As sustainability becomes a core part of business, companies are expected to manage their environmental and societal impact. ESG ratings assess how effectively a company performs across three key areas: Environmental, Social, and Governance.

A strong ESG rating can enhance your company’s image and attract investors. But what does it take to achieve a top ESG score? This guide explains the basics of ESG ratings and how they are determined.

What is an ESG rating?

An ESG rating is a quantitative assessment that evaluates a company’s performance in three critical areas: Environmental, Social, and Governance. These ratings provide insights into how well a company manages risks and opportunities related to sustainability and ethical practices.

These are the most critical components of ESG scores

• Environmental (E): Assesses a company’s environmental impact.
• Social (S): Evaluates how a company manages relationships with employees, suppliers, customers, and communities.
• Governance (G): Examines corporate governance structures and transparency.

ESG scores are a tool for investors and stakeholders to measure a company’s commitment to sustainable practices. A high ESG rating can enhance reputation and indicate long-term resilience.

Why ESG ratings are essential for companies

ESG ratings are more than just numbers—they play a key role in how a company grows, earns trust, and stays competitive. Here’s why they matter:

Building Strength and Trust

ESG scores help companies show how well they manage their impact on the environment and people, and how they are governed. A strong rating builds trust, improves business performance, and helps companies stand out.

Attracting Investors

More investors are looking for companies that care about sustainability. A good ESG score shows your business is responsible and well-managed, which can help attract funding and lower borrowing costs.

Meeting Government Rules

The Indonesian government is making ESG compliance a priority. A solid ESG score helps your company meet regulations, win public contracts, and access tax benefits or other support.

Earning Customer Loyalty

People want to buy from companies that share their values. A good ESG score shows your business is ethical and sustainable, which can boost your reputation and customer loyalty.

Reducing Risks

Companies with low ESG scores face more risks, such as fines, bad press, or supply chain problems. A high rating shows that your company manages risks well and avoids potential issues.

Who gives ESG ratings?

ESG scores are provided by specialized organizations known as ESG rating agencies. These agencies collect, analyze, and score companies based on Environmental, Social, and Governance performance.

Several global and regional agencies assign ESG scores using different methods and data sources. Some of the most recognized ESG score companies include:

• MSCI ESG Ratings: Evaluates thousands of companies worldwide based on industry-specific risks.
• Sustainalytics: Provides risk-based ESG assessments and insights used by investors and corporations.
• FTSE Russell: Offers ESG scores and indices for public companies.
• Refinitiv ESG Scores: Uses over 400 data points to assess ESG performance across 10 themes.
• EcoVadis: Popular for assessing ESG performance in supply chains, especially for SMEs.
• Bloomberg ESG Data Services: Offers ESG scores and data through its financial platforms.

Companies in Indonesia may receive ESG ratings from global agencies and local evaluators. Those assessors align with international standards while considering regional regulations and business practices.

What is a good ESG rating for a business?

A good ESG score reflects a company’s commitment to sustainability and ethical practices. But what scores are reasonable?

Before diving into how ESG ratings are considered good, we need to understand the rating scales. Different agencies use various scoring systems, with a breakdown as follows:

• MSCI: AAA (Leader) to CCC (Underperformer)
• Sustainalytics: 0–10 (Negligible risk), 10–20 (Low), 20–30 (Medium), 30–40 (High), 40+ (Severe)
• Refinitiv: 0–100 (Higher scores are better)
• EcoVadis: Bronze to Platinum medals based on percentile rank

Characteristics of Good ESG Ratings

In most systems, a score in the top 20–30% of your industry is seen as good. However, what qualifies as “good” can vary by sector, geography, and the rating agency’s criteria.

When your company receives a good ESG score, it generally means:

• Your company actively manages ESG risks and opportunities
• You have transparent reporting and data-backed ESG policies
• You follow recognized frameworks like GRI or SASB
• You maintain strong ethical standards and corporate governance
• You show improvement over time, not just high scores

How to calculate an ESG rating

Calculating an ESG score involves evaluating a company’s performance using specific metrics and methodologies. While exact formulas vary by agency, the core process consists of the following approaches:

1. Data Collection

Agencies collect data from multiple sources:

• Company sustainability reports
• Annual financial filings
• Regulatory disclosures
• Media coverage and controversies
• Surveys and direct assessments

This data must be accurate, current, and aligned with reporting standards like GRI, SASB, or TCFD.

2. Scoring ESG Factors

Each of the three ESG pillars is scored individually:

• Environmental: Carbon emissions, energy usage, waste management, water conservation, climate policies
• Social: Labor practices, diversity, community impact, health and safety, stakeholder engagement
• Governance: Board structure, transparency, ethics policies, anti-corruption efforts, shareholder rights

Scores are usually based on industry-specific weightings, recognizing that ESG risks differ between sectors.

3. Normalization And Benchmarking

Scores are compared against peer companies in the same industry. This benchmarking helps normalize ratings and highlights the score leaders within each sector.

4. Final ESG Score

The agency combines the three pillar scores to produce a final ESG rating or risk score.

Key strategies to improve the ESG scores

Improving your ESG score requires action across your business, from leadership to operations. Here are key strategies to get started:

1. Strengthen ESG Governance

Establish a dedicated ESG team or committee and ensure top leadership, including the board, is involved in ESG oversight. Clear policies and frameworks help guide decisions and show commitment.

2. Set Clear ESG Goals

Define specific, measurable targets such as reducing emissions or improving workforce diversity. Align the goals with global standards like the UN SDGs or GRI, and track progress regularly.

3. Improve Transparency and Reporting:

Publish detailed and honest ESG reports. Use standard frameworks to ensure consistency and reliability to build trust with investors and stakeholders.

4. Engage Stakeholders

Involve employees, suppliers, customers, and communities in ESG discussions. Gather feedback and show how you respond to their concerns.

5. Focus On Supply Chain Sustainability

Assess business partners based on ESG risks and promote ethical sourcing. Working with verified partners improves your overall ESG profile and reduces exposure to compliance issues.

Read more: 7 ESG strategies for long-term business growth and impact

Strengthen your ESG profile with InCorp

Enhancing your ESG rating is essential for creating a sustainable, credible, and competitive business. At InCorp Indonesia (an Ascentium Company), our ESG Advisory and reporting services support businesses through every stage of the ESG process. Our experts will assist you in achieving full compliance and a smooth ESG integration tailored to your operations.

Contact us today and take the first step toward a more responsible business.

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