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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Sustainability Audit, ESG Rating and Emerging Mandates from Government and Regulators

Sundaram Textiles Ltd, a listed company, is reviewing three ESG scores it received from different agencies. The scores differ widely, although all agencies used public disclosures. The board asks the Company Secretary to explain the most common reason for such divergence. Which explanation is most accurate?

ESG scores diverge mainly because rating agencies apply different methodologies, indicators, weightages and data sources. There is no single mandated formula for all providers, so the same company can receive different scores without any falsity in its disclosures.

  1. AAgencies use different methodologies, indicators, weightages and data sourcesCorrect
  2. BAll rating agencies are required to use one identical formula under company law
  3. CDivergence occurs only when the company has filed false disclosures
  4. DRatings differ because ESG scores measure only financial profit

Explanation

ESG ratings are not standardised by a single formula. Providers choose their own indicators, weights, materiality views and data sources, so scores for the same company often diverge. Divergence does not by itself indicate false disclosure, and ESG scores are not simply profit measures.

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