ESG Data and Scores

Abstract

Environmental, social, and governance (ESG) factors are becoming increasingly important in corporate and investment decision-making. By incorporating ESG considerations, investors, asset managers, and companies can align their interests to build more responsible financial products and contribute to a more sustainable world. To achieve significant social and environmental objectives, it is essential to use data and scores that are based on a double materiality approach and cover the full range of ESG dimensions. Companies that neglect to integrate ESG factors into their long-term strategy may face governance challenges as new regulations take effect and new risk exposures, including reputational risk, emerge. The benefits of ESG integration include increased long-term revenue and growth, reduced operating costs, more resilient supply chains, improved compliance, and higher levels of employee engagement, productivity, and creativity. The main barriers to ESG integration include the lack of availability and quality of raw data and the lack of standardization and transparency in ESG rating methodologies. These issues are being addressed through the development of new global frameworks and reporting standards for both financial and nonfinancial companies. A comprehensive understanding of how ESG scores are calculated can help investors better interpret the reasons behind ESG score variations and improve their own ESG assessments in the future.