Esg ratings

Assessing the environmental, social, and governance aspects of a company provides insights into the sustainability prospects of its economic activities and its long-term value generation capability. It helps direct capital towards the desired direction of the so-called ecological transition.

ESG rating is an evaluation framework that systematically analyzes and measures the environmental, social, and governance aspects of a company, issuer, fund, or country. It provides concise information by assigning a score based on compliance with international sustainability guidelines, the environmental impact generated by economic activities, adherence to social values, aspects related to corporate governance, or the level of risk a company faces concerning these factors.

The initial drive for many companies to have their ESG profile evaluated is related to the increasing media importance that the issue has gained among investors, customers, and consumers. Sustainability is seen not only as an ethical and social "duty" towards the planet and people but also as a competitive positioning and reputational strategy for many companies.

The attribution of an ESG performance score has the potential to increase transparency regarding companies' choices and action plans. To enhance the solidity and transparency of evaluations and prevent greenwashing practices, efforts are being made to develop consistent and common standards that connect environmental, social, and governance objectives, risks, and opportunities to objective, quantifiable, and measurable parameters.

There are various methods to calculate an ESG rating. The assessment can focus on the alignment and compliance of a company with international sustainability strategies and guidelines defined by institutions such as the EU, UN, and OECD. Alternatively, it can measure the extent to which a company's economic value is at risk due to ESG factors or, more technically, the magnitude of ESG risks that are not managed by a company, assigning lower scores for higher levels of unmanaged risk.