05 - ESG Ratings

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ESG Ratings — ISS & STOXX Glossary

About This Section

This glossary covers ESG scores, risk ratings, controversy levels, materiality assessments, and scoring methodologies. Terms are sourced from STOXX and ISS Governance official documentation, methodology guides, and publications.

~40 terms across multiple sources.

A

Active Ownership

▰▰▰▰ 57

Quote

“Being an active owner means using your voice and your vote to push companies toward long-term sustainable value creation.”

— PRI (Principles for Responsible Investment), Stewardship Framework

A responsible investment strategy in which investors use their rights and influence as shareholders to drive improvements in ESG performance at portfolio companies. Active Ownership encompasses proxy voting, filing shareholder resolutions, direct engagement with management and boards, and collaborative engagement through investor coalitions. ISS ESG supports Active Ownership through its proxy voting advisory services and engagement data.

Note

Active Ownership means investors do not simply buy shares and hope for the best. They actively push companies to improve by voting at shareholder meetings, meeting with executives to discuss ESG concerns, and sometimes joining forces with other investors to amplify their influence. It is the opposite of passive investing from a stewardship perspective.

Related terms

Engagement Escalation, Norm-Based Research, ESG Integration

B

Best-in-Class Screening

▰ 1

Quote

“Best-in-class does not mean picking winners from clean industries; it means finding the leaders within every industry, including the dirty ones.”

— Matthew Kiernan, founder of Innovest Strategic Value Advisors

A positive screening methodology that identifies companies with superior ESG performance relative to their industry peers. Rather than excluding entire sectors, Best-in-Class selects the top-performing companies within each sector based on ESG criteria, enabling diversified portfolios that still reward strong sustainability practices.

Note

Best-in-Class screening does not ban entire industries outright. Instead, it ranks every company against others in the same industry on ESG metrics and picks only the leaders. An oil company with best-in-class environmental practices might still qualify, while a poorly managed renewable energy firm might not.

Typical thresholds: Companies are ranked within their sector; those in the top quartile (or top decile, depending on the index methodology) are selected. STOXX ESG-X indices often use a top-percentile cutoff relative to sector peers.

Related terms

Norm-Based Screening, ESG Corporate Rating, Decile-Based Scoring

Biodiversity Impact Assessment Tool (BIAT)

▰▰▰▰ 63

A specialised analytical framework developed by ISS ESG that quantifies the impact of corporate activities on biodiversity and ecosystem integrity. BIAT evaluates companies based on their land use, pollution outputs, resource extraction, supply chain dependencies on natural capital, and alignment with biodiversity conservation targets such as the Kunming-Montreal Global Biodiversity Framework.

Note

In simple terms, BIAT measures how much damage (or benefit) a company causes to the natural world beyond just carbon emissions. It looks at whether a company’s operations destroy habitats, deplete species populations, or pollute ecosystems, and it produces a quantitative estimate of that impact. This is increasingly important as regulators and investors recognise that biodiversity loss poses systemic financial risks.

Score range: Outputs are typically expressed using ecological impact metrics such as Mean Species Abundance (MSA) loss per unit of revenue or land area, alongside qualitative assessments of biodiversity management practices.

Related terms

Mean Species Abundance (MSA), Environmental Pillar, Carbon Risk Rating

C

Carbon Risk Rating

▰▰▰▰ 81

A quantitative assessment of a company’s exposure to and management of carbon-related financial risks, including transition risks (policy, technology, market shifts) and physical risks (extreme weather, resource scarcity). ISS ESG evaluates companies on their carbon footprint intensity, emissions reduction targets, fossil fuel reserves, and alignment with Paris Agreement pathways.

Note

the Carbon Risk Rating tells investors how vulnerable a company is to the costs and disruptions of the global shift away from fossil fuels. A high-risk rating means the company faces significant financial exposure from carbon regulation, shifting energy markets, or physical climate impacts and is not doing enough to manage those risks.

Score range: ISS ESG typically rates carbon risk on a scale that ranges from negligible to severe. Companies receive performance grades (A+ to D-) on their carbon management, and a numerical risk exposure score contextualises the grade.

Related terms

Climetrics, Water Risk Rating, Environmental Pillar, ESG Risk Rating

Climetrics

▰▰▰▰ 55

A fund-level climate rating developed by CDP and ISS ESG that evaluates mutual funds and ETFs on their portfolio holdings’ climate performance. It assigns a rating from one to five leaves, assessing three dimensions: the carbon performance of portfolio companies, the fund’s investment policy on climate, and the asset manager’s governance on climate issues.

Note

Think of Climetrics as a “climate score for your investment fund.” It checks whether the companies the fund invests in are climate-friendly, whether the fund itself has a climate-aware investment strategy, and whether the fund manager takes climate governance seriously. More leaves means a greener fund.

Score range: 1 to 5 leaves, where 5 leaves represents the best climate performance.

Related terms

ESG Fund Rating, Carbon Risk Rating, Fund Rating

Controversy Rating

▰▰▰▰▰ 254

A backward-looking assessment that evaluates the severity of a company’s involvement in environmental, social, or governance controversies. ISS ESG monitors global media, NGO reports, regulatory filings, and other public sources to identify incidents and assigns a severity score based on the impact, recurrence, and company response.

Note

A Controversy Rating measures how badly a company has been caught behaving. If a firm is linked to an oil spill, labour violation, or accounting scandal, the rating captures how serious the incident is and whether the company has dealt with it responsibly. Repeated or unresolved controversies drag the score down.

Score range: ISS ESG controversy significance scores typically range from 1 (low significance) to 10 (very high significance). Some frameworks group these into categories such as Minor, Significant, High, and Severe.

Related terms

Controversy Level, Norm-Based Research, ESG Risk Categories

Controversy Level

▰ 3

A categorical classification of the current state of a company’s involvement in ESG-related controversies. While the Controversy Rating scores the severity of individual incidents, the Controversy Level aggregates all active controversies into a single current-state indicator that signals the overall reputational and operational risk from unresolved ESG events.

Note

Controversy Level is the “headline summary” of a company’s controversy profile. Rather than examining each incident individually, it tells you at a glance whether the company is currently embroiled in serious ESG controversies. A company can have a history of minor incidents but a low current Controversy Level if everything has been resolved.

Typical levels: None, Low, Moderate, Significant, High, Severe. These map to exclusion thresholds in many STOXX ESG index methodologies.

Related terms

Controversy Rating, ESG Risk Categories, Norm-Based Screening

Corporate Rating (ISS ESG)

▰▰▰▰▰▰ 1,349

The flagship company-level ESG assessment produced by ISS ESG. It evaluates over 10,000 issuers on up to 100 industry-specific ESG indicators across the Environmental, Social, and Governance pillars. Ratings are issued on an absolute letter-grade scale from A+ (excellent) to D- (poor), with industry-specific weightings reflecting materiality.

Note

The ISS ESG Corporate Rating is the core ESG grade for a company. Analysts examine publicly available data, direct company disclosures, and third-party information to score each company against criteria that matter most for its industry. A chemical company is judged heavily on environmental management; a bank is judged more on governance and lending practices.

Score range: A+ (Prime, best) through D- (worst). Companies achieving a rating of C+ or above in their respective sector are awarded “Prime” status, indicating they meet or exceed the sector-specific minimum ESG performance threshold.

Related terms

ISS ESG Corporate Rating, ESG Corporate Rating, ESG Scorecard, Materiality

Country Rating

▰▰ 19

An ESG assessment at the sovereign level that evaluates nations on their environmental stewardship, social conditions, and governance quality. ISS ESG Country Ratings cover areas such as climate policy, biodiversity, human rights, education, corruption, and institutional stability, producing a composite score used for sovereign bond screening and country-level allocation decisions.

Note

Country Ratings work like corporate ESG ratings but applied to governments. They help investors decide whether a nation’s bonds are compatible with responsible investment principles. A country with weak environmental protections, poor human rights records, or high corruption will receive a lower rating.

Score range: Letter grades from A+ to D-, mirroring the corporate scale. Countries achieving a threshold grade may qualify as “approved” for ESG-screened sovereign bond portfolios.

Related terms

Corporate Rating (ISS ESG), Governance Pillar, Environmental Pillar, Social Pillar

Cyber Risk Score

▰▰ 8

A specialised assessment that evaluates a company’s exposure to and management of cybersecurity-related risks, including data breaches, system vulnerabilities, regulatory compliance (e.g., GDPR), incident response preparedness, and board-level cyber governance. ISS ESG incorporates cyber risk indicators into its broader governance and social pillar assessments.

Note

The Cyber Risk Score tells investors whether a company is likely to suffer a damaging cyberattack or data breach and whether it has the controls and governance to prevent or mitigate such events. In a world where a single data breach can wipe billions off market capitalisation, this score is increasingly material.

Score range: Numerical scoring, typically normalised on a 1-10 or 0-100 scale depending on the data vendor. Higher scores indicate better cyber risk management. ISS ESG integrates cyber risk factors into QualityScore governance assessments.

Related terms

Governance QualityScore, ISS QualityScore, Exposure Score

D

Data Verification

▰▰▰▰ 63

The process by which ISS ESG validates the accuracy, completeness, and consistency of company-reported ESG data against independent sources, including regulatory filings, audited reports, third-party databases, and proprietary analyst research. Data Verification is a core component of the ISS ESG rating methodology and ensures that self-reported disclosures are reliable enough to underpin investment-grade ESG ratings.

Note

Data Verification is the quality control behind ESG ratings. Companies may self-report flattering sustainability numbers, so ISS ESG cross-checks those claims against external evidence. If a company claims zero emissions violations but regulatory databases show fines, the discrepancy is flagged and the rating adjusted accordingly.

Related terms

Corporate Rating (ISS ESG), ESG Scorecard, Norm-Based Research

Decile-Based Scoring

▰ 2

A relative ranking methodology in which companies or funds are sorted into ten equal groups (deciles) based on their ESG performance within a defined peer group. The top decile (1) represents the best performers and the bottom decile (10) represents the worst. Decile-based scoring is used in ISS QualityScore and in STOXX index construction to determine inclusion thresholds.

Note

Decile-Based Scoring converts raw ESG numbers into a simple 1-to-10 rank within a peer group. It answers the question “how does this company compare to its peers?” rather than “what is its absolute ESG score?” This makes it easy to identify leaders and laggards within an industry or region.

Score range: Deciles 1 through 10, where Decile 1 = top 10% of peers (best) and Decile 10 = bottom 10% (worst).

Related terms

ISS QualityScore, Best-in-Class Screening, ESG Risk Rating

Double Materiality

▰▰ 8

Quote

“Double materiality asks two questions at once: how does the world affect the company, and how does the company affect the world?”

— European Financial Reporting Advisory Group (EFRAG), CSRD conceptual guidance

A regulatory and analytical concept that requires ESG assessments to consider both how sustainability issues affect a company’s financial performance (financial materiality, or “outside-in”) and how the company’s activities affect the environment and society (impact materiality, or “inside-out”). Double Materiality is a cornerstone of the EU Corporate Sustainability Reporting Directive (CSRD) and is increasingly reflected in ISS ESG’s assessment frameworks.

Note

In simple terms, traditional materiality asks: “Does climate change hurt this company’s bottom line?” Double Materiality adds a second question: “Does this company hurt the climate?” Both directions matter. A chemical company might be financially resilient to environmental regulation (low financial materiality) but still cause significant pollution (high impact materiality). Double Materiality captures both dimensions.

Related terms

Materiality, ESG Risk Rating, Principal Adverse Impact (PAI)

E

ESG (Environmental, Social, Governance)

▰▰▰▰▰▰▰ 8,515

Quote

“Climate risk is investment risk. That is why I am asking companies to disclose how they are addressing environmental, social, and governance factors.”

— Larry Fink, CEO of BlackRock, 2020 letter to CEOs

The three central pillars used to evaluate the sustainability and ethical impact of an investment. Environmental criteria examine resource use, pollution, climate impact, and biodiversity. Social criteria assess labour practices, human rights, community relations, and product safety. Governance criteria cover board structure, executive compensation, audit integrity, shareholder rights, and anti-corruption measures.

Note

ESG is the overarching framework. It says: “To judge whether a company is responsibly managed, look at three things: how it treats the planet (E), how it treats people (S), and how its leadership operates (G).” Every other term in this glossary is a specific measurement or methodology built on top of these three pillars.

Related terms

Environmental Pillar, Social Pillar, Governance Pillar

ESG Corporate Rating

▰▰▰▰ 54

Synonymous with the ISS ESG Corporate Rating. A comprehensive assessment of a company’s ESG performance based on up to 100 industry-specific key performance indicators, covering both ESG risks and opportunities. The rating evaluates the degree to which a company manages material ESG issues relative to sector-specific expectations.

Note

This is the same concept as the Corporate Rating (ISS ESG) entry above, referred to by its more common shorthand. When analysts or index providers reference a company’s “ESG Corporate Rating,” they mean the letter-grade assessment produced by ISS ESG’s research team.

Score range: A+ to D-. Prime status awarded at C+ or above within the relevant sector.

Related terms

Corporate Rating (ISS ESG), ISS ESG Corporate Rating, Materiality

ESG Disclosure

▰▰ 15

Quote

“What gets measured gets managed, but first it must be disclosed. Without ESG disclosure, investors are flying blind.”

— Robert Eccles, Harvard Business School, co-author of The Integrated Reporting Movement

A measure of the extent and quality of a company’s public reporting on environmental, social, and governance factors. ESG Disclosure encompasses regulatory filings, sustainability reports, CDP responses, proxy statements, and other communications that provide investors with the information necessary to assess ESG performance. ISS ESG evaluates disclosure quality as part of its Corporate Rating methodology.

Note

ESG Disclosure is about how much a company tells the world about its sustainability practices. A company with strong ESG Disclosure publishes detailed, verified data on emissions, workforce composition, supply chain practices, and governance structures. Poor disclosure, even if the underlying performance is acceptable, leaves investors unable to evaluate risk and may itself be treated as a risk signal.

Related terms

Disclosure-Based Assessment, ESG Transparency Level, Data Verification

ESG Fund Rating

▰ 5

An assessment of the overall ESG quality of a mutual fund or ETF based on the aggregated ESG performance of its underlying holdings. ISS ESG calculates the fund-level score by weighting the ESG Corporate Ratings of each portfolio constituent by its allocation, then normalising the result to produce a single fund-level grade or score.

Note

ESG Fund Ratings answer the question: “If I buy this fund, how ESG-friendly is my money overall?” The rating looks through the fund to its individual holdings, scores each one, and rolls everything up into a single number that represents the portfolio’s aggregate ESG quality.

Score range: Typically expressed as a star rating (1-5 stars) or a numerical score on a 0-100 scale, depending on the product. Climetrics uses a leaf-based scale for the climate dimension.

Related terms

Fund Rating, Climetrics, Corporate Rating (ISS ESG)

ESG Integration

▰▰▰▰ 149

Quote

“ESG integration is not about sacrificing returns. It is about recognising that environmental, social, and governance factors are financial factors.”

— George Serafeim, Harvard Business School, researcher on ESG and financial performance

The systematic inclusion of ESG factors into traditional financial analysis and investment decision-making processes. ESG Integration goes beyond negative screening or exclusion; it involves explicitly incorporating ESG risks and opportunities into valuation models, portfolio construction, risk management frameworks, and asset allocation decisions. ISS ESG provides data, ratings, and analytics that facilitate ESG Integration across asset classes.

Note

ESG Integration means treating ESG data the same way you treat financial data: as material information that affects investment returns. Rather than maintaining a separate “ESG overlay,” integration embeds sustainability factors directly into the analytical workflow. An analyst might adjust a company’s discount rate based on its governance risk or revise revenue forecasts based on climate transition exposure.

Related terms

Responsible Investment, Active Ownership, ESG Risk Rating

ESG Risk Rating

▰▰▰▰ 137

A forward-looking assessment of the degree of unmanaged ESG risk that a company faces. It combines the company’s exposure to material ESG risks (based on industry and geography) with its management of those risks (based on policies, programmes, and performance). The residual, unmanaged portion of risk determines the final rating.

Note

The ESG Risk Rating separates exposure from management. A company might be heavily exposed to environmental risk (e.g., an oil producer), but if it manages that risk well through robust emissions controls, transition planning, and transparent reporting, its unmanaged risk, and therefore its ESG Risk Rating, will be lower than a peer that does nothing.

Score range: Numerical scores where lower values indicate less unmanaged risk. Common severity buckets: Negligible (0-10), Low (10-20), Medium (20-30), High (30-40), Severe (40+).

Related terms

Exposure Score, Management Score, ESG Risk Categories

ESG Scorecard

▰ 5

A structured summary report that presents a company’s ESG performance across all assessed pillars, themes, and indicators in a standardised format. The ISS ESG Scorecard provides at-a-glance visibility into strengths and weaknesses, displaying pillar-level scores, key performance indicators, peer comparisons, and trend data.

Note

The ESG Scorecard is the report card. It takes all the detailed analysis behind a corporate rating and presents it in a digestible format so that an analyst or portfolio manager can quickly understand where a company excels and where it falls short on ESG criteria.

Related terms

Corporate Rating (ISS ESG), Environmental Pillar, Social Pillar, Governance Pillar

Environmental Pillar

▰ 1

The “E” component of the ESG framework, encompassing a company’s impact on and management of natural systems. Key themes include greenhouse gas emissions, energy efficiency, water use, waste management, pollution prevention, biodiversity impact, land use, and climate strategy. ISS ESG assigns industry-specific weightings to environmental indicators based on materiality.

Note

The Environmental Pillar measures everything related to a company’s relationship with the natural world. For a utility company this pillar is heavily weighted because energy production directly drives emissions. For a software company the weighting is lighter, though data centre energy use and e-waste still matter.

Related terms

Social Pillar, Governance Pillar, Carbon Risk Rating, Water Risk Rating

Exposure Score

▰ 2

A measure of the degree to which a company is inherently exposed to material ESG risks, determined primarily by its industry classification, geographic footprint, and business model. Exposure is assessed before considering any management actions, representing the “raw” risk that exists by virtue of what the company does and where it operates.

Note

Exposure Score is the starting point before management is factored in. A coal mining company in a developing country has high inherent exposure to environmental and social risks simply because of its activities and location. No amount of management can eliminate the exposure entirely, but good management can reduce the unmanaged residual.

Score range: Typically expressed on a 0-100 or 0-10 scale within the ESG Risk Rating framework, where higher values indicate greater inherent exposure.

Related terms

ESG Risk Rating, Management Score, ESG Risk Categories

F

Fund Rating

▰▰ 11

A generic term for any ESG assessment applied at the fund level rather than the individual company level. ISS ESG produces several fund-level products, including the ESG Fund Rating (overall ESG quality), Climetrics (climate performance), and regulatory-aligned disclosures (e.g., SFDR Article 8/9 compliance assessments). Fund Ratings aggregate company-level data weighted by portfolio allocation.

Note

Fund Rating is the umbrella term for scoring an entire investment fund on ESG criteria. Whether the focus is broad ESG quality, climate alignment, or regulatory compliance, the methodology follows the same principle: look through the fund to its holdings, score each holding, and roll the scores up.

Related terms

ESG Fund Rating, Climetrics, ESG Corporate Rating

G

Governance QualityScore

▰▰▰▰ 68

A data-driven governance risk scoring system within the ISS QualityScore suite that evaluates companies across four governance pillars: Board Structure, Compensation/Remuneration, Shareholder Rights, and Audit & Risk Oversight. Scores are calculated using 200+ data points and presented as decile rankings relative to regional and industry peers.

Note

Governance QualityScore zeroes in on the G of ESG with granular detail. It answers whether the board is well-structured, whether executive pay is aligned with performance, whether minority shareholders are protected, and whether the company has adequate audit and risk controls. The decile score makes it easy to compare companies within the same market.

Score range: Decile 1 (lowest governance risk, best governance) through Decile 10 (highest governance risk, worst governance). Scores are computed at the sub-pillar and overall level.

Related terms

ISS QualityScore, Governance Pillar, Decile-Based Scoring

Greenwashing Risk

▰ 5

Quote

“Greenwashing is the gap between symbolic corporate environmentalism and substantive environmental action.”

— Miriam Cherry & Judd Sneirson, “Beyond Profit: Rethinking Corporate Social Responsibility and Greenwashing After the BP Oil Disaster”

The risk that a company, fund, or financial product overstates or misrepresents its environmental or sustainability credentials. ISS ESG helps investors identify Greenwashing Risk by comparing stated ESG commitments against verified performance data, assessing the credibility of sustainability claims in bond frameworks, and evaluating whether fund compositions genuinely match their marketed ESG strategies.

Note

Greenwashing Risk is the danger that something labelled “green” or “sustainable” is not as environmentally friendly as it appears. A company might market itself as carbon neutral while relying on questionable offset schemes, or a fund might call itself ESG-focused while holding significant fossil fuel positions. ISS ESG’s verification and rating processes help investors see through such claims.

Related terms

Data Verification, Sustainability Bond Rating, ESG Disclosure

I

Impact Investing

▰▰▰▰ 54

Quote

“Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.”

— Global Impact Investing Network (GIIN), founding definition

An investment approach that intentionally seeks to generate measurable positive social or environmental outcomes alongside financial returns. ISS ESG supports Impact Investing through its SDG Impact Ratings, sustainability solutions assessments, and thematic data products that enable investors to identify and measure the real-world impact of their portfolio allocations.

Note

Impact Investing goes beyond simply avoiding harm or managing risk. It actively directs capital toward companies and projects that solve environmental or social problems. An impact investor might target clean water infrastructure, affordable healthcare, or renewable energy, measuring success not only by financial returns but by litres of clean water delivered, patients treated, or tonnes of carbon avoided.

Related terms

SDG Impact Rating, Sustainability Solutions Assessment, Responsible Investment

ISS ESG Corporate Rating

▰▰▰ 33

The full formal name for ISS ESG’s flagship company-level sustainability assessment. It is one of the longest-running ESG rating products in the market, covering over 10,000 issuers across more than 60 countries. The methodology applies sector-specific materiality frameworks, evaluates companies on absolute rather than purely relative terms, and uses analyst-driven research supplemented by direct company engagement.

Note

ISS ESG Corporate Rating is the formal, unabbreviated name for the Corporate Rating discussed earlier. It emphasises that this is an ISS ESG product specifically, distinguishing it from ESG ratings produced by MSCI, Sustainalytics, or other providers.

Score range: A+ to D-. Prime status (indicating ESG leadership within a sector) is awarded to companies meeting or exceeding a sector-specific threshold, typically C+ or above.

Related terms

Corporate Rating (ISS ESG), ESG Corporate Rating, ESG Scorecard

ISS QualityScore

▰▰▰▰ 51

A quantitative governance, environmental, and social risk scoring system that evaluates companies on hundreds of data points across multiple pillars. ISS QualityScore produces decile-based scores (1 = lowest risk, 10 = highest risk) for Governance, Environmental, and Social dimensions, enabling investors to identify potential risk areas through peer-relative benchmarking.

Note

ISS QualityScore is a risk-focused scoring tool. Unlike the ESG Corporate Rating, which evaluates ESG management holistically, QualityScore is designed for rapid risk screening. It highlights where a company sits relative to peers on specific governance, environmental, and social risk factors, making it useful for flagging outliers in large portfolios.

Score range: Decile 1 (best/lowest risk) through Decile 10 (worst/highest risk). Scores are available at the overall, pillar, and sub-pillar levels.

Related terms

Governance QualityScore, Muni QualityScore, Decile-Based Scoring

K

Management Score

▰▰▰ 26

A measure of how effectively a company manages its material ESG risks through policies, programmes, targets, certifications, and demonstrated performance outcomes. The Management Score is the counterpart to the Exposure Score within the ESG Risk Rating framework; it represents the portion of inherent risk that the company has actively addressed.

Note

The Management Score is the “what are you doing about it?” assessment. A company with high environmental exposure (say, a chemical manufacturer) can earn a strong Management Score if it has robust pollution controls, credible emissions reduction targets, certified environmental management systems, and a track record of improvement.

Score range: Numerical, typically on a 0-100 scale within the ESG Risk Rating framework. A higher Management Score indicates stronger ESG risk management, which in turn reduces the unmanaged ESG risk.

Related terms

Exposure Score, ESG Risk Rating, ESG Risk Categories

Materiality

▰▰▰▰▰ 351

Quote

“Materiality is the filter that separates the ESG noise from the ESG signal. Without it, sustainability ratings become meaningless laundry lists.”

— Jean Rogers, founder of SASB (Sustainability Accounting Standards Board)

The principle that ESG factors should be weighted according to their financial relevance and impact significance for a given industry. ISS ESG applies sector-specific materiality matrices that determine which ESG issues receive the highest weighting in the Corporate Rating. Materiality ensures that ratings reflect the issues most likely to affect a company’s financial performance, operational resilience, and stakeholder relationships.

Note

Materiality is the reason a bank and a mining company are not rated on the same ESG criteria with the same weights. Water use is highly material for a beverage manufacturer but less so for a software company. Materiality frameworks prevent one-size-fits-all ESG scoring and ensure that the most relevant risks drive the rating.

Related terms

ESG Risk Categories, Corporate Rating (ISS ESG), ESG Scorecard

Mean Species Abundance (MSA)

▰▰ 11

A biodiversity indicator used by ISS ESG that measures the average relative abundance of original native species in a given area compared to their abundance in undisturbed ecosystems. MSA ranges from 0% (completely destroyed ecosystem, no original species remaining) to 100% (fully intact ecosystem, all original species at natural population levels). ISS ESG uses MSA as a core metric in its biodiversity impact assessments to quantify corporate footprints on natural capital.

Note

Mean Species Abundance is a single number that captures how “intact” an ecosystem is. If a forest has been cleared for agriculture, its MSA drops toward zero because the original species are gone. ISS ESG applies this metric to corporate portfolios by estimating how much MSA loss is attributable to a company’s operations and supply chain, converting abstract “biodiversity impact” into a concrete, comparable figure.

Score range: 0% (total ecosystem destruction) to 100% (pristine, undisturbed ecosystem). Corporate impact is typically expressed as MSA loss (in km2.MSA or percentage points) per unit of revenue or output.

Related terms

Biodiversity Impact Assessment Tool (BIAT), Environmental Pillar, Exposure Score

Modern Slavery Scorecard

▰▰ 7

A specialised assessment tool that evaluates companies on their policies, due diligence processes, and transparency regarding modern slavery and forced labour risks within their operations and supply chains. The scorecard is aligned with requirements of the UK Modern Slavery Act, the Australian Modern Slavery Act, and similar regulations, assessing disclosures on risk assessment, remediation, and supply chain monitoring.

Note

The Modern Slavery Scorecard checks whether a company is taking concrete steps to ensure there is no forced labour or human trafficking in its business or supply chain. It goes beyond simply having a policy statement and evaluates whether the company actually audits suppliers, trains employees, and reports on findings.

Related terms

Social Pillar, Norm-Based Research, Norm-Based Screening

Muni QualityScore

▰ 4

A governance and sustainability risk scoring system specifically designed for US municipal bond issuers. Muni QualityScore evaluates municipalities, states, and other public entities on factors such as fiscal health, pension obligations, debt management, transparency, socioeconomic indicators, and environmental risk exposure, producing decile-based scores analogous to the corporate ISS QualityScore.

Note

Muni QualityScore adapts the ISS QualityScore concept for the municipal bond market. Instead of evaluating corporate boards and executive pay, it assesses whether a city or state is fiscally sound, transparent, and managing its environmental and social obligations responsibly. Investors in municipal bonds use it to assess credit-adjacent sustainability risks.

Score range: Decile 1 (lowest risk) through Decile 10 (highest risk), consistent with the ISS QualityScore framework.

Related terms

ISS QualityScore, Governance QualityScore, Country Rating

N

Negative Screening

▰▰▰ 23

Quote

“Exclusion is the oldest form of responsible investment. It says: there are some things money should not finance.”

— Steve Waygood, Chief Responsible Investment Officer, Aviva Investors

An investment approach that systematically excludes companies, sectors, or countries from a portfolio based on predefined ESG criteria. Common exclusion grounds include involvement in controversial weapons, tobacco production, thermal coal extraction, severe human rights violations, and persistent environmental norm breaches. ISS ESG provides exclusion screening data and STOXX applies negative screens in the construction of its ESG index families.

Note

Negative Screening is the most straightforward form of responsible investing: it removes companies from consideration entirely based on what they do or how they behave. If an investor’s policy prohibits tobacco, every tobacco manufacturer is excluded regardless of how well-managed it might be otherwise. It is a blunt but effective tool for aligning portfolios with values or regulatory requirements.

Related terms

Positive Screening, Norm-Based Screening, Best-in-Class Screening

Norm-Based Research

▰▰▰ 32

A research methodology that systematically identifies company involvement in incidents that violate international norms and standards, including the UN Global Compact Principles, the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, and International Humanitarian Law. ISS ESG’s Norm-Based Research produces assessments of the severity and status of each identified violation.

Note

Norm-Based Research is the investigative process behind controversy screening. Analysts scan global information sources to find cases where companies have breached internationally recognised standards. The output is a structured assessment of what happened, how severe it is, and whether the company has taken corrective action.

Assessment outputs: Companies are categorised by violation status, typically as Compliant, Watchlist, or Non-Compliant with respect to each relevant international framework.

Related terms

Norm-Based Screening, Controversy Rating, Controversy Level

Norm-Based Screening

▰▰ 11

The application of Norm-Based Research findings to investment decision-making, typically by excluding or flagging companies that are found to be in violation of international norms. Norm-Based Screening is a foundational component of responsible investment policies and is required by many European institutional investors and regulatory frameworks, including the Swedish AP funds’ ethical guidelines and SFDR disclosure requirements.

Note

Norm-Based Screening is the investment action that follows from Norm-Based Research. Once research identifies a company as violating international norms (e.g., using child labour or causing severe environmental damage), the screening process determines whether that company should be excluded from a portfolio, placed on a watch list, or subjected to engagement.

Related terms

Norm-Based Research, Best-in-Class Screening, Controversy Rating

P

Peer Group Comparison

▰▰▰ 36

A relative assessment methodology in which a company’s ESG performance is evaluated against a defined set of industry, regional, or size-based peers. ISS ESG and STOXX use peer group comparisons to contextualise absolute ESG scores, ensuring that ratings reflect not only what a company does but how it compares to the most relevant benchmark companies. Peer groups are typically defined by industry classification (e.g., GICS, ICB) and sometimes further segmented by region or market capitalisation.

Note

Peer Group Comparison answers the question: “Is this company good at ESG relative to its competitors?” A chemical company might have higher absolute emissions than a software company, but if it manages those emissions better than every other chemical company, it deserves a higher relative score. This prevents inherently high-impact industries from being systematically penalised regardless of effort.

Related terms

Sector-Relative Scoring, Decile-Based Scoring, Best-in-Class Screening

Positive Screening

▰ 5

Quote

“Positive screening shifts the conversation from what we exclude to what we actively seek: companies whose products and practices move society forward.”

— Hiro Mizuno, former CIO, Japan Government Pension Investment Fund (GPIF)

An investment approach that actively selects companies for inclusion in a portfolio based on superior ESG performance, sustainability contributions, or alignment with specific thematic criteria. Unlike negative screening (which excludes), positive screening identifies and overweights companies that demonstrate ESG leadership, produce sustainability solutions, or meet defined impact criteria. ISS ESG data supports positive screening through its Corporate Ratings, Prime Status designations, and SDG Impact Ratings.

Note

Positive Screening flips the script from “who do we exclude?” to “who do we include because they are doing well?” Instead of removing bad actors, it actively seeks out companies that lead on sustainability. A positive screen might select the top 20% of companies by ESG score in each sector, or it might target companies generating revenue from clean energy, sustainable agriculture, or healthcare access.

Related terms

Negative Screening, Best-in-Class Screening, ESG Prime Status

Principal Adverse Impact (PAI)

▰▰ 9

A regulatory concept introduced by the EU Sustainable Finance Disclosure Regulation (SFDR) that requires financial market participants to report on the most significant negative impacts of their investment decisions on sustainability factors. ISS ESG provides PAI data solutions covering mandatory indicators (e.g., GHG emissions, biodiversity impact, gender pay gap, controversial weapons exposure) and optional indicators across environmental and social domains.

Note

PAI is a regulatory requirement, not a score. European fund managers must disclose how their investments cause harm to the environment and society using a defined set of indicators. ISS ESG helps by providing the underlying data, for example calculating the carbon footprint of a portfolio or identifying holdings exposed to controversial weapons, so that fund managers can produce the required PAI disclosures.

Key indicators: 14 mandatory indicators and numerous optional indicators defined in SFDR Regulatory Technical Standards (RTS). Examples include Scope 1/2/3 GHG emissions, carbon footprint, fossil fuel exposure, water emissions, hazardous waste, gender diversity on boards, and human rights policy compliance.

Related terms

ESG Fund Rating, Environmental Pillar, Social Pillar, Carbon Risk Rating

R

Responsible Investment

▰▰▰▰▰ 612

Quote

“Responsible investment is an approach to managing assets that sees investors include ESG factors in their decisions, to better manage risk and generate sustainable, long-term returns.”

— PRI (Principles for Responsible Investment), founding statement

A broad investment philosophy that incorporates ESG considerations into investment decision-making and ownership practices with the goal of generating sustainable long-term returns while contributing to positive societal outcomes. Responsible Investment encompasses strategies ranging from negative screening and norm-based exclusions through ESG integration, active ownership, and impact investing. ISS ESG provides the data infrastructure, ratings, and advisory services that underpin Responsible Investment across the investment chain.

Note

Responsible Investment is the umbrella term for all the ways investors can take sustainability into account. It is not a single strategy but a spectrum: at one end, simply avoiding the worst offenders; at the other, actively investing to generate measurable positive impact. Most institutional investors today practice some form of Responsible Investment, driven by a combination of fiduciary duty, regulatory requirements, and stakeholder expectations.

Related terms

ESG Integration, Active Ownership, Impact Investing, Negative Screening

S

SDG Impact Rating

▰▰▰ 46

An assessment of how a company’s products, services, and operations contribute to or detract from the achievement of the United Nations Sustainable Development Goals (SDGs). ISS ESG evaluates companies’ net impact across all 17 SDGs, distinguishing between positive contributions (e.g., providing clean energy) and negative impacts (e.g., generating pollution), and producing an overall net impact classification.

Note

The SDG Impact Rating connects corporate behaviour to the UN’s 17 global goals. It goes beyond just measuring ESG risk by asking: “Does this company actually help solve global challenges like poverty, clean water, or climate change, or does it make them worse?” A pharmaceutical company providing affordable medicines to developing countries would score positively on SDG 3 (Good Health and Well-being).

Score range: Typically classified on a five-point scale from Significant Obstruction through No Net Impact to Significant Contribution. Some implementations use numerical scores mapped to each of the 17 SDGs individually.

Related terms

Sustainability Solutions Assessment, Corporate Rating (ISS ESG), Materiality

Social Pillar

▰ 1

The “S” component of the ESG framework, encompassing a company’s relationships with and impact on its workforce, customers, communities, and supply chain. Key themes include labour standards, occupational health and safety, diversity and inclusion, human rights, community engagement, product safety, data privacy, and access to essential services.

Note

The Social Pillar evaluates how a company treats people. Are workers paid fairly and kept safe? Does the company respect human rights in its supply chain? Are products safe for consumers? Is the company a good neighbour to the communities where it operates? Social issues can be harder to quantify than environmental metrics, but they carry significant financial and reputational risk.

Related terms

Environmental Pillar, Governance Pillar, Modern Slavery Scorecard, Norm-Based Research

Stakeholder Capitalism

▰ 3

Quote

“The purpose of a corporation is to engage all its stakeholders in shared and sustained value creation. In creating such value, a corporation serves not only its shareholders but all its stakeholders.”

— Klaus Schwab, founder of the World Economic Forum, Davos Manifesto 2020

An economic and corporate governance philosophy that holds companies should serve the interests of all stakeholders, including employees, customers, suppliers, communities, and the environment, rather than prioritising shareholder returns exclusively. ISS ESG’s assessment frameworks implicitly reflect Stakeholder Capitalism principles by evaluating corporate performance across environmental, social, and governance dimensions that capture impacts on a broad range of stakeholders.

Note

Stakeholder Capitalism challenges the traditional view that a company exists solely to maximise profit for shareholders. It argues that long-term value creation depends on maintaining healthy relationships with all stakeholders. ISS ESG ratings operationalise this concept by measuring whether companies invest in worker welfare, community development, and environmental stewardship alongside financial performance.

Related terms

Social Pillar, Governance Pillar, Responsible Investment, Double Materiality

Sustainability Bond Rating

▰ 2

An assessment of fixed-income instruments (green bonds, social bonds, sustainability bonds, and sustainability-linked bonds) that evaluates the alignment of the bond’s framework, use of proceeds, and issuer credentials with recognised standards such as the ICMA Green Bond Principles, Social Bond Principles, and the EU Green Bond Standard. ISS ESG provides Second Party Opinions (SPOs) and ongoing monitoring of labelled bond issuances.

Note

A Sustainability Bond Rating tells investors whether a “green” or “social” bond really is what it claims to be. When a company issues a bond labelled as green, the rating evaluates whether the proceeds will genuinely fund environmental projects, whether the issuer’s broader ESG profile is credible, and whether the bond framework meets international market standards.

Assessment outputs: Typically a Second Party Opinion (SPO) with an overall sustainability quality assessment ranging from “Not Aligned” through “Aligned” to “Positive” or “Best-in-Class” relative to ICMA principles. ISS ESG also provides a “Shading” from dark green (excellent) to light green or no shade.

Related terms

Corporate Rating (ISS ESG), SDG Impact Rating, Environmental Pillar

Sustainability Solutions Assessment

▰ 1

An evaluation of the degree to which a company’s products and services contribute to solving sustainability challenges, particularly those aligned with the UN SDGs and the EU Taxonomy for Sustainable Activities. ISS ESG assesses revenue exposure to sustainability solution areas such as renewable energy, energy efficiency, sustainable agriculture, healthcare access, and affordable housing.

Note

The Sustainability Solutions Assessment measures whether a company is part of the solution. It looks at what percentage of a company’s revenue comes from products or services that address sustainability challenges. A solar panel manufacturer would score highly; a tobacco company would not. This assessment is increasingly important for Article 9 (dark green) fund classification under SFDR.

Score range: Typically expressed as the percentage of revenue derived from sustainability solution areas, sometimes combined with a qualitative rating of the significance and additionality of the solutions.

Related terms

SDG Impact Rating, ESG Fund Rating, Principal Adverse Impact (PAI)

W

Water Risk Rating

▰▰ 9

A specialised assessment of a company’s exposure to and management of water-related risks, including water scarcity in operating regions, water pollution, regulatory compliance, watershed stress, and the financial implications of water-dependent operations. ISS ESG evaluates companies on their water use efficiency, water recycling practices, water stewardship programmes, and disclosure quality.

Note

The Water Risk Rating measures whether a company is likely to face water-related financial problems. For a beverage company operating in a water-scarce region, this rating is critically important. It considers both the physical reality (is there enough water?) and the management response (is the company conserving water, recycling it, and engaging with local watersheds?).

Score range: Performance grades typically from A+ to D-, consistent with the ISS ESG corporate rating scale. Risk exposure is additionally contextualised by geographic water stress indicators (e.g., WRI Aqueduct data).

Related terms

Carbon Risk Rating, Environmental Pillar, Exposure Score, Management Score

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