Understanding Environmental, Social and Governance ratings

Overview of ESG

Environmental, Social and Governance (ESG) is an approach to sustainable investing.

Interest in ESG has been steadily rising over time. Environmental, Social, and Governance (ESG) is an approach to evaluating businesses that goes beyond the sole focus of shareholder return. Instead, an ESG framework takes into consideration the ecosystem, both internal and external, that businesses operate in and how they affect each other. 

The ESG criteria are a set of standards for a company’s operations that help you proactively assess potential investments.

The combined ESG score is an overall company score based on the reported information in the Environmental, Social and Governance pillars. It measures to what extent a company’s economic value is potentially at risk from unmanaged ESG factors.

Presented by Sustainalytics. For general information only.

How our platform can help you

We’ve connected with Sustainalytics, a Morningstar owned company, to provide you with ESG ratings for covered ASX 200 companies and selected ETFs available on our website and on iOS mobile devices.

To find a Company or Exchange Traded Fund’s (ETFs) ESG rating, simply search the company or ETF name or code via Quotes & Research > Research > Company on the website, or click More > Get a Quote via the Westpac Share Trading App.

Please note, not all companies and ETFs are covered due to the underlying company data not being accessible to accurately report on ESG.

ESG Risk Score Widget

3 Pillar Scores

The reported information category scores are rolled up into 3 pillar scores: Environmental, Social & Governance.

The ESG pillar score is a relative sum of the category weights, which vary per industry for the environmental and social categories. For Governance, the weights remain the same across all industries.

The pillar weights are normalised to percentages ranging between 0 and 100.

Icon

Environmental

Environment is concerned with the biosphere and ecosystems of our planet, and the preservation of our natural world. This includes: 

  • Climate change
  • Carbon footprint, including Greenhouse gas (GHGs) emissions
  • Air pollution
  • Deforestation
  • Energy and water consumption
  • Waste output
  • Nature usage
  • Environmental policies
Icon

Social

Social considerations include taking into account humans and our interdependencies – both inside and outside the organisation. This includes: 

  • Community relations, including the connection and impact on the local communities in which the company operates and serves
  • Comparative living wages
  • Diversity and inclusion percentage
  • Gender pay gap
  • Employee engagement and relations
  • Reskilling and training
  • Health and safety
  • Human rights
  • Charity
  • Wealth generation
Icon

Governance

Governance is about the logistics and operations of running a business or organisation. This includes: 

  • Executive’s pay ratio
  • Board composition, including diversity and structure
  • Quality of governing body
  • Ethics and anti-corruption policy
  • Tax paid
  • Ecosystem ESG

ESG FAQs

Do I need a research subscription to access ESG ratings?

No, ESG ratings are complimentary and will be accessible to all customers for selected companies and ETFs. Not all companies and ETFs are covered due to the underlying company data not being accessible to report on ESG accurately.

How often do the ESG ratings change?

Sustainalytics continually analyse company ratings. The ‘As at’ date at the bottom of the tool reflects the updated date of the ratings. For more information on the methodology of the underlying ratings, please view the Sustainalytics ratings methodology PDF.

How are the 3 ESG pillars calculated?

For more information on the methodology of the underlying ratings, please view the Sustainalytics ratings methodology PDF.

Where does Sustainalytics get their data?

Sustainalytics is a Morningstar company which compiles research, ratings and data from a variety of sources, including public corporate filings and reports, relevant media sources, reliable third-party sources such as acknowledged industry publications, specialised providers, and renowned non-governmental organisations.

Why is ESG important for companies?

ESG is important for a number of reasons, including fulfilling increased investor expectations, managing financial risks, responding to investor pressure, improving public relations, and being sustainable. Companies that perform well in terms of ESG may be better positioned for the long term and may be better able to plan for uncertainties.

What does the ESG score mean?

A company's vulnerability to unmanaged environmental, social, and governance risks is shown by its ESG score. A score under 20 in the Sustainalytics system would likely be seen as favorable and be an indication that the company was adhering to best practices in reaching relevant ESG goals or had a lower exposure to unmanaged ESG risks.

What to consider when looking at a company’s ESG rating?
  • What ESG factors matter most to you?
  • How much weight will you give these factors?
  • Does the company align with your investment goals or the ESG issues that matter most to you?
How does ESG affect risk management?

ESG practises are risk management practices, hence they have an impact on risk management. Effective ESG initiatives, for instance, can reduce a company’s risk to supply chain disruptions and increase corporate transparency. They might also discover that they can react to ESG incidents more effectively.

What ESG Risk Rating categories can companies fall under?
  1. Negligible (0-9.99 points)
  2. Low (10-19.99 points)
  3. Medium (20-29.99 points)
  4. High (30-39.99 points)
  5. Severe (40 and higher points)
How does the ESG rating work in practice?

ESG Risk Ratings are based on non-financial data. The rating takes into account environmental, social and governance variables, measuring sustainability and ethical impact of an investment in a business or company.

The purpose of the rating is to provide investors with a signal that indicates how much exposure to ESG risks and how well those risks are managed. The ratings provided improve the reliability of actions and risk assessment in making conscious investment decisions.


This information is intended to provide information for educational purposes only and is subject to change at anytime without notice.

Things you should know

Westpac Share Trading is a service provided through Westpac Securities Limited, ABN 39 087 924 221, AFSL 233723 ("Westpac Securities") by Australian Investment Exchange Limited ABN 71 076 515 930, AFSL 241400 ("AUSIEX", "the Participant", "provider", "we", "us", or "our"), a wholly owned subsidiary of Nomura Research Institute Limited ("NRI"). AUSIEX is a Market Participant of the Australian Securities Exchange Limited ("ASX Limited") and Cboe Australia Pty Ltd ("Cboe"), a Clearing Participant of ASX Clear Pty Limited and a Settlement Participant of ASX Settlement Pty Limited. AUSIEX is not authorised to carry on business in any jurisdiction other than Australia. Accordingly, the information contained in this document is directed to and available for Australian residents only.

AUSIEX, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. No individual or otherwise is authorised to redistribute the information, data, analyses, and opinions contained herein to any other person or persons or use them in the course of providing investment advice to any other person or persons.

You should read the Westpac Securities and AUSIEX's Financial Services Guides (“FSGs”), which provide you with information on the services Westpac Securities and AUSIEX can provide. You can access the FSGs via westpac.com.au/personal-banking/share-trading.

The information presented is general in nature and is not intended for any particular individual. No consideration has been given to the individual investment objectives, financial situation and particular needs of any person and investors should independently assess whether the advice is appropriate to their own circumstances. Before making an investment decision, you should consider whether it is a suitable investment for you in light of your own investment objectives, financial situation and particular needs, having regard to the merits or risks involved and seek appropriate advice, including financial, legal and taxation advice appropriate to your jurisdiction and circumstances.

Past performance information given in this publication is given for illustrative purposes only and should not be relied upon as (and is not) a reliable indicator of future performance.

Any general advice has been prepared by Morningstar Australasia Pty Limited, ABN 95 090 665 544, AFSL 240892 (“Morningstar”) and/or Morningstar Research Limited, subsidiaries of Morningstar Inc., without reference to your objectives, financial situation or needs.

Neither Morningstar Inc., its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar and/or Morningstar Research Ltd, without reference to your objectives, financial situation or needs.

You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Some material is copyright and published under licence from ASX Operations Pty Limited ABN 42 004 523 782.

© 2022 Morningstar, Inc. All rights reserved.

For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ) at www.morningstar.com.au/s/fsg.pdf and www.morningstar.com.au/s/fapds.pdf.

This website may contain material provided directly by third parties, including Morningstar Inc. and its affiliates. This information is given in good faith and has been derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group nor any of their related entities, employees or directors (together, “Westpac”), nor the Participant, accepts responsibility for the accuracy or completeness of, or endorses any such material. This website may also contain links to external websites. Westpac and the Participant do not accept responsibility for, or endorse the content of, such external websites. Except where contrary to law, Westpac and the Participant intend by this notice to exclude liability for material provided directly by third parties and the content of external websites.

The information has been prepared without taking account of your objectives, financial situation or needs. For this reason, before acting on the information you should consider whether it is appropriate to you, having regards to your objectives, financial situation and needs and, if necessary, seek appropriate financial advice.

Westpac Securities Limited is a wholly owned subsidiary of Westpac Banking Corporation ("Westpac")' and part of the Westpac Group. A financial product acquired through Westpac Securities is not a deposit with, or any liability of, Westpac or any other company in the Westpac Group. Westpac doesn’t guarantee the obligations of its subsidiaries or the products or services its subsidiaries offer.

© Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian credit licence 233714.

The Westpac Group, 275 Kent Street, Sydney, NSW 2000, AUSTRALIA.

© 2022 Sustainalytics. All Rights Reserved. Sustainalytics is a subsidiary of Morningstar Inc. The information, data, analyses and opinions contained herein: (1) includes the proprietary information of Sustainalytics; (2) may not be copied or redistributed except as specifically authorized; (3) do not constitute investment advice nor an endorsement of any product or project; (4) are provided solely for informational purposes; and (5) are not warranted to be complete, accurate or timely. Sustainalytics is not responsible for any trading decisions, damages or other losses related to it or its use. The use of the data is subject to conditions available at https://www.sustainalytics.com/legal-disclaimers.