ESG Rating Agencies: How MSCI, Sustainalytics and Moody’s Score Australian Companies

ESG rating agencies evaluate organisations’ sustainability performance and assign ESG ratings that influence investor decisions, capital availability, and market perception. Understanding how ESG ratings work and what drives scores is important for Australian organisations managing ESG disclosure.

For broader ESG strategy, see our complete ESG guide for Australian businesses.

Major ESG Rating Agencies

MSCI ESG Ratings

MSCI (Morgan Stanley Capital International) is one of the largest ESG rating providers, rating thousands of companies globally. Ratings range from AAA (leaders) to CCC (laggards) on a 10-point scale.

Methodology: Evaluates company performance on 35+ ESG key issues across industry sectors. Uses company disclosures, public filings, news, stakeholder input.

Coverage: Extensive coverage of large-cap companies; limited coverage of small-cap and private companies.

Sustainalytics ESG Risk Ratings

Sustainalytics, part of Refinitiv, provides ESG risk ratings on 0-100 scale (lower is better). Focuses on financially material ESG risks.

Methodology: Identifies ESG risks material to each industry; assesses company management of those risks using company disclosures and data.

Focus: Risk-based approach—emphasises ESG factors that could negatively affect financial performance.

Moody’s ESG Solutions

Moody’s combines ESG analysis with credit risk analysis, particularly for fixed-income investors.

Integration: ESG factors integrated into credit ratings—strong ESG governance may support credit ratings; ESG risks may pressure ratings downward.

How ESG Ratings Work

Rating Methodology

ESG rating agencies generally follow this approach:

1. Materiality assessment: Identify ESG factors material to each industry
2. Data collection: Gather company data from sustainability reports, financial disclosures, news, third-party sources
3. Assessment: Compare company performance to peers and industry benchmarks on material ESG factors
4. Scoring: Assign ESG rating or risk score based on assessment
5. Validation: Review and update ratings as new information becomes available

Key Factors Assessed

Environmental: Climate risk governance, emissions management, energy efficiency, water/waste management, biodiversity, supply chain environmental practices

Social: Labor practices (wages, safety, diversity), human rights, community relations, customer satisfaction, supply chain labour practices

Governance: Board composition/independence, executive remuneration, ethics/compliance, shareholder rights, audit/internal controls

Australian Company ESG Ratings

Who Gets Rated?

ESG rating agencies typically rate:

• ASX-listed companies (nearly all covered by major rating agencies)
• Large cap companies with significant market capitalisation
• Smaller cap companies if financially significant or raising capital

Most Australian SMEs are not systematically rated by major ESG rating agencies unless seeking capital or investor attention.

Rating Variation

A company may receive different ratings from different agencies:

• Different methodologies weight ESG factors differently
• Different data sources and timeliness
• Different industry classifications affecting peer comparison
• Rating update frequency varies

Australian organisations should expect variation in ratings across agencies. Focus should be on relative positioning and trend over time rather than absolute rating.

Improving Your ESG Rating

Key Actions

• Disclose robustly: Rating agencies rely heavily on disclosed ESG information. Strong ESG disclosures in annual reports and sustainability reports improve ratings.
• Address material issues: Focus on ESG factors material to your industry and financial performance
• Set and achieve targets: Clear targets with transparent progress reporting demonstrates commitment
• Governance alignment: Demonstrate board and management ESG oversight
• Comparative positioning: Benchmark against peers; identify gaps and improvement opportunities
• Engagement: Some rating agencies accept company engagement to clarify rating methodology or address misunderstandings

Avoiding Common Rating Gaps

• Insufficient climate disclosure: Ensure climate governance, strategy, risk management, and metrics are clearly disclosed
• Weak supply chain ESG: Rating agencies scrutinise supply chain practices; ensure supplier ESG expectations are disclosed
• Poor data quality: ESG ratings can be penalised if data quality appears low; disclose calculation methodologies and data limitations
• Governance weaknesses: Board independence, committee structure, remuneration alignment are closely assessed

Using ESG Ratings

For Investors

• ESG ratings inform investment decisions and portfolio construction
• Used in ESG indices (e.g., MSCI ESG Indices) that track sustainable companies
• Help identify ESG risks that may affect financial performance

For Companies

• Monitor and communicate ESG rating to investors
• Use rating to benchmark against competitors
• Identify ESG improvement opportunities
• Track progress as ESG initiatives are implemented

Frequently Asked Questions

Should we focus on improving one ESG rating or multiple?

Focus on strong, transparent ESG performance and disclosure. A single strong ESG report will improve scores across rating agencies more efficiently than trying to game individual methodologies.

How much does ESG rating affect our cost of capital?

Strong ESG performance and ratings can reduce cost of capital by improving credit ratings and attracting ESG-focused investors. Weak ESG can increase capital costs. Effect varies by investor base.

What if we disagree with our rating?

Most rating agencies allow company engagement to clarify ratings or provide additional information. Contact the rating agency directly if you believe rating is inaccurate.

Moving Forward with ESG Ratings

ESG ratings are increasingly relevant to Australian organisations as investors and stakeholders use them to assess ESG performance. Strong ESG governance, material topic identification, transparent disclosure, and clear target-setting improve ratings across major agencies and support capital access and investor confidence.

Ready to assess and improve your ESG rating? Book a Free ESG Strategy Session to evaluate your current ESG rating and develop improvement strategy.