This is not unique to your organisation. ESG scoring is one of the more contested and genuinely imperfect areas of sustainability and investment analysis. Understanding how it works, why the scores diverge, and what your organisation can actually influence is more useful than either trusting the scores uncritically or dismissing them as meaningless.
What ESG Scores Are and Who Produces Them
The Purpose of ESG Ratings
ESG scores are ratings produced by third-party agencies that assess an organisation's performance on environmental, social, and governance factors. They are used primarily by institutional investors as inputs into investment decision-making, risk assessment, and portfolio screening. They also influence the composition of ESG-labelled indices, the pricing of sustainability-linked financing instruments, and increasingly the ESG assessments that supply chain customers conduct on their suppliers.
The Main Providers
The major ESG rating providers include MSCI, whose ratings run from AAA to CCC, Sustainalytics, which produces a risk score on a scale from zero to 100 where higher means more risk, S&P Global, FTSE Russell, CDP, and ISS. There is no single standard methodology, and scores produced by different providers can diverge substantially for the same company.
How ESG Scores Are Typically Calculated
Data Collection
Rating agencies collect data primarily from public sources: the organisation's own sustainability reports, regulatory filings, and publicly disclosed information. Some agencies also gather data through company surveys, third-party databases, controversy monitoring, and news analysis.
The quality and availability of publicly disclosed data directly affects ratings. Organisations that disclose more tend to score better partly because the agency has more to work with, and partly because disclosure itself is treated as a positive governance signal by most agencies.
Metric-Level Scoring
Raw data is converted into scores on individual metrics. The methodology for this conversion, including what threshold distinguishes a good score from a poor one, is where methodologies diverge most significantly. Two agencies examining the same absolute carbon emissions number may rate it very differently depending on how they have benchmarked that number against sector peers, adjusted for company size, or weighted it within the overall environmental score.
Issue and Pillar Aggregation
Individual metric scores are aggregated into issue-level scores, which are then combined into pillar scores for environmental, social, and governance, and ultimately an overall company rating. The weighting of individual metrics within each issue, and the weighting of issues and pillars in the overall score, vary between providers and typically vary by industry to reflect the different material issues facing different sectors.
Industry Adjustment
Most providers compare companies against their sector peers rather than across the whole market. A company in the extractive sector is assessed against the ESG standard for extractive companies, not against the standard for a software business. This industry adjustment produces scores that reflect relative performance within a sector rather than absolute sustainability performance, which is important context for interpreting what any given score means.
Why Scores From Different Providers Diverge
The Academic Evidence on Divergence
Academic research, including a widely cited study by Berg, Kolbel, and Rigobon, has found that correlations between ESG ratings from major providers are significantly lower than correlations between credit ratings from different agencies for the same companies. The same company can hold a top-quartile rating from one major provider and a bottom-quartile rating from another simultaneously.
The Three Sources of Divergence
Scope differences. Providers include different metrics in their assessments. One may weight biodiversity heavily while another barely addresses it. An organisation with strong performance on a metric one agency considers important and weak performance on one it does not will score very differently across agencies.
Measurement differences. Even when two agencies assess the same concept, they often measure it differently. Carbon intensity might be measured relative to revenue by one agency and relative to headcount by another, producing very different results for capital-intensive versus labour-intensive businesses.
Weight differences. The relative importance assigned to different issues, pillars, and metrics varies between providers. An agency that heavily weights social factors will produce different rankings from one that emphasises governance.
The Practical Implication
No single ESG score gives a definitive picture of an organisation's sustainability performance. Understanding which agencies your most significant investors use, what those agencies weight heavily, and where gaps in your own disclosure are affecting your score in each agency's model, is more useful than trying to optimise for a composite that does not exist.
What Organisations Can Control
Disclosure Quality Is the Primary Lever
Rating agencies work primarily from public information. An organisation that is performing well on a given metric but not disclosing it will tend to score poorly, because the agency cannot see what it is not shown. Improving the quality, completeness, and accessibility of sustainability disclosure is the single most direct lever on ESG scores that most organisations have.
Engaging Directly With Rating Agencies
Most major rating agencies offer companies the opportunity to review their data inputs and correct factual errors before a rating is finalised. This data verification or company feedback process is worth engaging with proactively, since ratings based on incorrect data can be difficult to correct after publication and create credibility risk during investor engagement if they are challenged.
Genuine Performance Improvement
The most durable basis for a good ESG score is genuine performance on the underlying metrics. An organisation systematically reducing its emissions, improving labour practices in its supply chain, and strengthening board governance will, over time, produce scores that reflect this. The relationship between performance and rating is imperfect in any given year due to methodological variation, but strong genuine performance tends to produce consistent improvement across the range of rating providers over time.
The Regulatory Direction of Travel
The EU has introduced a regulation on ESG rating activities, bringing providers operating in the EU market under an authorisation requirement and imposing transparency and governance standards. This regulation, which began phasing in from 2025, aims to improve the reliability and comparability of ESG ratings over time by requiring agencies to disclose their methodologies clearly and to separate rating activities from advisory services that could create conflicts of interest.
The regulation will not eliminate divergence between agency methodologies. That reflects genuine disagreement about how to assess complex sustainability questions rather than a problem that can be fully resolved by regulatory standardisation. But it should improve transparency about what the scores measure and how, making them somewhat easier to interpret and act on.
References and Further Reading
