More and more companies are choosing to measure their sustainability commitment through an ESG rating, a tool that assesses their environmental, social and governance practices.
A strong ESG rating enhances a company’s credibility and makes it easier to seize new business opportunities, such as strategic partnerships, more favourable financing terms and tenders that reward sustainability performance.
What is an ESG rating and who issues it?
An ESG rating is an independent evaluation that measures how sustainable a company is across three dimensions: environmental (E), social (S) and governance (G).
It is issued by specialised agencies that apply specific criteria and methodologies, turning the way a company manages ESG issues and risks into an objective score.
ESG ratings are not only a reference point for investors and other stakeholders, helping them identify more responsible companies with lower exposure to non-financial risks. They also serve as a practical tool for companies themselves, providing a clear view of how effective their current practices are and where improvements can be made.
The most widely recognised ESG rating systems at international level include EcoVadis,CDP,MSCI ESG Ratings,SustainalyticseS&P Global ESG Scores.
What does an ESG rating assess?
Each assessment is based on the following three key areas which, together, define a company’s overall level of sustainability:
- Environmental: Measures the environmental impact of business activities and the ability to manage issues such as greenhouse gas emissions, energy efficiency, use of natural resources, waste management and biodiversity protection;
- Social: Analyses how the company protects the people and communities involved in its value chain, considering aspects such as working conditions, health and safety, respect for human rights, diversity and inclusion, and relations with local communities.
- Governance: Examines the quality of decision-making and control processes, transparency, ethics, risk management, composition of governing bodies and remuneration policies.
The process for obtaining an ESG rating
Although each rating agency adopts its own specific methodology, the process generally follows common steps.
Data collection
The rating agency gathers information from different sources: it may analyse public data, company reports, independent external sources and, in some cases, also request the completion of questionnaires and the submission of supporting documentation.
Data analysis
The rating agency then evaluates the company’s ESG performance and the risks it faces in the three areas. The indicators considered cover both quantitative aspects (e.g. data on emissions, accidents, resource consumption) and qualitative aspects (e.g. effectiveness of procedures, governance structure).
Weighting and calculation of the final score
Not all ESG aspects have the same importance. The weighting of factors varies according to the sector: for a manufacturing company, for example, environmental issues related to emissions or waste management may carry more weight, while for a service company governance aspects such as data privacy might be more significant. Each agency uses proprietary methodologies and models to combine the various indicators and determine the final score, which may be expressed in numerical or alphabetical form, or as risk levels.
Benefits of a high ESG rating
A high ESG rating can translate into tangible benefits:
- Reputation and stakeholder trust: A strong score shows that sustainability is an integral part of the company’s strategies and practices, not just a declared commitment.
- Easier access to financing: A higher rating can lead to more favourable credit conditions and makes the company more attractive to sustainability-oriented investors.
- Competitive advantage in tenders and bids: Having an ESG rating can strengthen the company’s position in tenders that reward ESG aspects, increasing the chance of obtaining additional points.
- Understanding and improving performance: It is not only a tool for stakeholders but also for the company itself, which can use it to identify strengths and the areas that need intervention in order to grow sustainably.
In summary, a high ESG score enables a company to stand out from competitors, gain easier access to capital and strategic partnerships, and consolidate its long-term reputation.
Discover your ESG performance
At Kyklos Carbon, we support companies on their journey towards sustainability by helping them measure, manage and enhance their ESG practices. Through targeted analyses and tailored consulting, we guide organisations in integrating ESG criteria into their business strategy.
Get in touch to schedule a personalised consultation and discover how to strengthen your ESG performance.
Contattaciper una consulenza personalizzata e scopri come migliorare le tue performance ESG.
ESG rating: what it is, how to obtain it and why it matters for companies