As sustainability becomes a core part of business, companies are expected to manage their environmental and societal impact. ESG ratings assess how effectively a company performs across three key areas: Environmental, Social, and Governance.
A strong ESG rating can enhance your company's image and attract investors. But what does it take to achieve a top ESG score? This guide explains the basics of ESG ratings and how they are determined.
An ESG rating is a quantitative assessment that evaluates a company's performance in three critical areas: Environmental, Social, and Governance. These ratings provide insights into how well a company manages risks and opportunities related to sustainability and ethical practices.
These are the most critical components of ESG scores
ESG scores are a tool for investors and stakeholders to measure a company's commitment to sustainable practices. A high ESG rating can enhance reputation and indicate long-term resilience.
ESG ratings are more than just numbers—they play a key role in how a company grows, earns trust, and stays competitive. Here's why they matter:
ESG scores help companies show how well they manage their impact on the environment and people, and how they are governed. A strong rating builds trust, improves business performance, and helps companies stand out.
More investors are looking for companies that care about sustainability. A good ESG score shows your business is responsible and well-managed, which can help attract funding and lower borrowing costs.
The Indonesian government is making ESG compliance a priority. A solid ESG score helps your company meet regulations, win public contracts, and access tax benefits or other support.
People want to buy from companies that share their values. A good ESG score shows your business is ethical and sustainable, which can boost your reputation and customer loyalty.
Companies with low ESG scores face more risks, such as fines, bad press, or supply chain problems. A high rating shows that your company manages risks well and avoids potential issues.
ESG scores are provided by specialized organizations known as ESG rating agencies. These agencies collect, analyze, and score companies based on Environmental, Social, and Governance performance.
Read more: Developing an ESG strategy for Indonesia’s railway sector: A case study
Several global and regional agencies assign ESG scores using different methods and data sources. Some of the most recognized ESG score companies include:
Companies in Indonesia may receive ESG ratings from global agencies and local evaluators. Those assessors align with international standards while considering regional regulations and business practices.
A good ESG score reflects a company's commitment to sustainability and ethical practices. But what scores are reasonable?
Before diving into how ESG ratings are considered good, we need to understand the rating scales. Different agencies use various scoring systems, with a breakdown as follows:
In most systems, a score in the top 20–30% of your industry is seen as good. However, what qualifies as "good" can vary by sector, geography, and the rating agency's criteria.
When your company receives a good ESG score, it generally means:
Calculating an ESG score involves evaluating a company's performance using specific metrics and methodologies. While exact formulas vary by agency, the core process consists of the following approaches:
Agencies collect data from multiple sources:
This data must be accurate, current, and aligned with reporting standards like GRI, SASB, or TCFD.
Read more: How carbon footprint reduction contributes to sustainable investment
Each of the three ESG pillars is scored individually:
Scores are usually based on industry-specific weightings, recognizing that ESG risks differ between sectors.
Scores are compared against peer companies in the same industry. This benchmarking helps normalize ratings and highlights the score leaders within each sector.
The agency combines the three pillar scores to produce a final ESG rating or risk score.
Improving your ESG score requires action across your business, from leadership to operations. Here are key strategies to get started:
Establish a dedicated ESG team or committee and ensure top leadership, including the board, is involved in ESG oversight. Clear policies and frameworks help guide decisions and show commitment.
Define specific, measurable targets such as reducing emissions or improving workforce diversity. Align the goals with global standards like the UN SDGs or GRI, and track progress regularly.
Publish detailed and honest ESG reports. Use standard frameworks to ensure consistency and reliability to build trust with investors and stakeholders.
Involve employees, suppliers, customers, and communities in ESG discussions. Gather feedback and show how you respond to their concerns.
Assess business partners based on ESG risks and promote ethical sourcing. Working with verified partners improves your overall ESG profile and reduces exposure to compliance issues.
Read more: 7 ESG strategies for long-term business growth and impact
Enhancing your ESG rating is essential for creating a sustainable, credible, and competitive business. At Ascentium Indonesia (an Ascentium Company), our ESG Advisory and reporting services support businesses through every stage of the ESG process. Our experts will assist you in achieving full compliance and a smooth ESG integration tailored to your operations.
Contact us today and take the first step toward a more responsible business.