Environmental, social, and governance (ESG) ratings and rankings play a pivotal role in guiding investor decisions, benchmarking corporate performance, and shaping public perception. Simultaneously, the rise in ESG disclosures has spurred demand for independent assurance to verify the accuracy and reliability of reported data. Together, ratings and assurance practices are essential components of the evolving ESG ecosystem, providing stakeholders with the confidence to act on sustainability information.
Understanding ESG Rating Methodologies
ESG ratings are evaluations of a company’s sustainability performance based on publicly available and proprietary data. Each rating agency applies its own methodology, leading to variation in scores and coverage. The most prominent ESG rating providers include:
- MSCI ESG Ratings: Rates companies on an industry-relative scale from ‘CCC’ to ‘AAA’ based on exposure to ESG risks and risk management capabilities. MSCI’s methodology includes over 35 key ESG issues and 1,000+ data points.
- Moody’s ESG Solutions (formerly V.E): Provides ESG assessments, controversy monitoring, and impact scores, emphasizing sector materiality and alignment with the UN Sustainable Development Goals (SDGs).
- Sustainalytics (a Morningstar company): Focuses on ESG risk ratings, scoring companies based on unmanaged ESG risk that could impact enterprise value. The score ranges from negligible to severe.
While these ratings help investors screen companies, discrepancies across methodologies often lead to inconsistent assessments. This “ESG ratings divergence” has prompted calls for greater transparency and standardization in ESG evaluation.
The Role of ESG Assurance
Third-party assurance adds credibility to ESG reports by independently verifying the accuracy, completeness, and consistency of disclosed information. As ESG disclosures become more integral to financial decision-making, assurance is increasingly expected by investors, regulators, and other stakeholders.
The Big Four accounting firms—Deloitte, PwC, EY, and KPMG—are leading providers of ESG assurance services. Their practices typically align with international standards such as:
- ISAE 3000 (Revised): The most commonly used standard for non-financial assurance engagements
- AA1000AS v3: Focuses on inclusivity, materiality, responsiveness, and impact
- ISAE 3410: Used specifically for assurance of greenhouse gas emissions disclosures
Assurance levels can range from limited (basic checks) to reasonable (comparable to financial audit rigor). More companies are voluntarily obtaining assurance on Scope 1 and 2 GHG emissions, diversity data, and key ESG metrics.
Case Example: Tesla’s ESG Rating Revision by MSCI (2025)
In early 2025, MSCI revised Tesla’s ESG rating in a controversial yet illustrative move. The company’s rating was downgraded from ‘A’ to ‘BBB’ despite its leadership in electric vehicle innovation and renewable energy solutions.
MSCI cited several reasons for the downgrade:
- Governance concerns, including board independence and executive compensation structure
- Labor relations issues, such as worker safety and union disputes at gigafactories
- Supply chain transparency, particularly around rare earth minerals and human rights
The case underscores how ESG ratings consider a wide range of factors beyond environmental impact. It also highlights the growing scrutiny of high-profile companies and the need for consistent disclosures and assurance to maintain stakeholder trust.
Conclusion
ESG ratings and third-party assurance are critical mechanisms for building confidence in sustainability reporting and performance. While ESG ratings offer valuable benchmarks, inconsistencies among providers call for enhanced transparency and harmonization. Assurance practices—led by global standards and supported by accounting firms—ensure that ESG data is not only disclosed, but also trustworthy. The revision of Tesla’s ESG rating by MSCI serves as a reminder that sustainability leadership must encompass governance and social performance, not just environmental innovation. Companies that prioritize credible reporting and seek independent assurance are best positioned to meet rising stakeholder expectations and regulatory demands.