CDP A-list Scores vs ESG Ratings Providers

Nossa Data is an ESG reporting and SaaS product for corporates, unifying cutting-edge AI technology & ESG expertise to make ESG reporting easier for corporates. Certified by the likes of CDP, EFRAG, EcoVadis, and IFRS, while supporting 25+ frameworks & ESG ratings. For more information, you can submit a request here.

ESG ratings measure how companies perform on sustainability and ethics. Investors use these ratings to make decisions. This article looks at how CDP A-list scores relate to overall ESG leadership and what it means for companies.

Key Takeaways

• The study shows a strong correlation between CDP A-list scores and overall ESG leadership, many A-list companies are also leaders according to multiple ESG rating agencies.
• Companies with high ESG ratings have better access to capital markets, as seen in the DJSI World Index with high annualized return and a significant portion of its members are from CDP A-list.
• Understanding ESG ratings is key for companies to improve sustainability, as these ratings impact investor confidence and corporate responsibility.

Executive Summary

ESG ratings are key in today’s business landscape, a metric to measure a company’s commitment to sustainability and ethics and influence investor decisions and corporate strategies within an ESG data framework, especially for those with high ESG scores.

This study looks into the relationship between CDP A-list scores and overall ESG leadership, a deep dive into how these ratings intersect and what it means for companies and their stakeholders.

Objectives

The primary objective of this study is to explore the correlation between CDP leadership and general ESG leadership. Examining the ESG ratings of 424 companies with the highest CDP score of A, we aim to uncover:

• How does CDP leadership correlate with broader ESG leadership?
• Is there a connection between different ESG rating indexes?
• Why should companies enhance their ESG ratings?

The purpose of this study is to explore the correlation between CDP leadership and general ESG leadership. We examine the ESG ratings of 424 companies with the highest CDP score of A and answer:

• How does CDP leadership relate to overall ESG leadership?
• Are there connections between different ESG rating indexes?
• Why should companies improve their ESG ratings?

ESG ratings give insights into a company’s sustainability performance, inform investors about its risk exposure, climate risks and its societal and environmental impacts, as assessed by ESG rating agencies through ESG reporting and by providing ESG scores. While there are many ESG solutions on the market for ratings, such as LSEG Refinitiv and Moody's, we focused on the most highly prioritised ESG rating agencies: MSCI, ISS, Sustainalytics, and S&P.

This study looks into the link between CDP disclosures and broader corporate disclosure, company disclosure and climate related financial disclosure and ESG leadership, and what it means for companies to improve their sustainability practices.

Analysis

We analyzed the ESG ratings of all 424 companies on the CDP A-list, across major rating agency criteria:

• CDP (source: CDP 2024 scores) - Leaders are on the CDP A-list, meaning they got the highest score in 1 of 3 categories, predominantly Climate Change, or otherwise Water and/or Forests (only 8 companies got a 'Triple A' score)
• MSCI (source: MSCI One data license) - Leaders who have AA or AAA ratings
• S&P DJSI (source: DJSI World Components PDF) - Listed on the DJSI World Index, meaning top 10% of their respective industries
• Sustainalytics (source: Sustainalytics Company ESG Risk Ratings) - Leaders within top 20% of peers within their industry
• ISS ESG (source: ISS ESG Gateway) - Those who have "Prime" status, meaning they exhibit exceptional performance relative to peers in their industry

Each of these agencies have different scoring methodologies, companies are assessed based on their material risks, impacts and management practices.

For example, MSCI ratings categorize companies from CCC to AAA; AA and AAA are leaders. S&P DJSI evaluates companies based on their scoring methodology and percentile rank scoring methodology, with the top 10% of their industry getting listed on the DJSI World Index.

Sustainalytics’ ESG Risk Ratings focus on industry-specific ESG risks and their management, ISS ESG uses a 12-point grading system, awarding a “Prime” score to industry leaders.

Results

Our results show a strong correlation between CDP A-list leadership and overall ESG leadership. More companies are leaders in four or more indexes (122 companies) than those only on the A-list (114 companies), meaning there is a significant overlap between CDP performance and general ESG success. Additionally, 73% of the CDP A-list companies are leaders in at least one other index, further underscoring this.

Companies with better ESG ratings have better access to capital markets and more investment opportunities. The DJSI World Index, known for its ESG investment appeal, has an annualized return of 10.5% over the past five years.

CDP A-listers make up 24.5% of the DJSI World Index, and among these, 51% are leaders by other rating agencies such as MSCI, ISS and Sustainalytics. This shows how important good ESG ratings are for a company’s financial performance and sustainability reputation.

ESG Ratings in greater scope

ESG ratings are key tools that provide insights into a company’s sustainability performance, influencing investor confidence and decision making. They assess a company’s performance across environmental, social and governance factors, giving a comprehensive view of its ethical and sustainable practices. By evaluating a company’s commitment to these factors, ESG ratings help investors and stakeholders assess its long term viability and corporate responsibility.

The purpose of ESG ratings is to promote transparency and responsible business practices. They are a key metric to measure how companies perform on ESG factors and therefore influence investment decisions. Understanding ESG ratings is crucial for responsible investing and for companies to improve their sustainability performance.

Passive ESG Ratings vs. Active ESG Disclosures

ESG ratings can be broadly categorised into passive and active. Passive ESG ratings (MSCI, ISS, Sustainalytics, LSEG Refinitiv, and Moody's) rely solely on publicly available information, such as annual reports, sustainability reports and public statements to assess a company’s ESG performance. These ratings evaluate the quality of the ESG data a company provides and compare it to industry peers, considering factors important for investors’ risk and opportunity assessments.

Active ESG ratings involve companies filling out questionnaires or surveys which are then scored by the rating agency. Examples are CDP and the S&P Corporate Sustainability Assessment (CSA), where companies need to actively participate. These active disclosures provide a more detailed and direct assessment of a company’s ESG initiatives and often result in higher levels of corporate transparency.

ESG Rating Providers in this assessment

The ESG rating landscape is populated by several major providers, each with their own methodology and criteria. The ones used in this assessment are:

• CDP
• S&P (DJSI / CSA)
• ISS
• MSCI
• Sustainalytics

Their assessments are important to evaluate companies’ environmental, social and governance performance, providing insights to help investors make informed decisions. The diversity among these providers shows the complexity and different approaches to evaluate corporate sustainability efforts.

ESG rating providers offer important assessments to understand a company’s commitment to sustainability and ethical practices, helping investors, companies and stakeholders to assess corporate responsibility and sustainability performance, influence investment strategies and corporate policies.

CDP - Carbon Disclosure Project

CDP is a global non-profit organisation that runs the world’s environmental disclosure system for companies, cities, states and regions.

In 2024, over 22,700 companies disclosed to CDP’s questionnaire on their Climate Change, Water and Forests data and commitments, with the vast majority (22,400) completing the Climate Change module.

Companies are scored on a D- to A scale, with the top 2% of all responders making it onto the A-list. On average, companies that are on the A-list outperformed the market by 6% over the last 10 years.

S&P Global's DJSI World Index & ESG Corporate Sustainability Assessment

S&P Global’s Corporate Sustainability Assessment (CSA) evaluates the sustainability performance of companies worldwide, scoring them from 0 to 100. The CSA compares companies across 62 industries, providing meaningful industry benchmarks. Almost half of the global market capitalisation is represented by companies in the CSA, highlighting the company’s performance and its broad engagement.

An independent third party, Deloitte, audits the CSA assessment process annually to ensure its integrity. This rigorous evaluation means the CSA scores are reliable and important for assessing corporate sustainability performance.

ISS ESG Corporate Rating

The ISS ESG Corporate Rating assesses corporate sustainability on a scale from D- to A+. Companies are rated on an absolute best-in-class basis, with the Prime Status designation meaning they meet specific sustainability performance thresholds. This status is awarded to companies with ESG performance above the sector-specific Prime threshold, meeting ambitious absolute performance requirements.

The ISS ESG methodology is aligned with international guidelines such as the UN Global Compact, UN Sustainable Development Goals and OECD Guidelines for Multinational Enterprises, so the ratings are consistent with globally recognised standards for corporate sustainability.

MSCI ESG Research

MSCI ESG Research evaluates the sustainability performance of 17,000 issuers and 999,000 securities, monitoring emerging markets risks and opportunities relevant to industries. The ratings assess companies based on their management of ESG risks compared to industry peers, providing a comprehensive view of their sustainability practices. MSCI started evaluating sustainability risks based on financial significance in 1999, so they are a pioneer in the field.

Asset managers use MSCI’s ESG metrics in their strategies to manage risk and improve investment performance. This shows the importance of MSCI ESG ratings in decision making and responsible investing. Asset managers play a key role in this process.

Sustainalytics ESG Risk Ratings

Sustainalytics’ ESG Risk Ratings help companies assess their ESG performance by identifying and managing ESG risks related to environmental, social and governance factors. These ratings are based on material ESG issues relevant to a company’s industry, so are tailored to the company. Investors use these ratings to assess risks in their portfolios to improve security performance and overall investment outcomes.

Sustainalytics offers tools for banks and lenders to integrate ESG into their product offerings, such as sustainability-linked loans. The ratings categorise companies into low, medium and high risk levels based on their ESG performance, so investors can understand and manage ESG risks in their portfolios.

Analysis of ESG Performance

ESG Leadership Among CDP A-listers

Number of companies assessed: 424

CDP A-listers generally meet leadership criteria in other ratings. The vast majority of CDP A-listers are Leaders in at least one other index (73%). The remaining 27% are not considered Leaders, but this also includes some private entities (i.e. not rated by Passive ESG ratings, as they are not available for public investment).

ISS is the most common rating for CDP A-listers to be considered Leaders (51%). So over half of CDP A-listers have a "Prime" listing.

Interestingly, there was a fairly even breakdown between the number of companies who were leaders in 2 Ratings (98 companies) vs. 3 Ratings (90 companies) vs. 4 Ratings (87 companies), from which one can infer a level of parity between how companies are scored by each rating agency.

• i.e. it gets progressively harder to be a Leader across all ratings (only 35 companies), but there's a relatively balanced journey to getting there. One can categorise companies’ ESG performance by how many ratings they are Leaders in and likely find commonalities of pros/cons within each of these groups.

ESG Leadership among CDP and MSCI Leaders

Number of companies assessed: 190

Out of the 190 companies who were both MSCI leaders and on CDP's A-list, the alignment to Leadership in other ESG ratings is starkly apparent. 41% are leaders in CDP, MSCI, and 2 of either Sustainalytics, ISS, or DJSI.

Again, it was exceptionally common for MSCI & CDP leaders to be considered Prime by ISS (74%), and still a sizeable majority for Sustainalytics (62%).

ESG Leadership among CDP and Sustainalytics Leaders

Number of companies assessed: 192

Out of 192 companies who ranked as Leaders within CDP & Sustainalytics, a similar pattern to MSCI emerged:

• ISS still the most common rating for companies to also be Leaders in (70%)
• More common for companies to be Leaders in 3 other ratings (39%) than 2 other ratings (24%)

However, there are slightly fewer companies who are listed as Leaders compared to MSCI, so we can conclude that Sustainalytics has a slightly stricter scoring criteria than MSCI when identifying Leaders.

ESG Leadership among CDP and ISS Leaders

Number of companies assessed: 217

Taking a look at ISS ESG scores, which was the largest category of CDP A-listers exhibiting leadership, the trend of companies exhibiting Leadership in 3 other ratings continues (38%).

There is an even split between ISS and MSCI on what % of companies are DJSI World listed (29%), and the number of companies who are Leaders in MSCI or Sustainalytics is also very even (3% differential).

This indicates that:

• MSCI, ISS, and Sustainalytics are fairly equitable in terms of how they score companies. One would expect a great deal of alignment between them.
• MSCI and ISS are most closely aligned to CDP, although Sustainalytics is only slightly less.

ESG Leadership among CDP and DJSI World Leaders

Number of companies assessed: 79

The DJSI World Index had the least Leadership alignment with CDP (18%). However, this only demonstrates how hard it is to get listed on the DJSI World Index, and that DJSI is working with a much smaller pool: The DJSI World Index is the top 10% of CSA scores by the largest 2,500 companies on the S&P Global BMI.

Given this, it's unsurprising that the vast majority of companies are well-rated by other ESG rating agencies - particularly ISS (80%).

However, one may have expected a higher percentile would be DJSI World Listed, CDP A-list, and a Leader in 3 other ratings, given the sizes and ESG maturity of many of the companies in the index (32%). This may indicate some disparity between CDP's scoring methodology versus that of the CSA, or the CSA versus other ESG ratings.

Summary

The analysis of CDP A-list scores among ESG ratings providers shows a strong correlation between CDP leadership and broader ESG success. Companies that are leaders in CDP disclosures tend to perform well across multiple ESG rating indexes, indicating their commitment to sustainability and ethical practices. This correlation means that striving for high ESG ratings can enhance a company’s financial performance, reputation and access to capital markets.

In conclusion, ESG ratings are powerful tools to get insights into a company’s sustainability efforts and ethical practices. By understanding the methodology and components of these ratings, companies can better manage their ESG risks and opportunities and contribute to a more sustainable and responsible business environment. Investors, stakeholders and companies should prioritize ESG performance for long term success and positive environmental and social impacts.

FAQs

What is the purpose of ESG ratings?

ESG ratings are to evaluate a company’s commitment to sustainability and ethical practices, which impacts investor decisions and corporate strategies.

How do CDP A-list scores correlate with broader ESG leadership?

CDP A-list scores strongly correlate with broader ESG leadership, as companies that are A-list tend to perform well in various ESG rating indexes. This means a high CDP score is an indicator of overall ESG success.

What are the components of ESG ratings?

The components of ESG ratings are Environmental, Social and Governance, which assess a company’s sustainability and ethical conduct. Understanding these is key to evaluating corporate responsibility.

How do ESG ratings impact investment decisions?

ESG ratings impact investment decisions by providing insights into a company’s sustainability performance and hence investor confidence and access to capital markets.

What is the difference between passive and active ESG ratings?

The main difference between passive and active ESG ratings is that passive ratings use publicly available information for evaluation, whereas active ratings require companies to participate in surveys or questionnaires to provide direct insights into their ESG performance.