Environmental, Social, and Governance (ESG) scores have become a widely used metric for assessing a company's sustainability performance. However, relying solely on these scores presents several limitations that can lead to an incomplete or even misleading evaluation of a company’s true ESG commitment.

Limitations of ESG Scores

1. Inconsistent Methodologies
   ESG rating agencies apply different evaluation frameworks, resulting in significant variations in scores for the same company. The lack of a standardized methodology creates confusion among investors and stakeholders, making it difficult to compare ESG performance accurately (Eccles & Stroehle, 2018).
2. Focus on Policies Over Outcomes
   Many ESG ratings prioritize corporate policies and commitments rather than measurable environmental and social impacts. This approach risks inflating ESG performance without accounting for real-world effectiveness. For example, a company might receive a high ESG rating due to strong policies on emissions reduction, yet fail to demonstrate tangible reductions in carbon footprint (Berg, Kölbel & Rigobon, 2022).
3. Accessibility Issues
   ESG assessments often focus on large, publicly traded corporations with extensive reporting structures, leaving out many SMEs and businesses in emerging markets. As a result, a significant portion of the business landscape remains unaccounted for in ESG evaluations (Chatterji, Levine & Toffel, 2009).

Moving Beyond Scores

To gain a holistic understanding of a company’s ESG performance, stakeholders must look beyond numerical ratings and adopt a more comprehensive evaluation approach:

• Qualitative Assessments: Analyzing a company’s culture, operational impact, and stakeholder relationships offers deeper insights than numerical ESG scores alone (Giese & Nagy, 2021).
• Stakeholder Engagement: Regular interactions with employees, customers, and local communities provide real-world perspectives on a company’s ESG effectiveness.
• Transparency and Reporting: Companies should be encouraged to disclose not only their policies but also the tangible outcomes and challenges of their ESG initiatives.

In conclusion, while ESG scores serve as a useful starting point, a multi-dimensional approach that incorporates qualitative analysis, stakeholder engagement, and transparent reporting is essential for accurately assessing a company’s sustainability performance.