Why ESG Ratings Disagree With Each Other — And What That Means for Your Company

If you've ever compared your company's ESG scores across two different ratings agencies and found wildly different results, you're not imagining a problem — you've discovered a structural feature of how ESG ratings actually work, one that academic research has now quantified precisely. Simon MacMahon, head of ESG research at Sustainalytics, wrote candidly about this in Harvard Business Review, and a related IESE Business School technical note puts a hard number on exactly how much disagreement exists.

An industry that grew from niche to essential — without standardizing

MacMahon began working in ESG ratings in 2008, when the field was niche enough that his company had just 20 people in a single office, covering 300 companies, mostly Canadian firms. Today, that same company employs 650 people across North America, Europe, Asia, and Australia, covering tens of thousands of companies — and it's just one of dozens of ratings organizations now operating in the space, alongside giants like MSCI, Refinitiv, ISS, Morningstar, S&P, and FTSE Russell.

That explosive growth happened without the field ever developing what financial reporting has had for decades: uniform requirements for reporting. As MacMahon puts it directly, ESG analysts work with data that is "fundamentally less structured, less complete, and of lower quality" than the standardized, audited financial data accountants use.

The precise number: 0.61 correlation, versus 0.99 for credit ratings

This isn't just anecdotal — it's been measured directly. Academic research comparing five different ESG rating providers found a correlation among them of just 0.61. For context, credit ratings — which assess a completely different but comparably complex kind of risk — show a correlation of 0.99 between agencies.

It's worth being precise about why this comparison, while striking, isn't entirely apples-to-apples: credit ratings are less complex, rely on better quality raw data and more standardized models, and have been in continuous practice for much longer. But the gap is still revealing of how much subjective methodology shapes the final ESG number a company receives.

How ratings actually get calculated — the two-part method

Understanding why scores diverge starts with understanding the actual methodology. Ratings agencies classify each company into an industry and then assess two separate things:

Risk exposure — what ESG-related risks does this specific business face, given its industry and operational context? A mining company will typically face carbon emissions risk, water use risk, and occupational health and safety risk that a software company simply doesn't face in the same way.

Risk management — how well is the company managing the risk exposure it has? This means examining actual programs, policies, and management practices — not intentions or public statements.

Here's the critical point: if a company doesn't have clear evidence that it's adequately prepared to manage a risk, it receives a lower score — even if the company is, in fact, managing that risk well internally. Disclosure quality directly determines the score, independent of actual performance.

The materiality lens that changes everything: SASB

One development that helped bring rigor to this otherwise fragmented field is the Sustainability Accounting Standards Board (SASB), which beginning in 2012 led development of an industry-level materiality map — identifying which specific ESG issues are financially material for each industry. Academic research weighting ESG performance against the SASB materiality map confirmed something important: what mattered as a predictor of a firm's future financial performance was performance on ESG material issues specifically — not immaterial ones.

This is a crucial distinction for any company trying to improve its ESG standing: not every ESG issue you disclose carries equal weight. A mining company's water management disclosure is financially material in a way that the same disclosure might not be for a software company — and sophisticated raters increasingly weight scores accordingly.

Why this creates real divergence between agencies — with numbers

Because different agencies weight risk categories differently, use different industry classifications, and have different thresholds for what counts as "adequate evidence" of risk management, the same underlying company reality produces meaningfully different scores across providers — the measured 0.61 correlation confirms this isn't perception, it's fact.

This isn't a sign that ESG ratings are meaningless — it's a sign that they're evaluating a genuinely under-standardized information environment, similar to how credit ratings diverged before financial reporting standards matured over the course of a century. In 1988, one of the earliest ESG data providers (KLD) measured just eight issues. By 2024, MSCI alone measured 33 key issues aggregated into 10 themes — the field has grown in sophistication faster than it has grown in standardization.

The strategic implication: disclosure quality is the lever you actually control

Given this methodology, the most important strategic insight is this: you cannot control how any individual rating agency weights your industry risks, but you can directly control the quality and completeness of your disclosure. Companies that want to improve their ESG ratings across multiple providers — rather than gaming one specific agency's methodology — should focus on:

Documenting risk management programs and policies with the same rigor as financial controls
Prioritizing disclosure on issues that are genuinely financially material to your specific industry, per frameworks like SASB, rather than spreading effort evenly across all possible ESG topics
Disclosing specifics, not general statements of commitment
Making data available in structured formats that analysts — and increasingly, AI systems — can actually process

What this means beyond investor relations

This dynamic also reveals something important for companies outside the largest, most closely-watched markets: ESG-related information is not fully priced into stocks yet, particularly for companies that aren't already covered extensively by the major raters. This creates both a risk and an opportunity — companies with genuinely strong but under-disclosed ESG performance may be systematically undervalued simply because the information hasn't reached the market in a form ratings agencies can process consistently.

For a LATAM company, this is a direct strategic signal: comprehensive, well-structured ESG disclosure isn't just a compliance exercise — it's how you make your actual performance visible to a global capital market that would otherwise have no standardized way to see it.

How Sustek.co helps you build disclosure that actually gets recognized

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Before improving any external rating, you need an honest internal assessment of what risk management evidence you actually have — prioritized by which issues are genuinely material to your specific industry, not spread evenly across every possible ESG topic.

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Frequently asked questions

Why do different ESG ratings agencies give my company different scores? Because each agency uses its own industry classification, risk weighting, and evidence thresholds — measured academically at just a 0.61 correlation across five providers, compared to 0.99 for credit ratings. This means the same underlying company performance can be scored very differently depending on which agency's methodology is applied.

Can a company have genuinely strong ESG performance but a low rating? Yes — ratings are heavily dependent on disclosure quality, not just underlying performance. A company managing risks well internally but disclosing that management poorly will often receive a lower score than the reality warrants.

What is SASB and why does it matter for improving my ratings? The Sustainability Accounting Standards Board developed an industry-specific materiality map starting in 2012, identifying which ESG issues are genuinely financially material for each industry. Academic research confirms that performance on these industry-specific material issues — not general ESG activity — is what actually predicts financial performance, making SASB a useful prioritization tool when deciding where to focus disclosure effort.

Sources: MacMahon, S., "The Challenge of Rating ESG Performance," Harvard Business Review, Vol. 97, Issue 5 (2019); Ferraro, F., Pathak, R. & Sugiarta, F., "The Responsible Investing Landscape: From SRI Through ESG to Impact," IESE Business School (2025); Sustek.co Sustainability Transformation Tiers (sustek.co/services).