ESG Rating Agencies: Why They Disagree on Half of All Companies

ESG rating agencies rate the same company using the same publicly available data and routinely reach opposite conclusions. A 2022 paper in the Review of Finance by Florian Berg, Julian Kölbel, and Roberto Rigobon found that the correlation between ESG ratings from major providers averages roughly 0.61, with pairwise correlations ranging from 0.38 to 0.71. Credit ratings from Moody's and S&P correlate at 0.92 for comparison. Thirty-five trillion dollars in capital is allocated using ESG scores this inconsistent. The agencies are not measuring the same thing, they are not transparent about what they are measuring, and the companies being rated have learned to influence the scores.

Key Findings

The average pairwise correlation between major ESG rating providers is roughly 0.61, with the range across pairs running from 0.38 to 0.71 (Berg, Kölbel, Rigobon, Review of Finance, 2022).
The same paper attributes 56% of the divergence to measurement, 38% to scope, and 6% to weighting.
Tesla was removed from the S&P 500 ESG Index in May 2022 while retaining a positive rating from MSCI during the same period.
Exxon Mobil has held higher MSCI ESG scores than Tesla in multiple evaluation periods because MSCI weights industry-relative performance, not absolute environmental impact.
The ESG ratings and data industry generates roughly $1 billion annually in revenue from companies, fund managers, and institutional investors.
Tariq Fancy, former BlackRock global CIO for sustainable investing, called the industry "a dangerous placebo that harms the public interest" in his 2021 essay series.

How the Agencies Differ

The three major agencies (MSCI ESG Ratings, Sustainalytics, which Morningstar acquired in 2020, and S&P Global ESG Scores) each use different methodologies, different data sources, and different weighting systems.

| Dimension | MSCI | Sustainalytics | S&P Global | |-----------|------|----------------|------------| | Rating scale | AAA to CCC | 0-100 risk score (lower = better) | 0-100 score (higher = better) | | Industry adjustment | Yes, scores relative to industry | Yes | Yes | | Data sources | Public disclosure + MSCI research | Public disclosure + stakeholder data | SAM Corporate Sustainability Assessment | | Company engagement | Yes, companies can dispute scores | Yes | Yes, companies submit questionnaire |

The industry-relative adjustment is the critical piece most discussions miss. An oil company rated "AA" by MSCI is not rated favorably in absolute environmental terms. It is rated as a well-managed risk relative to other oil companies. This is methodologically defensible but routinely misrepresented to retail investors.

The practical consequence: when an investor uses an ESG score to make a portfolio decision, they frequently buy exposure to "best in class" companies across all sectors, including fossil fuel companies that score highly relative to their sector peers, rather than screening out industries with inherent environmental impact.

Electric vehicle interior representing the Tesla ESG rating controversy — Tesla's simultaneous removal from the S&P 500 ESG Index and maintenance of a positive MSCI ESG rating in 2022 made the methodology divergence visible to a broad audience. The agencies were measuring different things, and neither made that distinction clear to investors. *Photo via Pexels. Pexels License.*

What did MSCI and S&P actually say about Tesla?

Tesla is the case that made the divergence visible to a broad audience. In May 2022, S&P Global removed Tesla from the S&P 500 ESG Index. The stated reasons included racial discrimination and poor working conditions claims at Tesla's Fremont factory, the NHTSA autopilot investigations, and gaps in low-carbon strategy for the non-EV parts of Tesla's business.

At the same time, Tesla maintained a positive rating from MSCI, reflecting the agency's view that Tesla was managing industry-relative ESG risks adequately compared to other automakers.

Elon Musk's response on Twitter characterized the situation accurately: "ESG is a scam." He noted that Exxon was rated in the top 10 on ESG by S&P while Tesla was excluded. He was correct about the Exxon ranking. Exxon's score reflected strong governance and risk management practices by the agency's methodology, not absolute environmental performance.

The agencies are measuring different things. None of them adequately disclosed this to retail investors or the financial press. The Tesla-versus-Exxon comparison became a viral illustration of the problem precisely because it defied the obvious expectation that an electric vehicle company should score higher on environmental metrics than an oil major. When the scores inverted that expectation, it prompted questions the agencies had not publicly prepared answers for. The same dynamic shows up in Ford's $11.5 Billion EV Writedown.

The Influence Problem

Berg, Kölbel, and Rigobon's 2022 paper attributed roughly 56% of rating divergence to measurement choices (how a given activity is scored), 38% to scope (which activities count), and 6% to weighting (how categories are combined). These are not technical quibbles. They are definitional disagreements that determine which companies an investor labels "sustainable."

The more significant finding, which received less coverage: companies can influence their scores. The major agencies allow companies to review draft ratings and submit additional information before final publication. The agencies frame this as a data quality measure. It is also a mechanism by which companies can dispute negative assessments or provide context that improves their score.

Companies with dedicated ESG teams (which larger companies consistently have) systematically produce better ESG disclosure. Better disclosure produces better ESG scores. This is not the same as better ESG performance.

The result: companies have optimized for ESG rating methodology, not for actual ESG outcomes. A company that hires an ESG disclosure specialist to improve its documentation will see its scores improve even if its underlying practices do not change.

Financial analysis documents and calculator on a desk — The Berg, Kölbel, and Rigobon study analyzed the same company data processed through multiple rating agency methodologies. The 0.61 correlation finding means two agencies rating the same company will agree substantially less often than the 0.92 correlation between credit rating agencies. *Photo: Towfiqu barbhuiya via Unsplash. Unsplash License.*

What did Tariq Fancy actually argue?

Fancy's 2021 Medium essay series, published after he left BlackRock's sustainable investing division, is the most direct internal critique of the ESG industry from a former practitioner. His core argument: ESG investing does not reduce emissions, improve labor practices, or produce the social outcomes its marketing claims. It prices positive corporate disclosures into asset values without changing corporate behavior.

"By allowing companies to project a more positive image of themselves without making any real changes," Fancy wrote, "we're greenwashing the world."

BlackRock, where Fancy worked until 2019, was the largest seller of ESG funds in the world at the time of his critique. Fancy's specific claims: ESG funds charge higher management fees than equivalent index products, deliver no better risk-adjusted returns over comparable periods, and direct no measurable capital away from high-emitting industries toward low-emitting ones. When an ESG fund excludes a stock, another fund buys it. The excluded company's cost of capital does not change.

The secondary market reality: ESG ratings affect stock prices, which affects existing shareholder wealth, which does not change corporate investment decisions. A company whose ESG score improves sees its stock price rise; a company whose score falls sees its stock price drop. Neither change creates a direct incentive to modify the underlying behavior the score is supposed to measure. Companies respond to cost of capital in primary markets, where new equity is issued, not to price changes in secondary markets. For the broader history of how this product line was built, see The ESG Industrial Complex.

What $35 Trillion Buys

Capital allocated through ESG frameworks has grown from roughly $10 trillion in 2015 to an estimated $35-40 trillion as of 2024, depending on how "ESG-aligned" is defined. Much of this growth came through index inclusion: when companies are included in ESG indices, passive funds tracking those indices buy the stock.

The result: companies with high ESG scores receive cheaper capital than companies with low ESG scores, all else equal. This is the intended mechanism. ESG advocates argue it creates a financial incentive for better corporate behavior.

The Berg study undermines this logic. If two major rating agencies disagree on whether a company has a high ESG score, with an average pairwise correlation of only 0.61, then the signal companies are responding to is primarily about what each agency's methodology rewards, not about underlying environmental or social outcomes.

Companies have optimized for ESG rating methodology. That is not the same as improving ESG performance. The same divergence shows up in corporate climate pledges generally, as we cover in Net Zero Theater.

Financial market chart showing capital allocation trends — $35-40 trillion in capital is allocated using ESG ratings that correlate at roughly 0.61 between major providers. The scale of the market is not matched by the precision of the measurement. *Photo: Pixabay via Pexels. Pexels License.*

What Regulators Have Said

The SEC's 2022 proposed rules on ESG fund disclosures acknowledged the divergence problem explicitly. The proposed rules would have required ESG funds to disclose how they define ESG, what data sources they use, and what criteria determine inclusion or exclusion. The rules were finalized in 2024 in a more limited form after industry pushback.

The European Union's Sustainable Finance Disclosure Regulation (SFDR), implemented in 2021-2022, created a tiered classification system (Article 6, 8, and 9 funds) designed to bring more consistency to ESG fund labeling. Early implementation revealed significant inconsistency in how fund managers classified their products. Hundreds of funds initially labeled as "dark green" (Article 9) were downgraded to "light green" (Article 8) after regulators pushed back on classification standards.

Neither regulatory effort has resolved the underlying problem the Berg study identified: the agencies are measuring different constructs using different methodologies, and the inconsistency is structural, not a data quality problem that better disclosure rules can fix.

The WokeCorp assessment

The commitment. The article notes major ESG rating agencies (MSCI, Sustainalytics, S&P Global) publicly position themselves as providing objective signals to institutional investors about corporate ESG performance.

The outcomes. The Berg, Kölbel, Rigobon 2022 paper found average pairwise correlation among major ESG raters of 0.61 (range 0.38-0.71), vs. 0.92 for credit ratings, with 56% of divergence from measurement, 38% from scope, and 6% from weighting.

The core question. Rating divergence isn't a data quality problem that can be fixed with better methodology. It reflects genuine disagreement about what ESG measures and who it's for. Two raters with entirely different frameworks will produce different scores from the same company data, and both can be internally consistent.

Compare with The ESG Industrial Complex.

Sources

Florian Berg, Julian F. Kölbel, Roberto Rigobon, "Aggregate Confusion: The Divergence of ESG Ratings," Review of Finance, Vol. 26, Issue 6 (2022), pp. 1315-1344. Verified 2026-05-20.
Tariq Fancy, "The Secret Diary of a Sustainable Investor," Parts 1-3, Medium, August 2021. Verified 2026-05-20.
MSCI ESG Ratings Methodology, msci.com. Verified 2026-05-20.
S&P Global, S&P 500 ESG Index rebalance announcement, May 2022. Verified 2026-05-20.
"S&P 500 ESG Index Removes Tesla, Adds Exxon," Reuters, May 18, 2022. Verified 2026-05-20.
SEC Final ESG Fund Disclosure Rules, sec.gov. Verified 2026-05-20.
European Commission, Sustainable Finance Disclosure Regulation overview. Verified 2026-05-20.