Why ESG Ratings Still Frustrate Companies Despite Stricter Sustainability Rules

Environmental, Social, and Governance (ESG) ratings now shape key business decisions for companies worldwide. These scores affect everything from borrowing costs to investor trust, yet many firms struggle to improve them. A growing issue is the mismatch between how businesses report their sustainability efforts and how rating agencies assess them.

Despite stricter rules like the EU's Corporate Sustainability Reporting Directive (CSRD), introduced in 2023, no major agency—including MSCI, Sustainalytics, or S&P Global—has publicly updated its scoring methods to reflect the new requirements. Rating agencies demand precise data, such as detailed emissions breakdowns, intensity-normalised figures, and third-party verification flags. Yet their scoring processes often lack transparency, leaving companies unsure how to target improvements. Many find their ESG ratings do not accurately mirror their progress, creating frustration among executives who prioritise sustainability.

The problem stems from a fundamental difference in approach. Agencies favour structured, quantifiable data over broader sustainability stories. Without clear guidance, firms may invest in initiatives that rating systems overlook or undervalue. This disconnect can lead to lower-than-expected scores, which in turn restrict access to green financing, exclude companies from ESG indices, and weaken investor confidence.

To bridge the gap, companies can refine their ESG disclosures. Strategies include auditing existing reports, reformatting data for machine readability, and simulating potential score gains. Focusing on high-impact metrics and engaging directly with rating agencies can also help. By aligning disclosures with agency expectations, businesses can secure better ratings, lower capital costs, and stronger reputations.

However, the lack of updated methodologies from agencies adds another layer of complexity. Even with improved reporting under CSRD, firms must navigate scoring systems that have not formally adapted to the new standards. Optimising ESG disclosures offers clear benefits, from attracting sustainable investment to reducing borrowing costs. Yet success depends on understanding—and meeting—the specific demands of rating agencies. Until agencies adjust their methods to reflect evolving regulations, companies must proactively shape their reporting to fit existing frameworks.