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MSCI ESG Ratings Made Simple: A Guide for Everyone

Editor: Maria Gabriella, Sharah Saputra (LCI Team)

Image Source: KnowESG & MSCI Inc, 2023
Image Source: KnowESG & MSCI Inc, 2023

As sustainability becomes central to how companies are evaluated, Environmental, Social, and Governance (ESG) ratings are gaining attention among investors, regulators, and corporate stakeholders. These ratings, whether presented as numerical scores or letter grades, assess how companies perform on key ESG factors. The underlying premise is that stronger ESG ratings reflect better management of long‑term risks and opportunities related to sustainability, which may lead to more resilient financial performance.


Among the various rating providers, MSCI ESG Ratings are one of the most widely used and recognised globally. This article provides an overview of what MSCI ESG Ratings are, how they are determined, and how companies can leverage them as part of their sustainability strategy.


1. What Are MSCI ESG Ratings?


MSCI ESG Ratings evaluate how a company manages the most relevant ESG risks and opportunities relative to its peers. The ratings aim to identify companies that are more prepared to handle ESG-related disruptions that could affect  future business performance.


The ratings use a seven-tier scale from AAA (leader) to CCC (laggard). A company rated AAA is considered to have strong ESG practices and risk mitigation relative to its industry, while a CCC rating signals potential gaps or vulnerabilities.


The evaluation is industry-specific. For example:

  • A utility company may be assessed on emissions intensity and water management.

  • A technology firm may be rated on data privacy and human capital practices.


According to MSCI (2023), the ESG rating framework considers three core elements:

  • Exposure: The level of ESG risk a company faces due to its business model, operations, and location.

  • Management: The strength and effectiveness of a company’s policies, programs, and performance in addressing those risks.

  • Controversies: Incidents or events that may highlight weaknesses in ESG risk oversight or implementation.


This structure ensures that ratings reflect both inherent risk and how well a company is addressing those challenges.


2. How MSCI ESG Ratings Are Determined


MSCI uses a structured process to evaluate how well companies manage ESG risks and opportunities relevant to their industry. The methodology is designed to ensure comparability, transparency, and a forward-looking perspective. The process consists of three core components:


a. Identifying Key Issues and Exposure

For each industry, MSCI identifies between 3 to 10 relevant Key ESG Issues that are likely to affect a company’s long-term financial performance. These issues vary by sector—climate change and land use may be critical for agriculture and mining, while data privacy and human capital management are more relevant for the technology sector. MSCI then evaluates a company’s level of exposure to these issues, based on factors such as its business model, operational locations, and product portfolio.


b. Management Analysis and Scoring

After assessing exposure, MSCI evaluates how a company manages these risks and opportunities. This includes reviewing the company’s policies, governance structures, performance metrics, third-party certifications, and public disclosures. MSCI looks for credible evidence that ESG risks are not only acknowledged but actively addressed through measurable practices. Each Key ESG Issue is scored and weighted according to its relevance in the specific industry context.


c. Monitoring ESG Controversies

MSCI also monitors significant ESG-related controversies—such as environmental violations, labour disputes, or governance failures—as indicators of weaknesses in risk management. These controversies are identified through continuous screening of media reports, regulatory actions, and civil society data sources. When a controversy occurs, it may lead to a reassessment and trigger an update to the company’s rating.


The final ESG Rating is a weighted combination of these factors, ranging from AAA (leader) to CCC (laggard). Ratings are updated at least annually or sooner if material events occur, offering stakeholders a timely snapshot of a company’s ESG resilience.


3. How Companies Can Respond Strategically


Companies can approach MSCI ESG Ratings as one of the  tools   for improvement. A well-informed response can enhance both sustainability performance and investor confidence.


a. Focus on What Matters Most

Start by identifying which ESG topics are most relevant to the business. MSCI provides an Industry Materiality Map that outlines the most significant ESG risks and opportunities for each sector. Companies should ensure that these issues are integrated into corporate strategy and risk management frameworks. This includes aligning internal policies, setting clear performance targets, and ensuring board-level oversight.


b. Build Strong ESG Systems

MSCI rewards companies that demonstrate robust ESG governance and performance tracking. This includes implementing clear policies, collecting and disclosing performance data (e.g., GHG emissions, water use, workforce diversity), and undergoing third-party assurance or certification when possible. These efforts signal that the company is not only aware of ESG risks but also actively mitigating them.


c. Address Controversies with Transparency and Accountability

MSCI closely monitors ESG-related controversies, which can impact a company’s rating. Companies should establish mechanisms to detect and manage such events quickly, including grievance channels, supplier audits, and crisis response protocols. Transparent communication and corrective actions following an incident are essential. According to MSCI (2023), effective resolution of controversies may accelerate the recovery of a downgraded ESG score.


d. Valuable Benchmarking Tool

ESG can be used to evaluate a company’s own sustainability performance and also act as a benchmarking tool with its peers. By analysing how similar companies are scored or scrutinized on its relevant or similar environmental, social, and governance factors, businesses can better understand industry expectations, identify key risk areas, and align their strategies accordingly—even before they undergo formal assessment themselves.


What’s Next?


Understanding MSCI ESG Ratings is only the beginning. For companies aiming to lead in sustainability, the next step is using these insights to build stronger ESG strategis—integrating risk management, aligning disclosures with material issues, and addressing weaknesses proactively. Rather than scoring, businesses should use the ratings framework to sharpen their ESG strategies, prepare for investor scrutiny, and drive long-term value creation. In a landscape where expectations are rising, forward-looking ESG action will be a key differentiator.


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