The Vital Role of ESG in Addressing Climate Change: Understanding its Impact, Importance and Solutions

Environmental, social, and governance (ESG) has become an important measurement to report on for businesses. With regulations around ESG increasing on a global scale and studies correlating good ESG practices to increased revenue growth, ESG performance has become a key determinator when selecting who to do business with.

• What is an MSCI ESG Rating?

  MSCI ESG Ratings are like report cards for companies. They look at how well a company handles certain important factors related to the environment, social issues, and governance (ESG). These factors can affect a company's finances.

  The ratings use specific rules to figure out which companies are doing really well in managing these ESG issues (leaders) and which ones are not doing so great (laggards). The ratings go from leader (AAA, AA), average (A, BBB, BB), to laggard (B, CCC).

  These ratings don't just apply to companies. They also look at other things like stocks, bonds, loans, mutual funds, and even entire countries to see how they're doing in terms of handling ESG concerns.

• ESG ratings: Quantifying risks in a disruptive world

  Business sustainability has become really important to people all over the world, and ESG Ratings are like a tool to measure how well a company is doing in areas like the environment, social issues, and good governance. These ratings give a number score to show how a company's policies impact things like climate change, pollution, fair treatment of workers, and more.

  With more than $30 trillion invested in businesses that focuses on sustainability, ESG ratings have become really crucial in deciding where that money goes. They help investors see how strong a company is in terms of being environmentally and socially responsible. For consumers and employees, ESG ratings show how much a company cares about making the world a better place through its actions.



• Climate Focused Action

  The Carbon Disclosure Project (CDP) is leading the way to help the world become safer from climate change. They believe that being open about the environment and taking responsibility for it are really important for our future. CDP asks companies questions about their impact on the environment, following the advice of experts.

  They use a four-step process to figure out how well a company is doing with the environment. It starts with looking at what the company is doing now, then how aware they are of their impact, then how they manage things, and finally, if they're leading the way in environmental care. A high score from CDP means a company is really conscious about the environment, has good leadership, and is working hard to protect the climate.

• Conclusion

  To be clear, we support ESG ratings. Indeed, we are convinced that they have an integral part to play in promoting more sustainable investment and corporate governance, especially once reporting and rating have become more standardized. But the “super-wicked” problem of climate change is so urgent and far-reaching that it deserves its rating, one that avoids using the methodological complexities and legal challenges of melding together E and S and G. A climate-specific “C-rating” would empower investors and C-suites alike to make the climate-conscious choices that markets are telling us they want.