Sustainalytics’ ESG Risk Ratings are designed to help investors identify and understand financially material ESG risks in their portfolio companies and how those risks might affect performance.
Two-dimensional materiality framework measures a company’s exposure to industry-specific material risks and how well a company is managing those risks.
Comprised of three central building blocks: corporate governance, material ESG issues, and idiosyncratic issues (black swans).
The ESG Risk Ratings are categorized across five risk levels: negligible, low, medium, high and severe. Ratings scale is from 0-100, with 100 being the most severe.
Sustainalytics’ ESG Risk Ratings span more than 12,000 companies and encompass most major global indices.
Ratings framework is supported by 20 material ESG issues underpinned by more than 250 indicators.
Financial Materiality Framework
Assessment examines the ESG issues posing the most material risks to a company’s performance. The ratings first measure a company’s exposure to industry-specific ESG risks and then how well a company is managing those risks.
Sustainalytics’ methodology offers full visibility into indicator scores and weights. This transparency enables investors to better understand the top-line ESG scores, validate our assessments and combine the data to generate new insights.
The exposure dimension of the ESG Risk Ratings is forward-looking because it considers a company’s susceptibility to the most material ESG risks, including risks that have yet to affect its financial performance.
Tailored Company Assessments
Our exposure assessment is tailored to match a company’s unique business model, considering its product portfolio, financial strength, geography and historical controversies.
Absolute ratings enable comparability across subindustries, industries, companies and regions at both the overall ESG and issue-specific risk levels.
Meaningful Corporate Governance Integration
Governance assessments are fully integrated in the rating and have a considerable contribution to our overall company ratings.
Enhanced Analyst Views and Issue Narratives offer insights into specific areas of corporate risk. The ratings are supported by 20 material ESG issues underpinned by more than 250 indicators.
Controversies Research Provides Insight into Management Performance
Sustainalytics’ Controversies Research is integrated into the ESG Risk Ratings to show how well a company manages material ESG issues. Since involvement in controversies signals a failure of management programs and policies, management scores are discounted based on the frequency and severity of incidents.