What are ESG Scores?

 ESG (Environmental, Social, and Governance) Scores measure a company’s sustainability and ethical impact in three key areas:

What are ESG Scores?

ESG (Environmental, Social, and Governance) Scores measure a company’s sustainability and ethical impact in three key areas:

Component

Key Focus

Examples

🌿 Environmental (E)

Impact on nature

Carbon emissions, waste management, energy efficiency

🀝 Social (S)

Impact on people

Employee well-being, diversity, community relations

πŸ›️ Governance (G)

Ethical business practices

Board diversity, transparency, executive compensation

πŸ“Œ How Are ESG Scores Calculated?

Different rating agencies (like MSCI, Sustainalytics, Bloomberg, and Refinitiv) assign ESG scores based on:
✔ Public disclosures (company reports, news)
✔ Third-party sources (NGOs, regulatory bodies)
✔ Self-reported data from companies

πŸ“Œ Example ESG Rating Agencies:
✅ MSCI ESG Ratings (AAA to CCC)
✅ Sustainalytics Risk Ratings (Low to High Risk)
✅ FTSE Russell ESG Scores (0-5 scale)

πŸ“Œ Why Are ESG Scores Important in Finance?

1️⃣ Investment Decisions – ESG-conscious investors prefer companies with high ESG scores (e.g., ESG Mutual Funds, Green Bonds).
2️⃣ Risk Management – Companies with poor ESG scores face legal risks, reputational damage, or financial losses.
3️⃣ Regulatory Compliance – SEBI has introduced ESG disclosure norms in India for top-listed firms.
4️⃣ Corporate Valuation – High ESG scores often increase stock prices due to investor confidence.

πŸ“Œ Example:
✔ Tesla has a high environmental score but faces governance issues.
✔ Infosys & Tata Group have strong ESG practices in India.

πŸ“Œ ESG and Financial Performance

πŸ’‘ Does ESG improve financial performance?
πŸ”Ή Positive impact – Studies show firms with high ESG scores tend to be more profitable and stable in the long run.
πŸ”Ή Short-term costs – Implementing ESG policies can be expensive initially but pays off over time.

πŸ“Œ Example Research Topic:
"The Impact of ESG Scores on Stock Market Performance: A Study of Indian Companies"

πŸ“Œ How to Find ESG Data for Research?

πŸ”Ή Bloomberg Terminal – Best for financial ESG data
πŸ”Ή MSCI ESG Ratings – Widely used by investors
πŸ”Ή Sustainalytics – Provides risk-based ESG scores
πŸ”Ή Refinitiv Eikon – ESG performance tracking
πŸ”Ή SEBI Disclosures – ESG reports for Indian companies

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