Overview
Sustainable finance has expanded rapidly over the past two decades, reshaping how investors assess corporate performance across markets, with over US$3 trillion invested in sustainable mutual funds and ETFs.
ESG Scores and Ratings have played a key role in this growth but face a key pivotal moment; regulatory expectations are tightening worldwide, placing greater emphasis on transparency and methodological rigour, and criticism is growing from across the market, including from users themselves.
This report describes how LSEG is responding to these dynamics challenges through a comprehensive, research-driven redesign of its ESG Scores. Drawing on 25 years of sustainable finance innovation, the new scores are the culmination of a multi-year research programme – including the publication of peer-reviewed studies on ESG score construction.
Through their design, the new LSEG ESG Scores provide:
- A suite of modular scores that bring together wide-ranging sustainability information into clear reference points for portfolio construction.
- A materiality-led framework designed to give investors a clearer and more coherent view of corporate sustainability performance.
- Full transparency around every indicator, weight and methodological decision, underpinned by publicly disclosed data.
- Separation between performance, risk and impact, avoiding conceptual conflation.
Key findings
- The new ESG scores are relatively stable over time, with the median ESG Score rising from 2.3 (2022) to 2.6 (2024) across large and mid-caps, with the most rapid improvements seen in China (+0.5), Japan (+0.4) and wider APAC (+0.3) markets.
- The scores display low or no correlation to most common equity factors. While ESG Scores are often debated as potential drivers of outperformance, they are best viewed as an informative risk signal – rather than a source of persistent ‘free alpha’.
- Long-running ESG-based index families, such as the 25‑year FTSE4Good series offer the most reliable real‑world evidence on financial performance (rather than simulated back tests). Though they deviate meaningfully from their parent benchmarks, the long‑term performance of these indexes tends to track closely.
- We find that relative performance tends to be cyclical, mirroring the pattern seen in style factors: multi‑year periods of outperformance are typically followed by extended downturns.
Data used in the paper
The analysis draws on LSEG Data and Analytics’ combined Sustainability Ratings and Data Suite. As part of this, the new LSEG ESG Scores are built from more than 240 indicators across 12 ESG themes, informed primarily by corporate disclosures and supported by additional external sources where appropriate.
The redesigned scoring suite introduces three modular components — Theme Scores, the overall ESG Score, and the ESG Score Plus — enabling users to distinguish between operational sustainability performance, broader sustainability impacts, and ESG related risks such as controversies or sovereign exposure. The dataset covers over 16,000 companies worldwide.
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