Why chief sustainability officers must actively manage ESG ratings

In the rapidly evolving corporate sustainability landscape, chief sustainability officers (CSOs) face a fundamental question about the scope and priorities of their roles. While many CSOs focus primarily on internal sustainability programmes, operational improvements andstakeholder engagement, a critical aspect of their responsibility often receives insufficient attention: the active management of external sustainability ratings. Despite their methodological imperfections, these ratings have become powerful market forces that directly impact corporate valuation, investment flows and stakeholder perception. It's time for CSOs to recognise that managing sustainability ratings isn't just another task – it's a core strategic responsibility that demands systematic attention and ownership.

The reality of rating influence

Sustainability ratings from organisations like MSCI, Sustainalytics, CDP and S&P Global have evolved from niche academic exercises into market-moving forces. Institutional investors managing trillions in assets use these ratings to make investment decisions, exclude companies from ESG funds and engage with corporate management. Insurance companies factor sustainability ratings into risk assessments and premium calculations. Supply chain partners increasingly reference these scores when making procurement decisions. Even retail investors now have access to sustainability ratings through major financial platforms, influencing individual investment choices.

The numbers speak volumes about this influence. Companies with higher ESG ratings consistently trade at premium valuations, with some studies showing valuation differences of 10–15% between high- and low-rated peers. More importantly, rating downgrades can trigger immediate selling pressure from ESG-focused funds, while upgrades can unlock access to new capital pools. This isn't theoretical – it's happening daily in markets worldwide.

Given this reality, treating sustainability ratings as external assessments that happen to the company rather than strategic assets to be actively managed represents a fundamental misunderstanding of the modern business environment. CSOs who fail to own this process essentially allow external parties to define their company's sustainability narrative without adequate input or strategic consideration.

The methodology challenge and opportunity

Critics rightfully point out that sustainability rating methodologies are often opaque, inconsistent across providers and sometimes poorly aligned with actual environmental or social impact. While valid, these criticisms miss a crucial point: the ratings exist, influence markets and are not disappearing. Rather than dismissing them due to methodological concerns, sophisticated CSOs recognise that understanding and working within these frameworks is essential for protecting and advancing their company's interests.

Each rating agency employs different methodologies, weighs factors differently and updates its approaches regularly. MSCI might emphasise risk management and governance structures, while CDP focuses heavily on climate disclosure and action. Sustainalytics may prioritisematerial ESG issues specific to each industry, while other providers take more standardised approaches. This variation creates challenges and opportunities for companies willing to invest in understanding these differences.

The opportunities lie in recognising that these methodologies, despite their flaws, create a competitive landscape where informed strategy can generate significant advantages. Companies that understand how ratings work, which data points matter most and how to present their sustainability efforts in ways that align with rating criteria consistently outperform those that treat ratings as afterthoughts.

Strategic rating management as a core CSO function

Active rating management requires treating each major sustainability rating as a strategic initiative with clear objectives, dedicated resources and systematic execution. This means CSOs must develop deep familiarity with rating methodologies, establish regular communication channels with rating agencies and align internal sustainability initiatives with rating criteria where strategically appropriate.

The process begins with a comprehensive baseline assessment across all relevant rating platforms. Many companies are surprised to discover significant gaps between their actual sustainability performance and ratings, often stemming from poor communication rather than poor performance. Rating agencies can only evaluate information they receive, andcompanies that fail to effectively communicate their sustainability efforts inevitably receive lower scores than their performance merits.

CSOs must then establish systematic processes for data collection, validation and submission to rating agencies. This isn't simply about annual surveys – it requires ongoing relationship management, proactive disclosure of positive developments and rapid response to rating methodology changes. The most successful CSOs treat rating agency relationships similarly to investor relations, with regular touchpoints, strategic communication and continuous relationship building.

Documentation and evidence management become crucial in this context. Rating agencies increasingly require detailed supporting evidence for sustainability claims, and companies must be prepared to provide comprehensive documentation across multiple performancedimensions. This requires internal systems and processes that many companies currently lack but which forward-thinking CSOs are rapidly developing.

The business case for rating ownership

The financial implications of rating management justify significant CSO attention and resources. Consider a mid-cap company with a US$5 billion market capitalisation. A one-notch improvement in ESG ratings could theoretically add US$250–500 million in market value, based on observed valuation premiums. Even capturing a fraction of this potential value creation would justify substantial investment in rating management capabilities.

Beyond valuation impacts, ratings affect access to capital markets. Green bonds, sustainability-linked loans and ESG-focused investment funds all reference sustainability ratings in their investment criteria. Companies with poor ratings may be excluded from these growing capital sources, while companies with high ratings gain access to preferential pricing and terms. For CSOs responsible for facilitating sustainable finance initiatives, rating management becomes directly connected to corporate financial strategy.

The reputational aspects are equally important. Sustainability ratings increasingly appear in media coverage, stakeholder communications and competitive analyses. A company might have excellent sustainability programmes that go unrecognised due to poor rating management, while competitors with inferior actual performance but superior rating management receive positive recognition. This dynamic directly impacts the CSO's ability to build internal support for sustainability initiatives and demonstrate the value of their function.

Implementation framework

Effective rating management requires a systematic approach and dedicated resources. CSOs should establish clear ownership within their teams, with specific individuals responsible for relationships with each major rating agency. These team members must develop expertise in rating methodologies, maintain regular communication schedules and track performance trends over time.

Data management systems need upgrading to support rating requirements. This means establishing processes for collecting, validating and organising the diverse information required by different rating agencies. Many companies underestimate the data requirements and scramble to respond to rating surveys, resulting in incomplete or poorly presented submissions that hurt their scores.

Timeline management is crucial, as rating agencies operate on different schedules and require different types of engagement throughout the year. CSOs must establish annual calendars for rating submission deadlines, methodology updates and engagement opportunities. This proactive approach prevents the reactive scrambling that characterises many companies' current rating management efforts.

Building internal alignment

Rating management cannot succeed as a siloed CSO activity. It requires cross-functional collaboration with legal, finance, operations and communications teams. CSOs must build internal understanding of rating importance and establish processes that enable efficient information gathering and review. This often means educating other executives about rating implications and building sustainability rating performance into relevant performance metrics and incentive structures.

The key is positioning rating management not as a compliance activity but as strategic value creation. When CSOs can demonstrate clear connections between rating improvements and business outcomes – whether through cost of capital reduction, market access expansion or competitive positioning enhancement – they build the internal support necessary for sustained success.

Sustainability ratings are market realities that demand strategic management, not passive acceptance. CSOs who embrace active rating ownership position their companies for success in an increasingly ESG-conscious business environment, while those who treat ratings as external impositions risk significant competitive disadvantage. The choice is clear: own the ratings or let them own you.