ESG ratings indicate a company’s sustainability. This moneyland.ch guide explains the most important ratings and shows you how Swiss companies measure up.
Many investors take things like climate change and environmental impacts into account when investing in stocks. But finding out which companies are truly sustainable can be difficult. ESG ratings are meant to assist in this process. This guide explains the different ratings, and shows you which ratings apply to Swiss companies.
What does ESG mean?
ESG is the abbreviated form of environmental, social, and governance. It is used as a basis for values-based and sustainable investing. But the exact criteria and the way in which they are weighted varies between rating agencies. For that reason, ESG is more a broad concept than a clearly defined standard. You can find more information as well as examples of ESG criteria in the guide to sustainable investing and the ESG glossary definition.
What are ESG ratings?
ESG ratings aim to categorize companies and other entities based on a set of predefined criteria. The goal is primarily to create more transparency for investors, customers, and other stakeholders. Ratings are also meant to make comparing different companies possible.
Which ESG ratings are there?
There are many different ESG rating models, all of which differ in terms of the methodology and criteria uses (see Table 1).
Table 1: Overview of different ESG rating models
| Service provider | Domicile | Highest rating | Poorest rating |
|---|---|---|---|
| Inrate | Zurich, Switzerland | A+ | D- |
| MSCI | New York City, USA | AAA | CCC |
| Sustainalytics (Morningstar) | Amsterdam, Netherlands | 0 | >40 |
| Yuh | Gland, Switzerland | 5 stars (100) | 0 stars (0) |
Date: 12.03.2024.
How do the ESG ratings from Inrate work?
Swiss rating agency Inrate aims to rate the impact of companies on the environment and societies in a holistic way. Ratings apply across the board, and not just in comparison to other companies in the same industry sector. The highest possible rating is A+ and the poorest possible rating is D-. An overall rating of A indicates a very positive impact, and a B rating indicates a positive impact. Ratings of C or D indicate a negative or very negative impact.
Inrate adjusts its weightings for the individual environmental, social, and governance categories depending on the company’s industry sector. Companies are rated based on three different aspects of their business: their products and services; their management and operations; and controversies surrounding the company.
How do the ESG ratings from MSCI work?
US financial services provider MSCI, which also publishes well-known global stock indexes like the MSCI World, rates companies based on 10 primary themes (climate change, natural capital, pollution and waste, environmental opportunities, human resources, product liability, resistance from stakeholders, social opportunities, corporate governance, and corporate behavior). It also examines the way in which a company responds to sector-specific risks and opportunities. The ratings, which range between AAA and CCC, are not absolute: Companies are rated in comparison to other companies in the same industry sector. The AAA and AA ratings indicate a leading company. A, BBB, and BB ratings indicate an average company. A rating of B or CCC indicates that a company lags behind insofar as ESG is concerned.
How do the ESG ratings from Yuh work?
Swiss neobank Yuh, which is a joint venture between Swissquote and Postfinance, uses the combined ESG ratings from Refinitiv. Refinitiv is a subsidiary of the London Stock Exchange Group (LSEG). In addition to the three standard ESG criteria, Refinitiv also accounts for controversies surrounding a company. The ratings explicitly account for a company’s track record of keeping its own promises and sticking to its own guidelines. In total, more than 630 different points are considered for the analysis. The highest possible rating is 100 points, and the poorest rating is zero points. Yuh translates the point-based ratings into star-based ratings. The highest-rated companies have five stars, while the poorest-rated companies have no stars at all.
How do the ESG ratings from Morningstar Sustainalytics work?
Sustainalytics, which is part of US-based financial analytics company Morningstar, says that it rates more than 16,000 companies. Its ratings focus on ESG risks that may result from a company’s activities. Sustainalytics defines different risks for each industry sector and determines which risks a company is managing, and which risks remain open. For the evaluation, Sustainalytics calculates all of the unmanaged risks together. The theoretical highest rating is zero points. A rating of more than 20 points indicates a mid-sized amount of overall risk, while more than 30 points indicates a high risk. Companies with 40 points or more are exposed to a critical amount of overall risk. Ratings from Sustainalytics are used by Saxo Bank Switzerland.
What are the ESG ratings of major Swiss companies?
ESG ratings from the different rating agencies do not always match. The ratings of some Swiss companies vary substantially between rating agencies. Table 2 shows the ratings of the 39 Swiss companies with the heaviest weightings in the Swiss Performance Index (SPI).
Table 2: ESG ratings from the most important Swiss SPI companies
| Company | Inrate | MSCI | Sustainalytics | Yuh |
|---|---|---|---|---|
| Nestlé | C+ | AA | 27.3 | 2 stars (48) |
| Novartis | B | AA | 16.2 | 2 stars (54) |
| Roche | B | A | 23.8 | 4 stars (87) |
| UBS | C+ | AA | 19.7 | 2 stars (47) |
| Richemont | B | AA | 10.2 | 3 stars (70) |
| Zurich | B | AAA | 16.7 | 2 stars (51) |
| ABB | B+ | AA | 15.7 | 5 stars (94) |
| Sika | B | A | 22.6 | 3 stars (79) |
| Holcim | B- | AA | 20.0 | 3 stars (75) |
| Alcon | A- | AAA | 24.0 | 3 stars (68) |
| Lonza | B- | AAA | 16.4 | 4 stars (85) |
| Swiss Re | B+ | AAA | 16.3 | 4 stars (83) |
| Givaudan | B | AAA | 20.0 | 3 stars (75) |
| Lindt & Sprüngli | B | A | 25.6 | 3 stars (70) |
| Partners Group | B | A | 19.2 | 2 stars (55) |
| Swiss Life | B+ | AA | 15.7 | 3 stars (69) |
| Geberit | B | AA | 13.1 | 4 stars (87) |
| Straumann | B+ | A | 22.2 | 3 stars (67) |
| Kühne + Nagel | B- | AAA | 18 | 3 stars (71) |
| Sonova | B+ | AA | 17.2 | 4 stars (85) |
| SGS | A- | AAA | 18.7 | Not available |
| Logitech | B+ | AAA | 12.9 | 3 stars (79) |
| Swisscom | A- | AA | 15.2 | 2 stars (55) |
| Sandoz | C+ | Not available | Not available | Not available |
| VAT Group | B | AA | 25.9 | 1 star (31) |
| Swatch | B | BB | 16.7 | 2 stars (57) |
| Julius Bär | B+ | AA | 20.8 | 2 stars (48) |
| Schindler | A- | BBB | 19.9 | 3 stars (60) |
| Bâloise | B+ | A | 20 | 1 stars (39) |
| Swiss Prime Site | A- | A | 13.3 | Not available |
| SIG Group | A | AA | 13.9 | Not available |
| Adecco | B+ | A | 10.1 | 3 stars (71) |
| Georg Fischer | A- | AA | 23.3 | 4 stars (83) |
| PSP Swiss Property | B- | Not available | 17.1 | Not available |
| Tecan | B+ | Not available | 13.2 | Not available |
| Barry Callebaut | B- | AA | 13.5 | Not available |
| Helvetia | B | A | 25.5 | 3 stars (66) |
| Temenos | A+ | AA | 11.7 | 3 stars (74) |
| Ems-Chemie | B- | Not available | 31.7 | 1 stars (35) |
Date: 12.03.2024. Sources: Inrate, MSCI, Sustainalytics, Yuh. moneyland.ch does not guarantee the accuracy and currentness of information.
Color scheme: Inrate: A (green), B (yellow), C and D (red). MSCI: AAA and AA (green), A, BBB, and BB (yellow). Sustainalytics: <20 (green), 20-29.9 (yellow), >30 (red). Yuh: 4-5 stars (green), 2-3 stars (yellow), 0-1 stars (red).
Are there any problems with ESG ratings?
The issues with ESG ratings are closely related to the issues with ESG as a whole. The criteria used to rate companies are not standardized nor regulated. Each rating agency is free to define its own methodology, criteria, and weightings as it sees fit. Investors who are interested in the values behind the ratings have no choice but to research the methodologies and criteria used.
The ratings of Swiss companies show that ratings from different agencies often differ or even contradict each other. For example, Swiss bank UBS has a below-average rating from Inrate, but an excellent rating from MSCI. You can find more possible issues in the guide to the problems with ESG.
More on this topic:
A guide to sustainable investing
How to invest money in Switzerland
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