Of course. ESG ratings disputes are a growing and complex issue as companies face increasing pressure from investors, regulators, and the public. Here’s a comprehensive breakdown of the topic.

What are ESG Ratings Disputes?

An ESG ratings dispute occurs when a company formally challenges the score or methodology used by an ESG rating agency (like MSCI, Sustainalytics, S&P Global, etc.). This is similar to a company disputing a credit rating, but the process is often less standardized and transparent.

Companies invest significant resources into ESG reporting and performance, so a low or declining rating can have real financial consequences, such as:

• Exclusion from ESG-focused funds.


• Higher cost of capital.


• Reputational damage.


• Difficulty attracting talent.

Why Do Disputes Arise? The Core Challenges

Disputes stem from fundamental issues within the current ESG ratings landscape:

• Lack of Standardization and Methodological Divergence:


• This is the biggest driver of disputes. Different agencies use different frameworks (SASB, GRI, TCFD), weightings, and key performance indicators (KPIs).


• Example: A company might get an 'A' from MSCI for its governance structure but a 'C' from Sustainalytics on the same topic because they assess different data points.


• Data Quality and Reliance on Public Information:


• Raters often rely heavily on publicly available reports (sustainability, annual) and media sources.


• If a company has strong internal practices but doesn't report them effectively, it will be penalized.


• Negative media coverage can disproportionately impact a score, even if the incident is isolated or misreported.


• "One-Size-Fits-All" Approach:


• Many raters apply similar criteria across entire industries, failing to account for company-specific or region-specific contexts.


• Example: A water-intensive company in a drought-prone region is judged by the same "Water Stress" metric as a similar company in a water-rich region, which is unfair.


• Lack of Transparency and Engagement:


• While improving, some rating agencies are not fully transparent about their exact methodologies, weightings, or data sources.


• The process for submitting new information or correcting errors can be opaque, slow, or non-existent.


• Timeliness and Lag:


• There is often a significant lag between a company improving its performance and that improvement being reflected in its rating.

The Dispute Process: How Companies Challenge Ratings

The process varies by rater, but it generally follows these steps:

• Monitoring and Analysis: The company's sustainability or investor relations team monitors its ratings and receives the latest score.


• Internal Review: The team analyzes the rater's report, identifying specific areas of disagreement, factual inaccuracies, or methodological concerns.


• Data Gap Identification: They determine if the rater missed or misinterpreted publicly available data, or if the company failed to disclose relevant information.


• Formal Submission: The company submits a formal dispute or "data correction request" through the rater's designated portal or contact. This submission should be:


• Evidence-based: Citing specific reports, policies, or data.


• Factual: Correcting clear errors (e.g., "Your report states we have no human rights policy; it is available on page X of our sustainability report.").


• Constructive: Explaining why a specific metric may not be applicable or fair in their context.


• Dialogue and Engagement (Varies): Some agencies allow for a call or meeting to discuss the dispute; others only accept written submissions.


• Review and Re-Evaluation: The rating agency reviews the submission and may or may not update the score or report. They are not obligated to make changes.

Notable Examples of Disputes

• Tesla: Was famously removed from the S&P 500 ESG Index in 2022, while oil companies remained. Elon Musk publicly decried ESG as a "scam." The core dispute was around Tesla's lack of a low-carbon strategy and codes of conduct, as well as discrimination allegations and handling of a NHTSA investigation. Tesla argued that its core product (electric vehicles) should outweigh these operational factors.


• MSCI and the "ABC" Company: In a published case study, MSCI described a company ("ABC") that disputed its 'B' rating. The company provided evidence of a robust anti-corruption program that MSCI had missed. After review, MSCI upgraded the company to an 'A'.


• Various Oil & Gas Companies: Often dispute ratings by arguing that raters do not adequately credit their massive investments in renewable energy and carbon capture technologies, focusing only on their core fossil fuel business.

Best Practices for Companies in a Dispute

• Be Proactive, Not Reactive:


• Don't wait for a bad rating. Proactively engage with major raters before the assessment cycle. Provide them with your latest reports and direct them to key data.


• Designate a Point Person: Have a dedicated team (often in Investor Relations or Sustainability) responsible for managing all rating agency relationships.


• Conduct a "Gap Analysis": Regularly compare your public disclosures against the criteria of major raters. Identify and fill disclosure gaps preemptively.


• When Disputing, Be Specific and Professional:


• Focus on factual inaccuracies first, as these are the easiest to correct.


• For methodological disputes, frame your argument around context and materiality. Explain why the metric doesn't fit your business model.


• Provide clear, concise evidence (PDFs, links, page numbers).


• Document Everything: Keep a record of all submissions and communications with the rating agencies.

The Future of ESG Ratings Disputes

The landscape is evolving to reduce the frequency and intensity of disputes:

• Increased Regulation: The EU's SFDR and the US SEC's proposed climate disclosure rules are pushing for more standardized, mandatory reporting.


• Rater Transparency: Under pressure, rating agencies are becoming more transparent about their methodologies and opening up channels for dialogue.


• Shift to "Double Materiality": The focus is moving towards what is truly financially material to a company and its impact on the environment/society, which may lead to more nuanced ratings.


• Consolidation of Frameworks: Initiatives like the International Sustainability Standards Board (ISSB) aim to create a global baseline of sustainability disclosures, which will, in turn, make ratings more consistent.

ESG ratings disputes are a symptom of a rapidly maturing but still imperfect market. For now, they are a critical part of a company's ESG strategy. Success lies not just in disputing poor scores, but in proactive, transparent, and strategic engagement with rating agencies to ensure your company's ESG story is being told accurately and completely.