Understanding ESG Ratings: Analysis of Major Companies' Scores
School
New York University**We aren't endorsed by this school
Course
NUTR-UE 1260
Subject
Management
Date
Dec 11, 2024
Pages
2
Uploaded by MagistrateRock15877
ESG Ratings AnalysisESG Ratings AnalysisESG ratings are assessments of a company's performance in three critical areas which are environmental,social, and governance. These ratings aim to evaluate how well a company manages risks and opportunities related to sustainability and ethical business practices. They are commonly used by investors, stakeholders, and organizations to guide investment decisions, assess corporate responsibility, and enhance long-term value. ESG ratings help identify sustainable investment opportunities and evaluate potential risks tied to a company’s ESG practices. The ratings also enhance reputation, attract responsible investors, and improve stakeholder trust.ESG ratings often diverge significantly between rating agencies due to variations in methodologies, data sources, and weightings assigned to environmental, social, and governance factors. These differences can lead to contrasting assessments of the same company by different ESG raters. When analyzing ESG ratings for Meta Platforms, JPMorgan, Johnson & Johnson, Wells Fargo, Walmart, and Pfizer using data from MSCI, Sustainalytics, Refinitiv, and S&P Global SAM, divergence among raters is evident. Meta Platforms (Facebook) Meta Platforms often receive lower ESG ratings from Sustainalytics and S&P Global SAM due to governance concerns and data privacy controversies. In contrast, MSCI rates Meta slightly higher due to their forward-looking methodology and emphasis on initiatives to address these risks.JPMorgan JPMorgan exhibits significant divergence due to varied weightings on its environmental commitments. While MSCI might acknowledge efforts in sustainable finance, Sustainalytics, and Refinitiv could penalize it more for exposure to controversial industries.Johnson & Johnson MSCI assigns a robust AA rating, emphasizing strong governance and leadership in product safety and quality management. Sustainalytics rates it as having a Low ESG Risk with a score of 14.4, reflecting effective risk management across environmental and social domains. S&P Global SAM evaluates the company highly within the healthcare sector for governance and societal health contributions. Johnson and Johnson generally score well across all frameworks, but there are variations depending on how each rater considers litigation issues like opioid-related settlements.Wells FargoMSCI rates Wells Fargo as “BB,” indicating an average ESG performance among banks. Sustainalytics assigns a high-risk score of 35.9, ranking Wells Fargo near the bottom of its industry group due to notable ESG risks, particularly in governance and social dimensions. Refinitiv provides a more favorable rating of 73, categorizing Wells Fargo as “Good" across environmental, social, and governance pillars. Walmart
Walmart shows divergence due to its controversial labor practices. S&P Global SAM scores better due to its supply chain initiatives, while Sustainalytics takes a harsher stance based on ongoing labor-related controversies.Pfizer Pfizer tends to receive higher ratings for strong governance and innovation in healthcare but can face variability in its environmental and access-to-medicine scores. Table CompanyMSCI RatingSustainalytics RatingRefinitiv ScoreS&P Global SAM ScoreMeta PlatformsA (Average)21.7 (Low Risk)64 (Good)60 (Average)JPMorganA (Average)26.9 (Medium Risk)70 (Good)71 (Good)Johnson & JohnsonAA (Leader)14.4 (Low Risk)79 (Very Good)78 (Very Good)Wells FargoBB (Average)35.9 (High Risk)73 (Good)65 (Average)WalmartBBB (Average)20.8 (Low Risk)72 (Good)75 (Good)PfizerAA (Leader)18.7 (Low Risk)75 (Very Good)76 (Very Good)ObservationsThe divergence among ESG ratings stems from differences in methodology, focus areas, and weighting of ESG components. MSCI often emphasizes future resilience, Sustainalytics focuses on unmanaged risks, and Refinitiv and S&P Global SAM incorporate historical and industry-specific benchmarks. This variation reflects the subjective nature of ESG ratings, making it critical for stakeholders to consider multiple ratersfor a balanced view.References MSCI. (n.d.). ESG Ratings & Climate Search Tool. MSCI. Retrieved from https://www.msci.com/our-solutions/esg-investing/esg-ratings-climate-search-toolSustainalytics. (n.d.). ESG Ratings. Morningstar Sustainalytics. Retrieved from https://www.sustainalytics.com/esg-ratings/?industryRefinitiv. (n.d.). ESG Scores Overview. Refinitiv. Retrieved from https://www.refinitiv.com/en/sustainable-finance/esg-scoresS&P Global. (n.d.). ESG Scores. S&P Global. Retrieved from https://www.spglobal.com/esg/scores/Dimson, E., Marsh, P., & Staunton, M. (2020). Divergent ESG ratings.