What Is an ESG Rating?

By Kristi Waterworth – Updated Aug 7, 2025 at 9:32 PM

Key Points

ESG ratings analyze a company's management of environmental, social, and governance risks.
Investors can integrate ESG ratings with financial analysis to assess long-term risks and opportunities.
High ESG scores indicate effective risk management, impacting investment decisions and potential returns.

An ESG rating measures a company's exposure to long-term environmental, social, and governance risks. These risks -- involving issues such as energy efficiency, worker safety, and board independence -- have financial implications. But they are often not highlighted during traditional financial reviews. Investors who use ESG ratings to supplement financial analysis can gain a broader view of a company's long-term potential.

Here's a closer look at ESG ratings, including how companies are scored and how these ratings affect you and your portfolio.

Loading paragraph...

Loading paragraph...

Data source: MSCI.
Comparative Performance	ESG Rating	Numerical Score
Leader	AAA	8.571-10.000
Leader	AA	7.143-8.571
Average	A	5.714-7.143
Average	BBB	4.286-5.714
Average	BB	2.857-4.286
Laggard	B	1.429-2.857
Laggard	CCC	0.000-1.429

Loading paragraph...

Image source: Getty Images.

Loading paragraph...

Investing in Safe Stocks and Low-Volatility Stocks

This form of socially responsible investing prioritizes good corporate behavior.

How to Calculate Total Stock Returns

Climate change can devastate the economy and environment. These companies are fighting back.

What Is a Defined Benefit Plan?

Socially conscious investors will want to build this kind of investment strategy.

Investing in ESG ETFs

Learn more about this niche area of ESG investing.

ESG ratings for more informed investing decisions

The best ESG stocks in 2022 and the six best ESG ETFs put together companies that have sustainable business practices and deliver outstanding financial returns. You don't have to be committed to sustainable investing to value the role ESG review plays in the investment process.

Loading paragraph...

Institutional Investor

An institutional investor is a professional organization or company that invests money on other people's behalf. Here's what you need to know about institutional investing.

ESG scores help you find lower-risk, higher-return stocks, and that's an outcome most investors, from institutional investors to retirement savers, can appreciate.

Loading paragraph...

About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

TMFMaldivesBlue

@MaldivesBlues

Kristi Waterworth has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.