The previous lesson looked at BRSR — the disclosure a company files itself. This one looks at the layer built on top of it: the ESG scores that agencies like MSCI, Sustainalytics and CRISIL assign, the ratings that funds cite and marketing leans on. They are more widely quoted than understood, and understanding them starts with what they are not.
Why two agencies score the same company differently
Credit ratings from different agencies mostly agree, because they are all trying to measure one thing: the odds of default. ESG ratings do not agree, because there is no single thing they measure. Each agency decides which issues are material for an industry, how to weight them, and how to score sparse data — and those choices, not the company, drive much of the divergence. Research has repeatedly found the correlation between major ESG raters is low, far below the near-lockstep of credit raters.
| Pillar | Typical issues | What it often really signals |
|---|---|---|
| Environmental | Emissions, water, waste, energy | Regulatory and physical risk to operations |
| Social | Safety, labour, supply chain, customers | Operational disruption and reputation risk |
| Governance | Board, audit, related-party, pay | The pillar most tied to shareholder outcomes |
Spotting greenwashing
- Goals without dates or numbers — "committed to sustainability" with nothing measurable behind it.
- A green sliver, loudly — a tiny renewable segment on the cover while the core business is unchanged.
- Targets beyond the tenure — 2050 net-zero pledges that no current executive will be accountable for.
- Narrative over data — pages of photographs and adjectives, few comparable year-on-year figures.
- Awards as evidence — self-nominated ESG awards cited in place of actual disclosure.
MSCI rates a company AA on ESG while another agency rates it below average. What is the most likely explanation?
ESG score ek risk rating hai, achhai ka certificate nahi — high score matlab material E/S/G risks well-managed, na ki company "neki" kar rahi hai. Aur mazedaar baat: do agency (MSCI, Sustainalytics) same company ko bilkul alag rate karti hain, kyunki har ek alag issue, alag weight chunti hai — credit rating jaisa ek "sach" nahi hota. Retail ke liye "G" (governance) sabse zyada maayne rakhta hai — promoter, board, related-party seedha return pe asar. Greenwashing pehchano: date-number ke bina "sustainability" baatein, chhota green segment loudly, 2050 ke target jinke liye aaj koi zimmedaar nahi. SEBI ab ESG raters ko regulate karta hai — numbers padho, adjectives nahi.
- An ESG score rates managed risk, not morality — a high score is not a virtue certificate.
- Agencies disagree sharply because they choose and weight issues differently.
- Governance is the pillar most reliably tied to minority-shareholder returns.
- Greenwashing shows up as vague goals, a loud green sliver, and narrative over numbers.
- SEBI now regulates ESG raters and mandates assured BRSR Core metrics — read those.
Mark it done to track your progress through the curriculum.
Common questions
Short, direct answers to what people ask about this topic.
- what is an esg score
- An ESG score is a rating of how exposed a company is to environmental, social and governance risks and how well it manages them. It is produced by rating agencies such as MSCI, Sustainalytics, CRISIL and others, and despite the ethical language it is closer to a risk assessment than a verdict on whether a company is "good" — a high score means the material ESG risks are judged well-controlled, not that the business is virtuous. It is distinct from a company’s own BRSR disclosure, which is the raw data some of these scores are built from.
- how are esg scores calculated
- Each agency defines which environmental, social and governance issues are material for a company’s industry, gathers data from disclosures, filings, news and sometimes direct engagement, scores the company on each issue, and weights those into a single rating. The weights and the choice of which issues count are where methodologies diverge sharply — one agency may weight carbon emissions heavily for a manufacturer while another emphasises labour practices — so the final number reflects the agency’s framework as much as the company.
- are esg scores reliable
- They are useful as a prompt but weak as a verdict, because different agencies routinely score the same company very differently — studies have found the correlation between major ESG raters is far lower than between credit-rating agencies. The disagreement comes from different definitions, weights and data, not from measurement error, so there is no single "true" ESG score to converge on. Read the underlying issues an agency flags rather than trusting the headline letter or number.
- what is greenwashing in investing
- Greenwashing is presenting a company or a fund as more environmentally or socially responsible than its actions justify — heavy sustainability language in the glossy report with little change in what the business actually does or spends. Signs include vague goals with no dates or numbers, prominence given to a tiny green segment while the core business is unchanged, and targets that always sit conveniently beyond the current management’s tenure. Regulators, including SEBI, have tightened rules on ESG claims precisely because the marketing ran ahead of the substance.