Performance in external ESG ratings is a common metric on chief sustainability officers’ scorecards. In fact, according to Sustainability Leaders research, it’s the second most common target that CSOs are incentivised against. But to what extent do these ratings drive impact?
A recent call with the Sustainability Leaders community suggests that the answer is “a little”. While ESG ratings are an important part of companies’ sustainability strategies, whether they result in meaningful change is debatable.
“Personally, I don’t think they drive systemic change,” one CSO said. “We develop ‘get better’ plans to improve our ESG ratings, but that doesn’t necessarily result in progress in our priority sustainability areas. Making advances on these topics is driven more in other initiatives.”
So, if these ratings aren’t driving meaningful impact in sustainability, why are they so highly placed on CSOs’ scorecards?
A few answers came out of our discussion. For one, the effect that these ratings can have on the organisation’s external reputation. Especially for businesses seeking sustainability-linked investments, high ESG ratings can help differentiate the company and make it more attractive to potential investors.
But, for me, the most interesting point was about how ESG ratings can help leaders to make the business case for sustainability.
“Do ratings provide systemic change? No. But they do foster great discussion at the executive level around what the ratings agencies are expecting from corporates,” another CSO said. “That’s one of the main drivers for our engagement with them – it brings stakeholders around the table and helps with operationalising sustainability around the business.”
Stakeholder engagement and embedding sustainability throughout the business are critical parts of the CSO role. As such, it makes sense that leaders use ESG ratings in this way. While they might not have an explicit impact on the company’s key ESG goals, they can be used to further the business’s sustainability strategy in other ways.
As we enter 2025, it might be worth considering how the different ESG ratings that your company has signed up to can deliver value.
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