ESG Ratings Explained: How MSCI, Sustainalytics and CDP Score Companies
ESG ratings explained for people who have to deal with them: this guide sets out what an ESG rating actually measures, how the three names you meet most often, MSCI, Sustainalytics and CDP, each score companies differently, and why the same business can look like a leader on one scale and a laggard on another. Understanding the methodology is the only way to read a rating sensibly.
An ESG rating is a third party's summary judgement of how a company handles environmental, social and governance issues. Investors use them to screen and compare businesses, and companies increasingly find themselves rated whether they asked to be or not. The catch is that there is no single agreed method, so the providers do not measure the same thing, and their scores often disagree.
What an ESG rating is trying to capture
Most ESG ratings are built to answer one of two questions, and it is vital to know which one you are looking at. Some measure ESG risk: how exposed a company is to environmental, social and governance issues that could damage its value, and how well it manages that exposure. Others measure ESG performance or leadership relative to peers: how good the company looks against others in its industry. Those are not the same, which is the first reason ratings differ.
Ratings also lean heavily on what a company discloses. A business that publishes detailed, structured data tends to score better than an equally responsible one that stays quiet, simply because the raters can see more. That is why disclosure and a solid ESG report feed directly into your ratings.
MSCI ESG Ratings: AAA to CCC
MSCI rates companies on a familiar-looking letter scale from AAA and AA (leader), through A, BBB and BB (average), down to B and CCC (laggard). The rating is industry-relative: MSCI identifies the ESG risks most financially material to a company's sector, then scores how well that company manages them compared with its peers. A high MSCI rating therefore means "strong relative to others in the same industry", not "perfect in absolute terms". You can read MSCI's own explanation of the methodology on its ESG Ratings page.
Sustainalytics: a risk score where lower is better
Sustainalytics, owned by Morningstar, takes the opposite visual approach. Its ESG Risk Rating is a number where a lower score is better, because it measures the amount of unmanaged ESG risk a company carries. The score sorts companies into five bands: negligible, low, medium, high and severe risk. Unlike MSCI, the Sustainalytics score is designed to be comparable across industries, not just within them, so a software firm and an oil producer can be placed on the same absolute scale. If someone quotes a company an ESG score of, say, "18, low risk", that is the Sustainalytics style.
CDP: disclosure graded A to D-
CDP, once the Carbon Disclosure Project, is different again. It is a disclosure system rather than a broad ESG opinion. Companies respond to detailed questionnaires on climate change, water security and forests, and CDP grades each response from A (leadership) down through B, C and D, with D- at the bottom and an F for companies that were asked to disclose but did not. A CDP A-list place is a widely recognised signal on environmental transparency specifically, so it is narrower than MSCI or Sustainalytics but respected in its lane. CDP explains its bands on its own scores page.
Why the same company gets different scores
It is common for one business to be rated a leader by one provider and middling by another. This "aggregate confusion" happens for three reasons: the providers measure different things (risk versus leadership versus disclosure), they weight the E, S and G elements differently, and they rely on different data, some of it estimated where a company has not disclosed. Academic studies have repeatedly found only weak correlation between the major ESG raters. The practical lesson is to never treat a single rating as the truth. Read which provider it is, what their scale means, and ideally look at more than one.
What this means for your business
If your company is being rated, the levers you control are disclosure and management. Publish clear, structured data on the issues material to your sector, respond fully to the CDP questionnaire if you are asked, and make sure your governance and policies are visible, not just in place. Start from a proper materiality assessment so you are reporting on what actually moves your score, and build it into a coherent ESG strategy rather than chasing ratings for their own sake. For the wider context, the E-Business Ethics homepage links the full set of ESG and governance guides.
Frequently asked questions
What is an ESG rating?
An ESG rating is a third party's assessment of how well a company manages environmental, social and governance issues. Investors use them to compare and screen businesses. Different providers measure different things, so a rating is only meaningful once you know whose scale it is and what that scale represents.
Is a high or low ESG score better?
It depends on the provider. On MSCI's scale, higher is better, running from AAA down to CCC. On the Sustainalytics ESG Risk Rating, lower is better, because the number represents unmanaged risk. On CDP, an A grade is the best. Always check the direction of the scale before reading a score.
Why do MSCI and Sustainalytics give different ratings?
Because they are built to answer different questions and use different methods. MSCI scores companies relative to their industry peers on financially material risks, while Sustainalytics measures the absolute level of unmanaged ESG risk across industries. They also weight issues differently and use different data, so their scores frequently disagree for the same company.
Do companies pay to be rated?
Generally, MSCI and Sustainalytics rate companies whether or not they ask, drawing on public disclosure and other sources, so a company cannot simply buy a good score. CDP is a disclosure system that companies respond to when invited. In all cases, the reliable way to improve a rating is better disclosure and genuine management of the underlying issues.
Which ESG rating matters most?
None on its own. MSCI and Sustainalytics give broad ESG views from different angles, while CDP focuses on environmental disclosure. Investors and buyers often look at several, so the sensible approach is to understand each scale and manage the substance behind them rather than optimising for a single provider.