How do ESG ratings and criteria really work?

What an ESG rating really measures

The most widespread misconception: believing that an ESG rating measures how much good a company does for the world. In most cases it measures something else: how much environmental, social, and governance risks threaten the company's value, and how it manages them. A company can have a good rating by managing its own risks well, even with questionable external impacts. Understanding this distinction — risk to the company versus impact on the world — is the first step as professionals: these are two different questions, requiring different tools.

Why ratings diverge

ESG rating agencies often assess the same company in different ways — and this is documented, not just a suspicion. The reasons are structural: different weights assigned to the three pillars, different metrics, data declared by companies with varying quality. The practical lesson is not «everything is false»: it is that a rating is a methodological opinion, to be read while knowing the methodology. The professional does not ask «what score does it have?» but «measured how, on what data?».

The European regulatory framework

Europe has built the most advanced infrastructure: mandatory sustainability reporting for an increasing range of companies (with standards that require data, not adjectives), a taxonomy that defines which activities count as sustainable, and transparency obligations for financial products. The overall intent: making comparable what was previously free narrative. For companies, it is a burden that becomes an opportunity for those with real data; for professionals working in the sector, it is the map to know.

The right use (and the wrong one)

Correct uses of ESG: filtering risks, comparing similar companies on management practices, guiding investor engagement, structuring the bank-company dialogue. Incorrect uses: passing off a risk rating as a certificate of positive impact, using sector averages to avoid looking at specific data, stopping at the score without examining the methodology. The expertise the market rewards is precisely this: knowing what a tool says and what it cannot say.

The bridge to impact

ESG captures risks and management; impact measures real changes in the world. The two worlds are converging, and the bridge is built on project-level verifiable data: physical results, declared methodologies, independent verification. This is Simbial's territory — and the subject of the next pill, where impact finance is distinguished once and for all from greenwashing.