ESG Risk Rating for Sustainable Finance

Sustainalytics’ ESG Risk Ratings Information For Sustainable Finance

Sustainalytics' ESG Risk Ratings are used as a key metric for borrower's and lender's sustainability performance. ESG Risk Ratings are designed to help identify and understand financially material ESG risks and how those risks might affect performance.

Key Features

Key Benefits

How it Works

Report Insights

Key Features

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.

Key Benefits

1

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.

2

Transparency
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.

3

Forward-Looking Signal

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.

4

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.

5

Comparability

Absolute ratings enable comparability across subindustries, industries, companies and regions at both the overall ESG and issue-specific risk levels.

6

Meaningful Corporate Governance Integration

Governance assessments are fully integrated in the rating and have a considerable contribution to our overall company ratings.

7

Qualitative Insights

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.

8

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.

How it Works

We start with exposure, where exposure to each material ESG issue is initially determined at the subindustry level.

Next, we look at the management dimension, which measures how well the company is mitigating its exposure.

For some companies, a portion of its risk may be considered unmanageable. For example, an oil company is not able to fully eliminate all its risks related to carbon emissions so that is factored out of the calculation.

For the portion of risk that is manageable, a company’s performance is reflected by its policies, programs, practices and quantitative performance measures.

Controversies have a discounting effect on the company’s management score, as they show that the company’s programs and policies have not been completely effective and could lead to increasing risk.

Overall a company’s ESG Risk Rating is calculated by adding the amount of unmanaged risk for each material ESG issue.

Report Insights

Company ratings are categorized across five risk levels: negligible, low, medium, high and severe.

A company’s risk is measured against its industry peers and against the global universe.

Companies are exposed to different ESG issues to different degrees. Exposure assessment is driven by sub-industry and company-specific factors.

The magnitude to which a company is exposed to ESG and how well the company is managing that risk is measured and explained.

Company ratings are categorized across five risk levels: negligible, low, medium, high and severe.

A company’s risk is measured against its industry peers and against the global universe.

Companies are exposed to different ESG issues to different degrees. Exposure assessment is driven by sub-industry and company-specific factors.

The magnitude to which a company is exposed to ESG and how well the company is managing that risk is measured and explained.

Material ESG Issues (MEIs) are identified and brought into focus.

The magnitude to which a company is exposed to ESG and how well the company is managing that risk is measured and explained

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