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ESG Ratings and Their Disagreements

Using Multiple ESG Raters: Strategies for Reconciling Conflicting Scores

Pomegra Learn

How Should Investors Use Multiple ESG Rating Providers?

Given the well-documented divergence among ESG rating agencies — with inter-provider correlations of approximately 0.54–0.61 — relying on a single ESG data source for portfolio decisions is analytically weak. Yet using multiple providers without a coherent strategy for reconciling their outputs can create confusion, inconsistency, and the illusion of accuracy through averaging incompatible methodologies. This article provides practical frameworks for institutional investors navigating multi-provider ESG data strategies.

Quick definition: A multi-provider ESG strategy uses data from two or more ESG rating agencies, recognizing that different providers have different methodological strengths and coverage advantages — and that their disagreements about specific companies carry information about ESG complexity and uncertainty.

Key takeaways​

  • The most productive use of multiple ESG raters is not to average their scores but to use each provider's comparative advantage — MSCI for industry-relative performance, Sustainalytics for risk quantification, Bloomberg for broad disclosure data, ISS ESG for governance depth.
  • Divergence between credible raters about specific companies is informative: it signals ESG complexity or contested facts that warrant further investigation rather than mechanical averaging.
  • Factor-level data (specific carbon emissions, specific governance metrics, specific controversy flags) is more actionable than aggregate scores, and comparing factor-level data across providers is more productive than comparing their aggregate outputs.
  • Portfolio-level ESG metrics (average ESG score, carbon footprint, controversy rate) can be calculated across providers to see how sensitive portfolio ESG quality assessments are to provider choice.
  • Clear governance — defining which provider's score governs inclusion/exclusion decisions, how conflicts are escalated, and how provider disagreements affect engagement priorities — is essential for operationalizing a multi-provider strategy.

Why Multiple Raters Matter​

Coverage complementarity: No single provider covers all companies in a global equity universe comprehensively. Bloomberg covers more companies (15,000+) than MSCI or Sustainalytics, making it useful as a broad coverage baseline even if its disclosure-based scores are less analytically rich for specific investment decisions. Using Bloomberg for initial universe coverage and MSCI or Sustainalytics for deeper assessment of investable companies optimizes for both breadth and depth.

Conceptual complementarity: Different rating frameworks capture different dimensions of ESG quality:

  • MSCI's relative performance framework identifies which companies manage ESG risks best within their sector
  • Sustainalytics' absolute risk framework quantifies how much unmanaged ESG risk companies carry
  • Bloomberg's disclosure framework shows which companies are most transparent about ESG
  • ISS ESG's governance integration connects proxy research to governance quality assessment

Using multiple frameworks captures dimensions that any single framework misses.

Divergence as signal: When multiple credible providers agree on a company's ESG quality, confidence is higher than when only one covers it. When credible providers disagree substantially, this is a signal that the company's ESG profile is genuinely complex or contested — warranting additional analysis.

Practical Multi-Provider Frameworks​

Framework 1: Primary + Verification Provider​

Designate one provider as the primary ESG data source (used for portfolio construction, index selection, screening) and a second as a verification source (used to flag cases where the primary provider's assessment may be questionable).

Implementation: Compare scores from both providers for all holdings. When scores diverge significantly (e.g., primary rates company as ESG Leader, verification rates it as High Risk), escalate to additional analysis before relying on the primary score. This approach maintains operational simplicity (one score governs most decisions) while creating a systematic check against primary provider blind spots.

Best suited for: Index managers, passive ESG funds, and institutions with limited ESG research staff who need operational simplicity.

Framework 2: Factor-Level Triangulation​

Instead of comparing aggregate scores, collect specific factor-level data from multiple providers and build portfolio analysis from the factor level up. Use MSCI for industry-adjusted environmental and social key issue scores; Sustainalytics for unmanaged risk quantification; Bloomberg for disclosure coverage and trending data; ISS ESG or a governance-specific source for governance depth.

Implementation: Map each ESG factor to the data source where coverage and methodology are strongest. Build portfolio ESG assessments from the factor level, not by averaging aggregate scores.

Best suited for: Fundamental ESG managers, engagement-oriented asset owners, and institutions with dedicated ESG research teams.

Framework 3: Sensitivity Analysis​

Calculate portfolio ESG quality metrics (average score, percentage of holdings above quality threshold, weighted average carbon intensity) using each provider separately. Use the spread of outcomes to quantify how sensitive the portfolio's apparent ESG quality is to provider choice.

Implementation: If Portfolio X appears "High ESG Quality" on MSCI, "Medium ESG Quality" on Sustainalytics, and "High ESG Quality" on Bloomberg, the sensitivity analysis suggests the MSCI and Bloomberg assessments are aligned while Sustainalytics identifies more unmanaged risk. This could warrant investigating specific holdings driving the Sustainalytics divergence.

Best suited for: Institutional investor ESG risk reporting, client communication, and regulatory reporting where ESG quality claims require epistemic honesty about data limitations.

ESG multi-provider decision framework​

Using Divergence for Engagement Prioritization​

Companies where ESG rating providers disagree substantially are often among the most productive engagement targets. Significant divergence can indicate:

  • A company is managing its questionnaire responses well (high questionnaire-based score) but has significant controversy exposure (high controversy-based risk score)
  • A company has strong environmental performance but contested governance practices
  • A company is in transition — improving on some ESG dimensions while still weak on others

For active engagement programs, prioritizing companies with high cross-provider divergence can identify conversations where investor views may affect how the company addresses contested ESG dimensions.

Governance for Multi-Provider ESG Strategies​

Primary provider designation: Investment Policy Statements should specify which ESG provider's scores govern specific decisions (inclusion/exclusion, weighting, reporting). Using multiple providers without specifying which governs which decision creates ambiguity that can undermine ESG program integrity.

Conflict escalation process: Define how portfolio managers escalate when primary and secondary providers disagree significantly on a company that is a current or prospective holding. The escalation process should produce a documented decision about which assessment to rely on and why.

Annual provider review: ESG data providers change their methodologies, coverage, and data quality over time. Annual review of each provider's coverage quality, methodology updates, and relative performance against your investment objectives maintains data quality.

Cost-benefit analysis: ESG data is expensive — major institutional subscriptions can cost $100,000–$500,000+ annually per provider. Multi-provider strategies must demonstrate that the incremental value of additional providers justifies the cost.

Real-world examples​

PRI signatories' multi-provider practices: PRI's annual reporting framework asks signatories to describe their ESG data sources and how they are used. Analysis of PRI signatories' reported practices (from PRI's transparency reports) shows that larger, more sophisticated asset owners typically use 3–4 data providers, while smaller institutions more often rely on 1–2 providers.

Pension fund tender processes for ESG data: Major pension funds regularly run competitive tenders for ESG data contracts, evaluating multiple providers on coverage, methodology, quality, and cost. These tender processes typically result in the selection of a primary provider plus 1–2 supplementary providers for specific use cases — reflecting a structured multi-provider strategy.

Large asset manager ESG data governance: Some of the world's largest asset managers have published descriptions of their ESG data governance frameworks showing how multiple data sources are integrated — primary providers for broad portfolio screening, specialized providers for climate risk, controversy data services for real-time monitoring. These published frameworks provide public examples of how sophisticated ESG data strategies are structured.

Common mistakes​

Averaging across providers with different scales: MSCI uses a letter scale; Sustainalytics uses a 0–100 inverted numeric scale; Refinitiv uses A+ to D-. Simple averaging without normalization combines apples and oranges. Normalization to a common scale before combining requires careful methodology choices.

Treating disagreement as noise to be averaged away: When two credible providers disagree, averaging their scores produces a false consensus. The disagreement may be meaningful — one provider's scope captures an ESG dimension the other misses. Investigate disagreements rather than mechanically averaging them.

Not updating the provider strategy as providers change: ESG data providers continuously update methodologies, coverage, and product offerings. A multi-provider strategy built on 2020-era provider capabilities may no longer be optimal in 2025. Regular review of provider fit is as important as initial provider selection.

FAQ​

How many ESG data providers do most institutional investors use?​

Survey data from PRI and industry reports suggest that large institutional investors typically use 2–4 ESG data providers, with the exact mix depending on asset class coverage needs, internal ESG research capabilities, and regional focus. Smaller institutions more commonly use 1–2 providers.

Is a primary-plus-one approach sufficient?​

For most institutional investors, a well-chosen primary provider that aligns with core investment objectives plus one supplementary provider for verification and coverage extension provides adequate ESG data depth at manageable cost. Adding more providers beyond two creates diminishing returns in incremental information unless there are specific gaps (private market coverage, emerging market depth, sector-specific expertise) that require specialized sources.

What should investors do when providers completely disagree on an important holding?​

When two credible providers substantially disagree on a major holding, the appropriate response is escalated company-specific analysis: review the specific factors driving each provider's assessment; determine whether scope or measurement differences explain the divergence; engage with the company on the contested ESG dimensions; and document the investment team's assessment of which provider's analysis is more accurate for the specific issue. Mechanical resolution (average, pick the higher score) is inadequate for material holdings.

Can quantitative ESG factors replace aggregate scores in a multi-provider strategy?​

Yes — for quantitative ESG managers, using specific, independently verifiable ESG factors (scope 1 carbon intensity, board independence percentage, OSHA citation rate) from multiple providers as individual factors in a quantitative model is often more robust than using aggregate scores. This approach makes the contribution of each ESG dimension to portfolio construction explicit and allows each factor to be sourced from its most reliable data provider.

What is the cost range for multi-provider ESG data strategies?​

Costs vary significantly by institution size, asset class coverage, and data depth required. Bloomberg ESG data is included in Bloomberg Terminal subscriptions (approximately $24,000–$27,000 per user per year) used for other purposes. Dedicated ESG rating subscriptions from MSCI, Sustainalytics, or Refinitiv for institutional portfolio coverage typically range from $50,000 to $500,000+ annually depending on universe size and products accessed. A comprehensive multi-provider strategy with two dedicated ESG rating subscriptions plus Bloomberg access typically costs $200,000–$1,000,000 annually for a large institutional investor.

Summary​

Using multiple ESG rating providers is analytically superior to relying on a single source, given the documented divergence among providers. The most productive multi-provider strategy uses each provider's comparative advantage rather than averaging incompatible aggregate scores. Factor-level triangulation — sourcing each ESG dimension from the most reliable provider — is more rigorous than top-level score comparison. Divergence between credible providers signals ESG complexity that warrants further analysis rather than mechanical resolution. Effective multi-provider strategies require governance infrastructure: primary provider designation, conflict escalation processes, annual provider review, and cost-benefit analysis to ensure the incremental value of additional providers is justified.

Next​

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