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Top Companies with a High ESG Risk Rating Score

Published on Sep 19, 2024

The rapid growth of ESG investing over the last few years has coincided with the greater availability of information on companies than ever before. However, markets need transparent ESG information to allocate finance efficiently to more sustainable outcomes.

Leaders in sustainability data and technology are approaching their ESG measures on transparency, consistency, and accessibility. A wide range of data-driven ESG solutions enable organizations to be custodians of their own data, offering framework-neutral ESG information in real-time while promoting transparency. The result is a holistic view of the ESG and climate performance of the corporate ESG leaders.

What the ESG Risk Ratings Measure?

The ESG Risk Ratings measure the degree to which an organization's economic value is at risk driven by ESG factors. It highlights the magnitude of a company’s unmanaged ESG risks. An organization's ESG Risk Rating comprises of a quantitative score and a risk category. The quantitative score highlights units of unmanaged ESG risk, with lower scores representing less unmanaged risk. Unmanaged Risk is calculated on an open-ended scale starting at zero and a maximum score below 50.

Based on their quantitative scores, enterprises are grouped into one of five major risk categories-

negligible
low
medium
high
severe

These risk categories are absolute, indicating that a high-risk assessment reflects a comparable degree of unmanaged ESG risk across all subindustries.

Building Blocks of ESG Risk Ratings

The ESG Risk Ratings comprise three building blocks that contribute to a company’s overall rating. These building blocks include Corporate Governance, material ESG issues (MEIs), and idiosyncratic issues.

Building Block 1: Corporate Governance

Corporate governance is a foundational element in the ESG Risk Ratings and reflects an organization's conviction that poor corporate governance poses material risks for companies. It is applicable to all enterprises in the rating universe, irrespective of their subindustry. The exposure to Corporate Governance is similar across the board. On average, unmanaged corporate governance risk contributes about 20% to a firm's overall risk score. The final weight varies depending on the individual selection of material ESG issues specific to the organization.

Building Block 2: Material ESG Issues

Material ESG concerns focused on a specific topic or related topics requiring a common set of management initiatives. Topics like employee recruitment, diversity, engagement, and labor relations are all encircled by the material ESG issue of human capital, which is employee-related and requires HR initiatives and oversight. The common thread is attracting and retaining qualified employees and ensuring employees' health and safety at their workplace. The assessment of material ESG issues happens at the subindustry level and is reviewed annually through a structured process.

Building Block 3: Idiosyncratic Issues

Idiosyncratic issues are unpredictable or unexpected because they are unrelated to the specific subindustry and the business model found in that subindustry. Issues that are event-driven are referred to as black swans. Idiosyncratic Issues are material ESG issues if the associated event assessment passes a threshold.

How do ESG Ratings Affect Investors?

ESG investing does not involve picking stocks on ESG factors. Instead, the investor adds an ESG review to the traditional investment process. But how an investor incorporates ESG scores into their decision-making can be determined based on the following:

They can utilize ESG ratings to supplement financial analysis. An ESG review provides more insights into the risks a company faces.
They can use ESG ratings as a screen to invest in stocks of organizations that are not only good corporate citizens but also committed to sustainable business practices.
They can use ESG ratings to gain insight into an organization they already own. A negative change in an ESG rating can be a flag to dig deeper and identify the reason.

ESG Ranking Scores and their Significance

With the growing significance of the climate crisis, the concept of environmental and social impact has been gaining traction. This push to look at investment decisions holistically has given rise to Environmental, Social, and Governance policies and practices. ESG helps measure the societal and sustainability impact of an organization's business activity. It equips investors to responsibly invest in enterprises that manage their impact on the environment and society.

Three Components Essential for Every Company’s Ranking Include:

ESG scores help measure how well an organization can manage its sustainability issues.
Temperature scores help measure an organization's climate impact.
GHG emissions help report and estimate greenhouse gas (GHG) emissions of companies.

Organizations use artificial intelligence and alternative data to benchmark their ESG performance, allowing them more company coverage, real-time insights, and the ability to look beyond a score and determine whether a company meets the ESG criteria. ESG rating agencies measure the performance of different companies and compare them through rankings and ratings. However, this does not always present the full picture.

ESG ratings measure an organization's exposure to long-term environmental, social, and governance risks. These risks involve issues like energy efficiency, worker safety, and board independence, along with financial implications. However, they are often not highlighted during traditional financial reviews. Investors use ESG ratings to supplement financial analysis and gain a broader view of a company's long-term potential.

Top Companies with the Best ESG Risk Rating Score

Globally, the significance placed on environmental efforts varies amongst stakeholders, reflecting diverse cultural, economic, and regulatory landscapes. This variation underscores the need for organizations to adopt a tailored approach to sustainability.

Mentioned below are the top 10 ESG companies ranked by risk score.

A score of 0.00-9.99 is considered negligible
A score of 10.00-19.99 is considered low.

ESG Risk Rating Score of Companies

Keysight Technologies - 6.07
RELX - 7.02
Accenture - 8.65
Experian - 10.07
Linde - 10.34
AutoZone - 10.98
Agilent Technologies - 11.36
S&P Global - 11.45
O’Reilly Automotive - 11.78
Lowe’s Companies - 11.84

Top 50 ESG Rating Score Companies List

For organizations, the core message of ESG remains unchanged. The components of ESG represent fundamental elements of contemporary business practice that can drive long-term success and ethical leadership in a rapidly evolving world.

Despite some claims that ESG is a cultural weapon rather than a business practice, Environmental, Social, and Governance (ESG) principles are crucial reputational areas relevant to corporate longevity. ESG is vital in shaping sustainable, equitable, and ethical businesses. The transformative power of ESG initiatives goes beyond labels.

Motorola Solutions
Thermo Fisher Scientific
Waters
Home Depot
Cisco Systems
Tractor Supply
ABB
Rentokil Initial
Taiwan Semiconductor Manufacturing
Descartes Systems Group
Novartis
Microsoft
Dassault Systemes
Ansys
Air Products and Chemicals
Moody’s
Coloplast
Haleon
Visa
ServiceNow
Zoetis
Automatic Data Processing
Autodesk
Sysco
GSK
TJX Companies
Mastercard
Copart
Tradeweb Markets
Deere
Expeditors International of Washington
Hilton Worldwide Holdings
Verisk Analytics
InterContinental Hotels Group
Apple
Canadian National Railway
Intuit
Yum China Holdings
Kenvue
Diageo
Cintas
CME Group
Ross Stores
Rockwell Automation
C.H. Robinson Worldwide
Pfizer
West Pharmaceutical Services
Analog Devices
American Express
Tyler Technologies

Key Highlights -

ESG ratings help assess an organization's handling of environmental, social, and governance risks, which can impact long-term value.

Utilizing ESG ratings, organizations can enhance traditional financial analysis by revealing potential risks.

Investors use ESG ratings for deeper insights or as a filter to align with personal values in portfolio decisions.

Summary - Best ESG Rating Companies

An organization's approach to sustainability emphasizes how it anticipates and addresses these long-term risks. Companies mishandling ESG issues can incur significant economic costs, jeopardizing their ability to achieve long-term profits.

ESG Risk Rating considers two main factors - a company’s vulnerability to ESG risk and management, which represents the actions taken by an organization to manage a particular ESG issue. The lower the number, the lower the risk. However, it is important to note that sustainable organizations have controversies.

Multiple data security incidents contribute to an organization's operational and reputational risk, as shareholders and customers lose confidence in its management.

Companies marching on the path to becoming sustainable are committed to working on key areas that will help improve their reputation across the board.

A leader in ESG Services, SG Analytics offers bespoke sustainability consulting services and research support for informed decision-making. Contact us today if you are in search of an efficient ESG (Environmental, Social, and Governance) integration and management solution provider to boost your sustainable performance.

About SG Analytics

SG Analytics (SGA) is an industry-leading global data solutions firm providing data-centric research and contextual analytics services to its clients, including Fortune 500 companies across BFSI, Technology, Media & Entertainment, and Healthcare sectors. Established in 2007, SG Analytics is a Great Place to Work® (GPTW) certified company with a team of over 1200 employees and a presence across the U.S.A., the UK, Switzerland, Poland, and India.

Apart from being recognized by reputed firms such as Gartner, Everest Group, and ISG, SGA has been featured in the elite Deloitte Technology Fast 50 India 2023 and APAC 2024 High Growth Companies by the Financial Times & Statista.

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