Imagine receiving an MSCI ESG report in which your company has a miserable score. You are perplexed and stressed out. How can you improve your performance, keep up with your competitors, and ultimately raise you MSCI ratings? Here are the top five tips that you need to keep in mind when trying to upgrade your MSCI ratings.
- Focus on topics that fall under “ESG Laggards”
Considering resources available are limited, companies should always emphasize on areas that have the greatest room for improvement. In the MSCI rating metrics, company performances in various areas are divided into three different categories (from worst to best): ESG Laggards, Average and ESG Leaders. Diverting efforts to areas in which a company has been categorized as an ESG Laggard yields the most cost-efficient results, generally speaking. It is likely these domains have a lower starting point and even small changes can possibly trigger a significant bounce in performance, making it easier to show improvement.
- Conduct detailed analysis of weak-performing domains
After acknowledging the weak points of your ESG performance, it is time to find out the reasons behind such low ratings and this is where a thorough evaluation of your company’s current actions comes into play. Note that it is important to distinguish between lack of efforts and simply poor disclosure practices. The MSCI report shows comparison of performance of your company and the industry leaders. For example, in case of labour management, managers should identify areas with low scores, say variable performance-based compensation, and then determine if it is caused by insufficient efforts or inadequate disclosure of existing management approach.
- Perform gap analysis to identify best practices
Next, it is crucial to find out what your company is lacking and set an appropriate target. A good place to start would be observing actions taken by industry leaders as highlighted by the MSCI, which can then serve as benchmarks for your company when attempting to improve performance in certain areas. For instance, if the industry leader has strong performance-based incentive pay structure and non-compensation benefits that cover all employees, whilst your company does this only in case of some select employees, a gap exists and hence you should also strive for full coverage in order to narrow the gap.
- Establish relevant management approaches
Analysis by itself does not constitute a constructive step unless you act on it. Therefore, appropriate management approaches must be developed for tackling the worst-performing domains of your company, while strategic action plans should be tailored to each topic area. Meanwhile, it is vital to ensure that all responsible operating management personnel acknowledge the new initiatives and are committed to them.
- Disclose improved strategies in sustainability reports
The final tip is to disclose all actions that your company has taken so that your efforts would not go in vain, and stakeholders need to be made aware of the improvements. In addition, the company must also endeavor to maintain good performance, by undertaking regular evaluations and reviews to continuously strive for best practices.
In the quest for raising your company’s MSCI ratings, changes in operations will inevitably ensue and challenges too shall be inescapable. Support from the top management is essential for leading changes, while performance-linked incentives should be given to the middle management level so that they can execute plans in an effective and timely manner. Only through concerted efforts and commitment can changes be initiated and sustained.
