April 5, 2025 5 min to read

(ENG) Corporate Analysis, ESG Week1

Written by Quest Creation Team

ESG Rating System and Methodology Review

As a first step, we reviewed three academic papers that explore the MSCI ESG Rating system and broader ESG evaluation methodologies. We synthesized the key insights from these sources using a structured template to ensure consistency and clarity. Based on this preliminary analysis, we then designed a visual table in Canva to represent MSCI’s ESG rating methodology in a clear and accessible format.

Week 1

First Paper (Written by Jonghyun Moon, Dawon Park)

• Paper Title: Understanding ESG Ratings and ESG Indexes
• Author(s) / Source: Graham Sinclair, Michael S. Pagano, Tianxia Yang / Refer to the references of the paper
• Main Topic:
  Methodology and development process of ESG ratings and indices, limitations and evolving challenges of ESG evaluation, ESG index and rating impact on investment and corporate strategy
• Keywords:
  ESG Ratings, ESG Indexes, Investment Strategies, MSCI, Sustainalytics, ESG Performance, Sustainable Investing, Rule-Based Methodology, Transparency, Data Reliability, ESG Investment, Corporate Governance, ESG Challenges
• Research Objective / Question:
  • What role do ESG ratings and indices play in investment and corporate decision-making?
  • What are the main problems with ESG evaluation methods?
  • How has the ESG market evolved, and who are the key players?
  • What are the strengths and limitations of ESG ratings and indices in investment decisions?
  • How do ESG ratings impact investors, corporations, and corporate managers?
• Summary of Key Content:
  The scale of ESG investments is rapidly growing, leading to the emergence of various ESG indices and rating providers. However, there is a lack of consistency among ESG ratings, making long-term comparisons challenging. Major ESG rating and index providers include MSCI, S&P Dow Jones, FTSE Russell, and Thomson Reuters, with the market gradually consolidating. ESG indices are used for portfolio construction, risk assessment, and corporate benchmarking. As ESG evaluation criteria continue to evolve, standardization in the market remains difficult. ESG indices use rule-based, context-specific, and transparent approaches. Limitations include a one-size-fits-all approach, reliance on historical and public data, and ambiguity in ESG definitions. ESG ratings influence investor strategies, corporate governance, and financial performance.
• Conclusion / Claims:
  ESG ratings and indices play a crucial role for companies and investors, but the lack of consistency in evaluation methodologies such as data quality, transparency, and standardization is a problem. As the ESG market rapidly grows, major players are expanding their market dominance through mergers and acquisitions. As the influence of ESG investing increases, changes in corporate management practices are also necessary. ESG ratings influence investment strategies, corporate decision-making, and long-term financial resilience.
• Contribution of the Paper:
  • Systematically organizes the development process of ESG ratings and indices and the current market structure
  • Discusses the strategic changes for companies and investors due to the expansion of ESG investment
  • Identifies limitations and challenges in current ESG evaluation frameworks
  • Highlights the growing integration of ESG in investment decision-making and corporate governance strategies

Second Paper (Written by Seyoon Jung)

• Paper Title: Analysis of Industry-Specific ESG Trends through Reports and News Articles
• Author(s) / Source: Wonhee Kim, Youngok Kwon
• Main Topic:
  The comparative analysis of ESG trends across the financial, manufacturing, and IT sectors using ESG reports and related news articles
• Keywords:
  ESG, Sustainability Management, Financial Sector, Manufacturing Sector, IT Sector, Climate Change, Carbon Neutrality, Digital Responsibility
• Research Objective / Question:
  What are the key ESG activities and trends across the financial, manufacturing, and IT industries, and how do these industries emphasize specific ESG elements?
• Summary of Key Content:
  This study analyzes ESG reports and news articles of major companies to identify industry-specific ESG trends. It highlights the emphasis on customer-centric management and climate change response in finance, sustainable supply chain management and carbon neutrality in manufacturing, and technological innovation and digital responsibility in IT. Greenhouse gas and carbon emission management were common priorities across sectors.
• Conclusion / Claims:
  The paper concludes that ESG strategies are tailored to industry characteristics, with each sector focusing on specific priorities, such as environmental initiatives, social responsibility, and governance improvements. It also emphasizes the growing importance of ESG reporting in enhancing corporate value and meeting regulatory requirements.
• Contribution of the Paper:
  • Provides a benchmark for successful ESG strategies across industries
  • Enables companies to refine their sustainability management
  • Identifies trends in ESG reporting and news coverage
  • Offers insights into public perception and regulatory expectations

Third Paper (Written by Jungseok Ann, Jinwook Song)

• Paper Title: A Proposal for Refining the ESG Methodology Used by Rating Agencies
• Author(s) / Source: Raquel González-Pozo, Mar Arenas-Parra, Raquel Quiroga-García, Amelia Bilbao-Terol
• Journal: International Transactions in Operational Research (2024)
• Affiliations: Universidad Complutense de Madrid, Universidad de Oviedo
• Main Topic:
  Amid growing concerns over the transparency and reliability of ESG rating systems, this paper proposes a new approach to improve how rating agencies assign ESG scores, focusing on enhancing interpretability and methodological rigor.
• Keywords:
  ESG scores, Refinitiv, rating agencies, extended best–worst method, ordinal proximity measures, uncertainty
• Research Objective / Question:
  To propose a refined ESG rating methodology that incorporates both linguistic interpretation variability and investor preferences into the scoring process.
• Summary of Key Content:
  As ESG ratings have become a crucial factor in investment decisions, concerns are growing over inconsistencies and lack of transparency in how rating agencies assign scores. While Refinitiv’s methodology carries significant influence, it presents limitations in how linguistic grades are interpreted, potentially leading to varying investor perceptions.
  To address this, the authors propose an integrated framework that combines Ordinal Proximity Measures—to capture perceived differences in qualitative terms—and the Extended Best–Worst Method—to derive investor-informed weights, thereby offering a more nuanced ESG evaluation system.
• Conclusion / Claims:
  The current ESG evaluation frameworks suffer from uneven interpretation of qualitative ratings and subjective criteria weighting. The proposed methodology addresses these issues by offering a more transparent, preference-sensitive approach.
• Contribution of the Paper:
  • Offers a realistic and applicable alternative to existing ESG rating frameworks like Refinitiv’s
  • Introduces a quantitative solution to linguistic interpretation gaps in ESG assessments