ESG Ratings and Scoring Systems Guide
MSCI rates Tesla CCC (worst) in its industry. Sustainalytics rates Tesla Medium Risk. S&P Global gives Tesla a top-quartile ESG score. Three different agencies, three different conclusions. Here's how ESG ratings work and why they disagree.
ESG rating agencies evaluate companies on environmental, social, and governance factors and assign scores. These scores are used by investors to screen funds, construct portfolios, and engage with companies. The problem: rating agencies use different methodologies, weight different factors, and reach different conclusions. The MIT Sloan study "Aggregate Confusion" found the average correlation between ESG ratings from different agencies is only 0.54 — compared to 0.99 for credit ratings. This inconsistency makes ESG ratings a useful starting point but not a definitive assessment.
Why ratings disagree: Different agencies weigh categories differently. MSCI focuses on environmental factors and industry-specific materiality. Sustainalytics emphasizes management of ESG risks. S&P Global uses a comprehensive questionnaire-based approach. The same company can be ESG leader or laggard depending on which rater you use.
MSCI ESG Ratings
MSCI rates companies on a scale of AAA (leader) to CCC (laggard) based on exposure to industry-specific ESG risks and how well those risks are managed. Methodology: MSCI identifies key ESG issues (31 issues across 10 categories) weighted by industry. A company's score is based on its performance on the most material issues for its industry. Tesla scores CCC (worst) under MSCI due to poor labor relations, autopilot safety concerns, and governance issues — despite being a leader in EVs (environmental). MSCI's industry-relative methodology means a bank can receive an AAA score for having better ESG practices than other banks, even if banking has negative environmental impacts. MSCI Fund Rating: Funds receive an ESG Quality Score (0-10) and a rating from CCC to AAA based on holdings' ESG scores.
Sustainalytics ESG Risk Ratings
Sustainalytics (a Morningstar company) rates companies on ESG risk — the extent to which a company's economic value is at risk from ESG factors. Scale: Negligible (0-10), Low (10-20), Medium (20-30), High (30-40), Severe (40+). Unlike MSCI's opportunity-focused approach, Sustainalytics focuses on unmanaged risk. A company can have high ESG exposure (being in a carbon-intensive industry) but low risk if it manages those risks effectively. Tesla scores Medium Risk (around 25) because its exposure to labor relations and product safety risks is partially managed. Sustainalytics also provides Controversy Ratings (1-5) flagging incidents with high reputational or financial impact.
S&P Global CSA Scores
S&P Global's Corporate Sustainability Assessment (CSA) evaluates companies based on an annual questionnaire covering 61 industry-specific criteria across economic, environmental, and social dimensions. Scores range from 0-100. The CSA methodology is unique because it relies heavily on company responses (verified by S&P), not just public data. Companies must actively participate. The result: companies with strong sustainability teams and reporting capabilities score higher. The CSA score determines membership in the Dow Jones Sustainability Indices (DJSI). S&P Global ESG Score: Combines the CSA score with an analysis of media and stakeholder controversy. Scores are used in S&P Global's credit rating process — poor ESG scores can negatively impact credit ratings.
ISS ESG and Other Providers
ISS ESG (part of Institutional Shareholder Services) rates companies from A+ to D- on environmental and social performance plus governance quality. ISS ESG also provides Controversy Screening and SDG Impact Ratings aligning with UN Sustainable Development Goals. Refinitiv (LSEG): Scores companies from A+ to D- based on 630+ ESG metrics across 10 categories. Bloomberg ESG: Provides transparent, numeric ESG disclosure scores based on what companies actually report (not estimated data). CDP (Carbon Disclosure Project): Rates companies A-F on climate change, water security, and deforestation disclosure and performance. CDP's climate scores are the most widely used carbon-specific metric.
How to Use ESG Ratings as an Investor
Cross-reference at least two rating providers before drawing conclusions. If MSCI and Sustainalytics both rate a company poorly, the assessment is more reliable. Focus on the ESG issues most material to each industry — carbon emissions matter more for utilities than for software companies. Controversies matter more than scores — a single major controversy (oil spill, data breach, labor violation) can destroy value regardless of the company's overall rating. Read the methodology behind the rating. Understand what is being measured (risk, opportunity, or disclosure) and what is excluded. And remember: ESG ratings measure ESG factors, not investment quality — a low-rated company can be a great investment if priced correctly.