20 Aug 2026 - Judgement matters when ESG ratings clash

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Environmental, social and governance (ESG) ratings now sit inside many investment processes. They can influence portfolio construction, risk management, stewardship priorities, product design and client reporting. Yet the same company can be rated a sustainability leader by one provider and a laggard by another.

This isn't a simple data problem. It reflects different judgements about what to measure, how to measure it and how much weight to give each issue. Importantly for active managers, rating discrepancies can create opportunities.

The scale and sources of disagreement

Academic research¹²³⁴⁵ shows that the correlations between major ESG rating providers are often only moderate. Some studies⁶ suggest that around half of listed companies receive conflicting ESG classifications in the same year, despite better disclosure and more regulatory scrutiny.

 

Research identifies three main drivers of divergence: 

• Measurement: providers use different indicators for the same issue.

• Scope: providers include or exclude different ESG topics.

• Weighting: providers aggregate indicators in different ways and place different importance on the same issues.

Measurement differences explain most of the disagreement. ESG ratings aren't interchangeable measures of one truth, but analytical views shaped by the provider's lens. Regulators recognise this issue. The EU ESG Ratings Regulation, applying from July 2026, introduces authorisation, transparency and governance requirements for providers.

What are ESG ratings measuring?

ESG scores often blur two different concepts: financial materiality and impact materiality.

Financial materiality asks how environmental and social factors affect a company's profits, cash flows, asset values, borrowing costs and downside risk.

Impact materiality asks how a company's operations affect the environment and society, and whether or not markets price those effects today.

It's not always clear which of these two objectives an ESG score is answering. When financial risks and impact risks are conflated, reliance on a headline ESG score becomes problematic for investment decisions.

What are the consequences for investment outcomes?

Disagreement over ESG ratings has practical consequences for investors. 

• Asset pricing and risk

  When providers agree, markets may price ESG risks more easily. When they disagree, the signal weakens. Some studies⁷ link higher disagreement with higher volatility or higher required returns. For active investors, this mispricing can represent opportunities rather than noise. 

• Portfolio construction and investability

  Requiring agreement between two providers can exclude more than half of an investable universe. Stricter consensus increases confidence, but reduces diversification and raises tracking error; looser approaches preserve diversification, but risk including companies with contested ESG profiles. 

• Capital allocation signals

  Mechanical use of ESG scores risks rewarding form over substance. Mixed ESG signals make it difficult to understand which sustainability investments are rewarded by markets. This can lead to inefficient ESG investment behaviour, including underinvestment in financially material issues and overinvestment in visible but less substantive activities. 

• Stewardship challenges

  Disagreement can distort engagement priorities, making stewardship provider-led rather than investor-led, which reduces effectiveness and credibility.  

Methodology changes can move ratings

Recent ESG methodology revisions illustrate how provider-specific choices can move ratings without any change in company behaviour. MSCI's March 2026 update changed ratings for around one-third of the companies covered, with slightly more upgrades than downgrades.

For strategies using discrete rating thresholds, even modest methodology changes can trigger portfolio changes unrelated to fundamentals.

Our active approach

At Aberdeen Investments, we believe third-party ESG data is a valuable input, but outsourcing judgement to a single provider is inconsistent with our fiduciary responsibility.

Our framework combines governance assessments, operational ESG risks analysis and product-level information. This helps portfolio managers assess ESG issues through a financial materiality lens. Internal specialists challenge inconsistencies and add context from research and engagement, keeping accountability with the investment team rather than the data provider.

Active ownership strengthens the process by testing company claims, challenging assumptions, and focusing engagement on financially relevant risks. These insights feed back into analysis, which aligns stewardship and investment outcomes over time.

Our approach is built on resource depth, analytical ownership and active judgement. We don't rely on a single data source or an external composite rating to screen portfolios. Our ESG process isn't mechanistic score-following.

Final thoughts...

ESG rating disagreement is structural, persistent and economically meaningful. Much of this disagreement reflects not just data challenges, but deeper ambiguity about whether ESG assessments are targeting financial materiality or impact materiality.

Rather than solely relying on third-party scores, we combine financially material ESG integration with an impact-focused view to form our own judgement. In a world of divergent ESG opinions, investment conviction comes from clear objectives, robust frameworks and active judgement about what truly drives long-term value and risk.