Abstract

This study builds on the existing Morgan Stanley Capital International (MSCI) ESG Ratings methodology and introduces a complementary framework designed to better incorporate supply chain considerations and dynamic risk factors. While MSCI’s established model effectively evaluates Environmental, Social, and Governance (ESG) factors using fixed weights and proportional adjustments, there is an opportunity to further refine the approach by incorporating industry-specific key issues, regional ESG risk variations, and the interconnected nature of ESG dimensions. To support this, we propose enhancements across seven key areas, such as dynamic redistribution of key issue weights, governance scoring that reflects industry context, and controversy assessments that factor in a company’s remediation efforts.

A key contribution of this work is the introduction of a dedicated Supply Chain pillar, transforming ESG into ESSG (Environmental, Social, Supply Chain, and Governance). This expansion
addresses the systemic oversight of upstream risks and labor violations, which often go unnoticed under the current three-pillar model. We argue that supply chain transparency, ethical sourcing,
and logistical resilience should be evaluated independently, given their growing relevance to financial, operational, and reputational performance of companies.

Furthermore, we propose a dynamic weighting framework that adjusts key issue scores based on their relative importance within an industry context. Unlike the current approach, which
redistributes weights uniformly, our model assigns weights based on issue criticality.

We further address the limitations of static geographic and governance weightings by introducing context-sensitive exposure and management adjustments. These include a flexible geographic risk multiplier and flexible governance weighting based on how strict the rules are in different industries. Controversy deductions are also restructured using a remediation scoring mechanism,
enabling companies to partially offset penalties by demonstrating corrective actions.

Finally, we propose for an integrated approach to ESG scoring that captures interdependencies across pillars, recognizing that risks and opportunities often intersect. For instance, poor social
practices in supply chains can intensify environmental harm, a connection the current siloed methodology often fails to capture.

Through these enhancements, our proposed framework delivers a transparent, and actionable assessment of corporate sustainability. It encourages continuous improvement, supports long-term
planning, and better aligns ESG ratings with the realities of globalized business operations.

Keywords: ESG Ratings, Supply Chain Sustainability, ESSG Framework, Remediation Scoring, Dynamic Weighting, Industry-Specific Risk Assessment, Cross-Pillar Interdependencies, ESG
Exposure Adjustment.