Quick Comparison
| ESG Ratings | ESG Rankings | |
|---|---|---|
| Scope | Assessment of a company's ESG risk management or performance on a defined scale | Ordinal positioning of companies relative to each other |
| Applicability | Individual company evaluation for investors and corporate strategy | Comparative lists used for benchmarking, index selection, and media |
| Key Focus | How well a company manages material ESG factors | Where a company stands relative to peers |
| Output | Score or grade (e.g., AAA, 75/100, Low Risk) | Position (e.g., #1, top 10%, 3rd quartile) |
| Methodology | Proprietary assessment frameworks with defined criteria and scales | Derived from ratings or independent scoring methodologies, sorted by performance |
| Stability | Can be stable if company performance is consistent | Can shift significantly even without company changes (peer movement affects position) |
What are ESG Ratings?
ESG ratings are assessments issued by specialized agencies that evaluate how companies manage environmental, social, and governance risks and opportunities. The major rating providers—MSCI, Sustainalytics, S&P Global, CDP, ISS ESG, and others—each apply proprietary methodologies to score companies against defined criteria. MSCI uses a letter-grade scale (AAA to CCC). Sustainalytics uses a numerical risk score (0-100). S&P Global assigns percentage scores (0-100). CDP uses letter grades (A to D-).
The purpose of an ESG rating is to provide an independent, structured assessment that investors can use alongside traditional financial analysis. Ratings distill complex, multidimensional ESG performance into a format that portfolio managers, risk analysts, and credit teams can integrate into their decision-making processes. A rating tells you something about a company's absolute or peer-relative ESG quality—independent of where other companies stand.
The ESG ratings industry has grown into a multi-billion-dollar market. Morningstar's acquisition of Sustainalytics, MSCI's ESG business expansion, and S&P Global's purchase of RobecoSAM's ESG ratings reflect the mainstream financial sector's demand for structured ESG assessments. Regulatory attention is also increasing—the EU has proposed an ESG Ratings Regulation to bring transparency and governance standards to the industry.
What are ESG Rankings?
ESG rankings are ordinal lists that position companies relative to each other based on ESG performance. Rankings can be derived from ratings (e.g., sorting all companies by their MSCI ESG score to determine who's #1, #2, etc.) or produced independently by media outlets, research organizations, and industry groups. Notable ESG rankings include the S&P Global Sustainability Yearbook (top CSA performers), the Corporate Knights Global 100, Newsweek's Green Rankings, and various sector-specific lists.
Rankings serve a different function than ratings. Where a rating tells you "this company scores 78 out of 100," a ranking tells you "this company is 15th out of 500 in its sector." Rankings create competitive dynamics—companies strive to move up relative to peers, and the ordinal positioning drives media attention, corporate communications, and sometimes investment decisions.
The distinction matters because a company's ranking can change even when its performance doesn't. If five competitors improve their ESG performance while your company holds steady, your rating stays the same but your ranking drops. Conversely, a company can rise in rankings simply because peers deteriorated. This relative nature makes rankings useful for benchmarking but potentially misleading as standalone performance indicators.
Key Differences
1. Absolute vs. Relative Information. A rating provides an assessment against a defined standard—what does a score of 75 or a grade of AA mean? A ranking provides relative positioning—where does this company stand compared to others? Ratings carry information about quality independent of the peer group. Rankings carry information about competitive position that depends entirely on the peer group.
2. Stability and Volatility. Ratings change when a company's performance changes (or when the rating methodology updates). Rankings change whenever any company in the peer group changes. A company can experience significant ranking movement—up or down—without doing anything different. This volatility makes rankings noisier as performance signals.
3. Actionability for Companies. Ratings tell companies what to improve: "Your environmental management score is 45/100 because you lack a science-based target and Scope 3 emissions disclosure." Rankings tell companies where they stand: "You're in the 3rd quartile of your industry." The rating produces a diagnostic; the ranking produces a competitive benchmark. Companies need both—the diagnostic to know what to fix and the benchmark to know how they compare.
4. Use in Investment Decisions. Institutional investors primarily use ratings, not rankings, in portfolio construction. ESG integration models incorporate rating scores as input factors for security selection and weighting. Rankings are more commonly used for screening (e.g., "only invest in top-quartile ESG companies") and for marketing investment products to clients who respond to "best-in-class" positioning.
5. Methodology Transparency. Rating methodologies, while proprietary, are generally documented—agencies publish frameworks, key issue lists, and weighting approaches. Rankings, particularly media-produced lists, often lack methodological transparency. Some rankings are based on aggregated ratings; others use opaque scoring criteria. The "Top 100 Most Sustainable Companies" list from a magazine may have very different rigor than a rating from MSCI or Sustainalytics.
6. Gaming Dynamics. Rankings create stronger incentives to game the system because the payoff is visible (moving from #50 to #25 in a public list). Ratings can also be managed strategically, but the continuous scale makes marginal improvements less dramatic and less communicable. Companies are more likely to pursue superficial disclosure improvements to boost a ranking than to fundamentally improve ESG management for a rating score that changes by a few points.
7. Communication Value. Rankings are easier to communicate externally. "We're ranked #3 in our industry for sustainability" is more compelling in a press release than "Our Sustainalytics ESG Risk Rating improved from 22.4 to 19.8." Rankings win on simplicity and narrative power; ratings win on analytical rigor and decision-support utility.
Which One Do You Need?
For investor relations and capital markets strategy, focus on ESG ratings. Your MSCI, Sustainalytics, S&P Global, and CDP ratings are what investors actually incorporate into their investment models, index tracking, and risk assessments. These ratings determine whether ESG funds hold your stock and at what weight. Manage them actively—engage with rating agencies, ensure data accuracy, and address identified gaps.
For corporate communications, competitive benchmarking, and stakeholder engagement, ESG rankings provide accessible, quotable positioning. DJSI membership, Sustainability Yearbook inclusion, and sector-specific rankings carry brand value. Use rankings to motivate internal teams, communicate progress to customers and employees, and differentiate your brand in the market.
For strategic planning, use both together. Rankings show you where you stand in the competitive landscape. Ratings show you why. A company that's ranked 35th out of 50 in its sector needs to understand which specific rating dimensions are pulling it down—is it environmental performance, governance, social practices, or disclosure quality? The rating provides the diagnosis; the ranking provides the urgency.
Council Fire's Perspective
We see companies spend disproportionate energy chasing rankings—particularly media-produced "best of" lists—while neglecting the ESG ratings that actually influence their cost of capital. The prestige of being on a list is seductive, but the financial impact of moving from MSCI BBB to A is far more consequential than moving from #30 to #20 on a magazine ranking.
Our guidance is simple: use ratings as the primary driver of ESG strategy and rankings as a secondary communication and benchmarking tool. Invest in understanding what each rating agency measures, where your gaps are, and what improvements will have the most material impact. Rankings will follow—genuine ESG performance improvement shows up across both ratings and rankings. But chasing rank position without improving underlying performance is a losing strategy.
Frequently Asked Questions
Why do ESG rankings from different sources conflict?
Different rankings use different underlying methodologies, data sources, and weighting schemes. The Corporate Knights Global 100 emphasizes revenue from clean products and resource productivity. Newsweek's rankings may weight carbon intensity differently. DJSI uses S&P Global's CSA. Each ranking reflects its creators' view of what "best ESG performance" means—and those views diverge. The same company can be #5 on one list and #50 on another simply because the criteria differ.
Are ESG ratings regulated?
Increasingly, yes. The EU proposed an ESG Ratings Regulation in 2023 aimed at improving transparency, managing conflicts of interest, and ensuring methodological quality among ESG rating providers. ESMA (the European Securities and Markets Authority) would supervise ESG rating agencies operating in the EU. Similar regulatory discussions are underway in the UK, Japan, and India. This regulatory trend reflects growing recognition that ESG ratings materially influence capital allocation and should be held to quality standards.
Can a company have a good ESG rating but a poor ESG ranking?
Yes. A company with a strong absolute ESG rating (say, MSCI A) can rank poorly if it operates in an industry where many peers also score well. If the top 20 companies in your sector all receive MSCI A or AA, your A rating puts you mid-pack in the ranking despite being a strong performer in absolute terms. This is particularly common in sectors like technology and consumer goods where ESG management standards are relatively high across the industry.
Should my ESG report focus on our ratings or rankings?
Lead with the metrics that matter most to your audience. In investor-facing communications (annual reports, investor presentations), emphasize ratings—specific scores and grades from recognized agencies carry analytical credibility. In broader stakeholder communications (sustainability reports, marketing), rankings provide more accessible positioning statements. The most effective ESG reports present both: "We achieved MSCI AA and rank in the top quartile of our industry" combines analytical rigor with competitive context.
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