"Corporate ESG Evaluation Ratings Show Up to 5-Grade Difference by Institution... Influenced by Items and Criteria"

[Asia Economy Reporter Jeong Hyunjin] It has been found that the rating gaps among major domestic and international ESG (Environmental, Social, Governance) evaluation agencies can reach up to 5 levels out of a total of 7 levels. Due to differences in evaluation items and criteria among agencies, evaluations of the same company vary significantly.

The Federation of Korean Industries (FKI) announced this on the 26th through its report titled "Trends and Implications of Domestic and International ESG Evaluations." The FKI checked the ESG ratings from three agencies?Morgan Stanley Capital International (MSCI), Refinitiv, and the Korea Corporate Governance Service (KCGS)?for the top 100 companies by sales.

As a result, among the 55 companies rated by all three agencies, the average rating gap was 1.4 levels, and 22 companies (40% of the total) showed a difference of 3 or more levels. For example, Hyundai Steel showed a 5-level gap between MSCI (CCC rating) and Refinitiv (AA rating), a 3-level gap between MSCI and KCGS (BBB rating), and a 2-level gap between Refinitiv and KCGS.

(Data provided by the Federation of Korean Industries)

There were also significant differences in evaluations of global companies. When investigating the ESG ratings of 217 companies included in BlackRock’s ESG Exchange-Traded Fund (ETF), the world’s largest asset manager, the average rating gap between MSCI and Refinitiv was 1.0 level. Seventeen companies showed a difference of 3 or more levels, and 28 companies showed a 2-level difference.

The FKI explained that the reason for such large differences in evaluation results among agencies is due to differences in evaluation items and criteria. For example, in environmental (E) evaluations, MSCI’s categories are "climate change, natural resources, pollution & waste, environmental opportunities," whereas KCGS’s categories consist of "environmental strategy, environmental organization, environmental management, environmental performance, stakeholder response." Refinitiv’s categories are "resource use, emissions, product innovation."

The FKI also explained, "Although the frameworks applying bonus and penalty methods are similar, differences arise in detailed score calculations and weighting." Citing expert opinions, it added, "There is a reasonable suspicion of a Korea discount by overseas ESG evaluation agencies," and "There is also a problem that ratings are calculated relying only on publicly available data without feedback or communication with Korean companies."

Considering these points, the FKI emphasized that each evaluation agency should set benchmark indicators by clearly defining why each company pursues ESG?whether for attracting investment, responding to pension funds, or other specific directions. It advised companies not to confuse ESG with vague CSR (Corporate Social Responsibility) or CSV (Creating Shared Value) activities but to approach it as a management strategy aimed at achieving sustainable growth.

The FKI also added that to resolve suspicions such as the Korea discount, "a third-party organization like the FKI needs to more actively provide information on companies’ ESG activities to global evaluation agencies from an IR (Investor Relations) perspective."

This content was produced with the assistance of AI translation services.