What is an ESG Score? How ESG Works and Finding ESG Investments

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2023-06-10 11:00:26  • 8 mins

Picking an investment based on ESG standards can take time and effort. Thats because there is no singular ESG scoring system for all companies each rating agency measures each company by its own standards.

In this article, well review what makes up an ESG score, some of the largest ESG rating agencies, and the inherent problems we still face in using these metrics to gauge a companys actual risks and opportunities across the domains of environmental, social, and governance standards.

Key Takeaways

  • ESG scores are not standardized. Individual rating agencies calculate them, so they vary greatly.
  • ESG scores are typically assigned a numerical value from 1 100 or 1 10. Some agencies also use a letter grading system.
  • ESG scores are relative, which means that if a company is outperforming its peers in the same industry, it could have a high ESG score without being particularly beneficial for the environment or incorporating substantial diversity, equity, and inclusion (DEI) initiatives.

What is an ESG score?

ESG scores rate companies according to three categories that involve the companys business opportunities and risks. Those categories are environmental (E), social (S), and governance (G).

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