Quick Comparison
| Sustainalytics | MSCI ESG | |
|---|---|---|
| Scope | ESG Risk Ratings measuring unmanaged ESG risk exposure | ESG Ratings measuring ESG risk management relative to industry peers |
| Applicability | 20,000+ companies across all major markets | 8,500+ companies and 680,000+ equity and fixed-income securities |
| Key Focus | How much material ESG risk remains unmanaged | How well a company manages material ESG risks vs. peers |
| Scale | 0-100 (lower is better—less unmanaged risk) | AAA to CCC (higher is better—stronger management) |
| Owner | Morningstar (acquired 2020) | MSCI Inc. |
| Primary Users | Asset managers, institutional investors, wealth platforms (via Morningstar integration) | Index providers, ETF constructors, institutional portfolio managers |
What is Sustainalytics?
Sustainalytics, now a Morningstar company, is one of the world's largest ESG research and ratings firms. Founded in 1992 as a Dutch sustainability research boutique, it grew through a series of mergers—combining Jantzi Research (Canada), Scoris (Germany), and AIS (Australia)—before Morningstar acquired full ownership in 2020. That Morningstar integration is strategically significant: Sustainalytics data now powers Morningstar's sustainability ratings for mutual funds and ETFs, reaching retail and wealth management audiences alongside institutional investors.
The Sustainalytics ESG Risk Rating, introduced in 2018, measures the degree to which a company's economic value is at risk due to material ESG factors. The methodology has two dimensions: exposure (how much material ESG risk a company faces based on its industry and business model) and management (how well the company handles those risks through policies, programs, and performance). The final score represents unmanaged risk—the gap between exposure and management.
Scores range from 0 to 100, with lower scores indicating less unmanaged risk. Companies are categorized into five risk levels: Negligible (0-10), Low (10-20), Medium (20-30), High (30-40), and Severe (40+). This framing as a risk rating—rather than a performance score—reflects Sustainalytics' philosophy that ESG analysis should be grounded in material financial risk rather than abstract sustainability aspiration.
What is MSCI ESG?
MSCI ESG Ratings assess how well companies manage financially relevant ESG risks and opportunities relative to their industry peers. MSCI—originally Morgan Stanley Capital International—is best known as the world's leading index provider, and its ESG ratings are deeply integrated into index construction, ETF design, and institutional portfolio management.
MSCI's methodology identifies key ESG issues for each industry based on financial materiality, then evaluates companies on their exposure to those issues and the quality of their management response. Ratings range from AAA (Leader) to CCC (Laggard) on a seven-point scale. The letter-grade format is intuitive for investment professionals accustomed to credit ratings.
MSCI rates approximately 8,500 companies and over 680,000 equity and fixed-income securities. Its influence extends beyond direct ratings through MSCI ESG indexes—the MSCI World ESG Leaders Index, MSCI ESG Universal Index, and others—which serve as benchmarks for hundreds of billions of dollars in passive ESG investment products. When an ETF says it tracks an "ESG index," there's a significant chance it's an MSCI index using MSCI ESG ratings as the selection and weighting mechanism.
Key Differences
1. What the Score Means. Sustainalytics measures unmanaged risk (lower is better). MSCI measures management quality (higher is better). This fundamental inversion confuses many people. A Sustainalytics score of 12 (Low Risk) is excellent. An MSCI rating of AA is excellent. The same company might have both, but you need to understand what each number represents to interpret it correctly.
2. Absolute vs. Relative Scoring. Sustainalytics produces absolute risk scores—a company in a high-risk industry will have a higher exposure baseline regardless of peer performance. MSCI rates relative to industry peers—a fossil fuel company can achieve AAA if it manages ESG risks better than other fossil fuel companies. This distinction matters enormously: Sustainalytics tends to penalize inherently risky industries more heavily, while MSCI rewards best-in-class management within any sector.
3. Index Influence. MSCI's ESG ratings are directly tied to major ESG indexes that drive passive investment flows. Inclusion in or exclusion from MSCI ESG indexes has direct capital allocation consequences. Sustainalytics' ratings influence fund-level sustainability scores through Morningstar's globe ratings, affecting fund marketing and retail distribution but less directly driving index-level capital flows.
4. Methodology Transparency. Both agencies publish methodological overviews, but neither fully discloses its proprietary scoring algorithms. MSCI provides rated companies with detailed reports and the opportunity to review data before publication. Sustainalytics similarly shares reports with companies. However, academic research—notably Berg, Kölbel, and Rigobon's 2022 MIT study—has documented significant divergence between Sustainalytics and MSCI ratings for the same companies, suggesting meaningful methodological differences beneath the surface.
5. Coverage and Reach. Sustainalytics covers more companies (20,000+) partly due to Morningstar's interest in broad fund-level coverage. MSCI covers fewer companies but extends its ratings to a far larger universe of securities through index integration. If your company is in a major equity index, both likely rate you. If you're a mid-cap or emerging market company, Sustainalytics may cover you first.
6. Data Sources. Both agencies use company disclosures, regulatory filings, and media monitoring. Sustainalytics places significant weight on third-party research, NGO reports, and controversy tracking through its incident-based research. MSCI emphasizes structured data from corporate disclosures and its own engagement with companies. These differing source emphases can produce divergent assessments of the same company.
7. Controversy Handling. Sustainalytics integrates controversy events directly into its ESG Risk Rating through its Controversies Research component. Severe incidents (e.g., environmental disasters, labor violations) can significantly worsen a company's unmanaged risk score. MSCI also tracks controversies but treats them somewhat separately through its ESG Controversies score, which runs parallel to the main ESG rating.
Which One Do You Need?
If you're a company being rated, the honest answer is you need to engage with both. Sustainalytics and MSCI collectively influence the vast majority of ESG-integrated investment decisions. Ignoring either means a significant portion of your investor base is making decisions based on data you haven't reviewed or engaged with.
For investors building ESG-integrated portfolios, the choice often depends on your investment approach. If you're constructing index-tracking products or passive ESG strategies, MSCI's ratings are embedded in the indexes you're likely benchmarking against. If you're conducting fundamental ESG analysis or managing multi-asset portfolios, Sustainalytics' absolute risk framework may provide more differentiated signal, particularly across sectors.
The sophisticated approach is to use both and understand the divergence. When Sustainalytics and MSCI agree on a company—both flag it as high-risk or both identify it as a leader—that's a strong signal. When they diverge, the divergence itself is informative: it usually points to differing assessments of management quality versus residual risk exposure, or differing interpretations of controversial events.
Council Fire's Perspective
We counsel clients to engage proactively with both Sustainalytics and MSCI rather than passively accepting whatever scores appear. Both agencies have formal processes for companies to review data, correct inaccuracies, and provide additional context. Companies that actively manage their ESG ratings—not by gaming the system, but by ensuring accurate and complete data is reflected—consistently score better than those that ignore the process.
The rating divergence problem is real and frustrating for companies. Getting an A from one agency and a mediocre score from another feels arbitrary. But the divergence reflects genuinely different analytical lenses, and understanding both perspectives makes your ESG strategy stronger. If Sustainalytics says you have high unmanaged risk and MSCI says you're managing well relative to peers, the synthesis is: you're in a challenging industry and doing relatively well, but absolute risk remains significant. That's useful strategic information.
Frequently Asked Questions
Why do Sustainalytics and MSCI sometimes give the same company very different ratings?
Academic research (Berg et al., 2022) found that ESG rating divergence across agencies is driven by three factors: different scope (what issues they measure), different weights (how they prioritize issues), and different measurement (how they assess the same issue). Sustainalytics and MSCI use different materiality maps, different indicator sets, and different aggregation methods. A company might score well on MSCI's governance indicators but poorly on Sustainalytics' controversy assessment for the same underlying governance issue. This isn't a flaw—it reflects the genuine complexity of reducing multidimensional ESG performance to a single score.
Which rating do institutional investors care about more?
It depends on the investor and their investment approach. Passive investors and index-tracking funds are heavily influenced by MSCI due to its index integration. Active fundamental investors and multi-asset managers often prefer Sustainalytics' absolute risk framework for security-level analysis. Many large institutional investors subscribe to both and use them complementarily. Morningstar's integration of Sustainalytics into fund-level ratings also gives Sustainalytics significant influence over retail fund distribution and advisory platforms.
How often are ratings updated?
Both agencies update ratings on a rolling basis. MSCI conducts full annual reviews with ad hoc updates triggered by material events. Sustainalytics updates ESG Risk Ratings continuously as new information emerges, with full reviews at least annually. Controversy-driven updates can happen rapidly for both agencies when significant incidents occur. Companies should expect their ratings to change throughout the year, not just at annual review points.
Can a company request a re-rating?
Both agencies allow companies to submit additional data, correct factual errors, and request reviews through formal engagement processes. However, neither guarantees a rating change based on company feedback—the agencies maintain editorial independence. The most effective approach is to proactively share relevant disclosures and data during the engagement window rather than reactively contesting published scores.
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