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ESG Ratings: How They're Scored and Why They Disagree

ESG ratings score how companies manage environmental, social and governance issues. Providers use different methods, so their ratings often disagree.

ESG Ratings: How They're Scored and Why They Disagree

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What are ESG ratings?

  • ESG ratings are third-party assessments of how a company manages environmental, social and governance risks, or in some cases its impact.
  • Providers draw on company disclosures, regulatory filings, news, and their own questionnaires and models.
  • Output formats vary: letter grades, numeric risk scores or peer percentiles.
  • In the U.S., ESG rating providers are not registered or supervised the way credit rating agencies are; the EU began regulating them in July 2026.
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Full Guide

What are ESG ratings?

  • ESG ratings are third-party assessments of how a company manages environmental, social and governance risks, or in some cases its impact.
  • Providers draw on company disclosures, regulatory filings, news, and their own questionnaires and models.
  • Output formats vary: letter grades, numeric risk scores or peer percentiles.
  • In the U.S., ESG rating providers are not registered or supervised the way credit rating agencies are; the EU began regulating them in July 2026.

Why do ESG ratings from different providers disagree?

  • Scope differs: providers choose different issues to include.
  • Measurement differs: the same issue can be scored with different metrics and data.
  • Weighting differs: providers weight issues differently by industry.
  • Academic studies have found agreement between major ESG raters to be far weaker than agreement between credit ratings.

Do ESG ratings measure risk or impact?

  • Many ratings measure financial materiality: how ESG issues may affect the company, not how the company affects the world.
  • Double materiality, used in EU reporting rules, considers both directions.
  • SASB standards, now maintained by the ISSB, identify industry-specific financially material issues; GRI standards focus on impacts.
  • Industry-relative scoring means a high-emitting company can rate well if it outperforms its peers.

Limits of ESG scores

  • Ratings rely on past data and current policies, so they can lag real changes.
  • Companies that publish more disclosure can score higher, which tends to favor larger firms.
  • Blending E, S and G into one number can hide the details that matter for a specific concern.
  • Controversies may reach a rating only after they have affected the stock price.

Where does ESG disclosure regulation stand in 2026?

  • The ISSB published its first global sustainability disclosure standards, IFRS S1 and S2, in June 2023; adoption varies by jurisdiction.
  • The EU's Omnibus I directive, adopted in 2026, narrowed CSRD reporting to companies with more than 1,000 employees and €450 million in turnover.
  • The SEC's 2024 climate disclosure rules never took effect; the SEC stopped defending them in 2025 and proposed rescinding them in 2026.
  • Better disclosure may narrow disagreement between raters, but different methods will keep producing different scores.

Key takeaways

  • ESG ratings are opinions built on differing scopes, metrics and weights.
  • Many measure financial risk to the company rather than its impact on the world.
  • Treat a rating as one input and look at the underlying pillar scores and data.
  • Disclosure rules are still shifting in the U.S. and EU.
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