Environmental, Social, and Governance Performance of EU Companies

In 2024, the average ESG score of the major European companies is 80.6, indicating leadership in environmental, social, and governance performance. On average, these companies are also aligned with the 2°C climate target.

European companies face increasing pressure from environmental threats like climate change, resource scarcity, and social and governance risks in global supply chains. Environmnetal, Social and Governance (ESG) ratings assess how well companies manage these risks, covering areas such as packaging waste, sustainable sourcing, carbon footprints, health and safety, labour management, and corporate governance. Using a rules-based methodology, we evaluated the fifty largest European companies in the EURO STOXX 50 index using the MSCI database.

Since 2019, EU companies have improved their ESG performance from 74 to 80.6 (on a scale from 0 to 100, where 0 is laggard and 100 is leader), with most companies identified as leaders. This improvement indicates an apetite of EU large companies to lead global environmental transition.

Note that, while MSCI’s Implied Temperature Rise (ITR) metric shows that EU companies are largely aligned with the 2°C climate target, additional efforts are needed to meet the 1.5°C goal.

Understanding the ESG performance of EU companies is crucial for assessing their management of financially relevant environmental, social, and governance (ESG) risks and opportunities, which are often overlooked by conventional financial analysis. MSCI gathers data from over 2,900 companies globally and evaluates them using a rule-based ESG methodology (MSCI, 2024). This indicator summarizes the ESG performance of the largest EU companies listed on the stock market and included in the EURO STOXX 50 index.

Methodology

MSCI ESG Ratings evaluate a company's exposure to environmental, social, and governance (ESG) risks and opportunities relative to its industry peers. The ratings are designed to help investors understand a company's long-term resilience and management of ESG risks. MSCI gathers data from multiple sources, including, e.g., publicly available information (e.g., company reports, news articles, government databases), direct engagement with companies, and proprietary datasets. The underlying database and detailed sources are not publicly available from the MSCI website.

MSCI's ESG rating is based on three main pillars: (1) Environmental, (2) Social, and (3) Governance (Figure 1). Around 35 key issues are analysed across all industries, with different weightings based on their potential financial impact. The ratings consider both the companies´ exposure to risks and how well they manage these risks in relation to the performance of peers in the same sector. Scores range from 0 (poor) to 10 (excellent). The weighted average of issue scores determines the overall company score.

Figure 1. MSIC ESG method overview (Source: https://www.msci.com/our-solutions/esg-investing/esg-ratings/esg-ratings-key-issue-framework)

For the CML indicator, the final ESG ratings were transformed to a score ranging from 0-100, where 0 is laggard and 100 is leader (Table 1).

Table 1. Transformation of the MSCI ESG ratings into a score from 0-100 for the CML indicator.

ESG rating	Score	Bin
AAA	100	Leader (green)
AA	83	Leader (green)
A	67	Average (yellow)
BBB	50	Average (yellow)
BB	33	Average (yellow)
B	17	Laggard (red)
CCC	0	Laggard (red)

The MSCI ESG Research’s Implied Temperature Rise is a metric designed to assess the alignment of companies, portfolios, or funds with global climate goals, specifically those aimed at limiting global temperature rise to well below 2°C, as established in the Paris Agreement. The Implied Temperature Rise expresses the projected global temperature increase if the entire economy operated with the same carbon emission trends as the company or portfolio being assessed.

Metadata

Data source: MSCI ESG database: https://www.msci.com/our-solutions/esg-investing/esg-ratings-climate-search-tool/

Temporal coverage: 2019 – 2024 (depending on company)

Geographic coverage: Companies of the MSCI All Country World Index (over 2,900 companies worldwide)

Literature

MSCI 2024 ESG database: https://www.msci.com/our-solutions/esg-investing/esg-ratings-climate-search-tool/

Environmental, Social, and Governance Performance of EU Companies

References and footnotes