESG Research is a leading provider of ESG ratings and research and providing scores based on environmental, social, and governance factors.
Their ratings are like report cards, showing how well companies are taking care of the environment, treating their employees, and being responsible businesses. With MSCI ESG Research, investors can choose companies that align with their values and contribute positively to society.
Earlier this year, the MSCI ESG tightened up its rating methodology, resulting in thousands of ETFs seeing their MSCI ESG rating downgraded, with hundreds more set to be stripped completely.
Sustainalytics
Main customer base: Institutional investors
Sustainalytics, an arm of American financial services, Morningstar, is another well-known ESG ratings provider. It helps investors understand how companies perform in terms of ESG factors, and through their analysis, Sustainalytics enables investors to choose companies that align with their sustainability goals based on their ESG risks.
With their comparison tool, you can compare yourself to three of your industry peers and get an initial indication of where your gaps might be compared to your competitors.
In April 2023, Sustainalytics unveiled its Low Carbon Transition Ratings, a new tool designed to assist investors in evaluating a company’s current alignment with a science-based net zero pathway. This assessment aims to limit global warming to 1.5 °C, providing an objective and forward-looking approach to assessing a company’s commitment to the low carbon transition.
JUST Capital
Main customer base: Stakeholders and the public
JUST Capital is a non-profit that focuses on social and environmental responsibility. They measure and rank companies based on factors like worker treatment, community engagement, and environmental impact.
The JUST 100 methodology evaluates companies in the Russell 1000 stock market index based on 20 important issues, 5 groups of stakeholders, and 245 specific data points.
According to JUST Capital, companies that make it to the JUST 100 list generally create more jobs, pay higher wages, offer more opportunities for career growth and employee benefits, produce less carbon dioxide, and have higher profits and return on investment compared to other companies in the Russell 1000.
In January, the rankings for 2023 were announced, with Bank of America Corporation, Nvidia, and Microsoft taking the top spots on the list.
JUST Capital helps investors support companies that value social and environmental causes. By using JUST Capital’s ratings, investors can make a positive impact and encourage fair and ethical business practices.
EcoVadis
Main customer base: Supply chain partners
EcoVadis is a rating agency that assesses how well companies perform in terms of sustainability. Unlike most other ratings providers on this list, EcoVadis ratings are primarily for supply chain partners to understand the sustainability performance and risks of the business.
In 2022, EcoVadis released 40,000 scorecards, with almost half of them being for newly joined companies. So far, EcoVadis has rated a total of 107,000 companies, which together employ over 90 million workers worldwide.
Depending on its comparative ranking among industry peers, EcoVadis grants recognition through various levels of achievement, including platinum, gold, silver, or bronze medals
The criteria for scorecard medals published from 1 January 2023 are as follows:
- Platinum – top 1% (overall score between 78 and 100)
- Gold – top 5% (overall score between 70 and 77)
- Silver – top 25% (overall score between 59 and 69)
- Bronze – top 50% (overall score between 50 and 58)
Previously EcoVadis rated companies include Hitachi Energy, Sappi Partners, Epson, and Samsung Biologics.
FTSE4Good
Main customer base: Institutional investors
Launched in 2001 and among the earliest sustainable indices worldwide, the FTSE4Good Index is a list of ESG stock indexes created and maintained by the Financial Times Stock Exchange-Russell Group (FTSE).
The index evaluates criteria related to environmental management, social issues, human rights, and governance. By including companies that meet these sustainability standards, FTSE4Good helps investors select investments that align with their values and promote sustainability.
At the beginning of 2023, FTSE Russell, the index provider, removed 34 groups from its FTSE4Good benchmark due to their failure to meet the newly introduced Climate Change Score. Previously, companies were only required to meet minimum ESG standards, but this marks the first time a specific climate criterion has been enforced.
