Insights on MSCI ESG Ratings and Business Performance
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This paper explores the financial implications of how companies manage financially-material sustainability risks and opportunities, as measured by MSCI ESG Ratings, and how this transmits to corporate fundamentals. The analysis shows that firms with higher ESG scores tend to enjoy more stable revenues and cash flows while firms with higher governance scores demonstrate higher profitability from more efficient asset use, indicating greater operational stability and efficiency.
While our study does not find strong relationships between MSCI ESG Ratings and all aspects of fundamentals, including growth or leverage, this may reflect sector-specific dynamics or longer time horizons for sustainability risks and opportunities to manifest. These findings align with earlier MSCI research and provide further evidence that the effective management of sustainability risks contributes to financial stability and higher profitability, ultimately resulting in longer-term value creation.
The report not only offers empirical evidence for understanding how MSCI ESG Ratings may contribute to better financial outcomes, but also underscores the importance of integrating sustainability data into corporate strategies and investment decisions for enhanced risk management and sustainable performance.
Data period from December 2012 - December 2024. The sample (n=13,560) was divided into quintiles every quarter based on the ESG score. We compared each quintile’s average variability in sales over time. Outliers were winsorized at the 1st and 99th percentile each quarter. The difference between the top and bottom quintiles over the study period was significant at a 99% confidence level using the Mann-Whitney U test. Source: MSCI ESG Research, Factset
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ESG Ratings
Measure a company’s resilience to financially relevant, industry-specific sustainability risks.
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