ESG rating

What it means

An ESG rating is an assessment of a company's environmental, social and governance risks and performance, compiled by specialist agencies. It is expressed as letters, scores or a percentile against the sector and is based on public data, questionnaires and the agency's own analysis.

Banks, investors and large customers increasingly take it into account in lending, investment and supplier selection. A good rating can mean cheaper finance or access to contracts, while a weak one can bring questions, stricter terms or exclusion from investment portfolios.

Ratings from different agencies often differ markedly because they use different methods and weightings. The EU has therefore adopted a regulation under which ESG rating providers in the EU are subject to authorisation and supervision from 2026 and must disclose their methodologies.

How it works in practice

Small and medium-sized firms most often meet ESG ratings as suppliers to large companies, which assess them through questionnaires or supply chain rating platforms. Answers should be backed by documents such as policies, consumption measurements or certificates.

Agencies also draw data from reporting under the CSRD and the ESRS standards. Companies reporting under these rules already have consistent data, which makes answering questionnaires easier and the assessment more credible.

Improving a rating starts not with communication but with real change: measuring emissions, workplace safety, a code of ethics, transparent ownership and independent oversight. Agencies also assess controversies such as lawsuits or incidents reported in the media.

What to watch out for

The drive for a better rating must not lead to greenwashing. Agencies or customers may expose exaggerated claims without evidence, and misleading environmental claims are increasingly tightly regulated in the EU.

A rating mainly assesses risks to the investor, not necessarily the company's positive impact on the world. A highly rated company can still have significant negative impacts, so it is worth distinguishing ratings from genuine sustainability, which a CSDDD due diligence review, for example, addresses.