The median large company now tracks 100 sustainability-related KPIs at the C-suite level, up 30% since 2018 (McKinsey Global Institute, 2025). ESG rating agencies that evaluate those companies correlate with each other at an average of 0.54 (Berg et al., 2022). That means companies are investing enormous effort into sustainability priorities that the market can't agree on how to value. The companies pulling ahead aren't working harder. They've found a better signal.

How Companies Actually Set Sustainability Priorities

Most large enterprises set sustainability priorities through some combination of three mechanisms: internal stakeholder surveys, materiality assessments, and framework checklists. Each of these methods has a structural weakness that compounds at scale.

Stakeholder surveys capture what employees, customers, suppliers, and community groups say matters. These are useful for understanding reputational exposure and license-to-operate risks. They are unreliable as a guide to which sustainability factors will move your cost of capital, your ESG ratings, or your investor narrative. What your stakeholders find important and what your investors find financially material are different questions, and treating the answers as interchangeable leads to misallocated resources.

Materiality assessments should, in theory, bridge this gap. In practice, research published in the California Management Review found that materiality processes are "unclear, not explicit, and allow companies to manipulate prioritisation of sustainability issues according to internal values and political priorities" (Garst et al., 2022). The frameworks companies use to conduct these assessments define materiality in fundamentally incompatible ways. GRI frames it around stakeholder impact. SASB and IIRC frame it around investor decision-making. Companies applying both end up conducting two separate assessments that can produce contradictory conclusions about what to focus on.

Framework checklists are the default fallback. KPMG documented over 600 sustainability reporting standards, initiatives, frameworks, and guidelines in existence globally (KPMG, 2022). The instinct to satisfy as many of them as possible is understandable. It's also strategically counterproductive. McKinsey Global Institute found that the rapid proliferation of sustainability checklists has produced "sustainability fatigue" at the C-suite level, and concluded that a compliance-based, checklist-driven approach "does little to help companies set strategic priorities or align capabilities with societal needs in a way consistent with business goals" (McKinsey Global Institute, 2025).

The result across all three mechanisms is the same: companies end up with sustainability agendas shaped by whoever asked most recently, not by a disciplined view of where effort earns returns.

What the Market Actually Rewards

The evidence on what drives the financial returns from sustainability has been specific for a decade. Khan, Serafeim, and Yoon's 2016 Harvard Business School study remains the most important paper in the field. It demonstrated that firms with strong performance on sustainability issues material to their industry significantly outperformed firms with poor performance on those same issues. Firms with strong performance on immaterial sustainability issues showed no financial advantage at all. The best-performing firms concentrated resources on what mattered to their sector and deprioritised everything else (Khan et al., 2016).

MSCI's 2024 long-term performance review confirmed this over a 17-year horizon: companies with the highest ESG ratings consistently outperformed lower-rated peers, driven by superior earnings fundamentals rather than valuation multiple expansion. The methodology underlying those ratings focuses on financial materiality, with key issues weighted by industry rather than by universal checklist (MSCI, 2024). The outperformers covered the right ground, with the right depth, on the right factors.

EY's 2024 survey of 350 institutional investors made the demand side explicit: 80% say both the materiality and comparability of sustainability reporting need improvement, and companies provide so much information that it's "almost impossible for investors to discern which factors are truly material to the business and therefore likely to impact its valuation" (EY, 2024). The volume of sustainability disclosure is obscuring the signal that investors are looking for. Every immaterial topic a company reports on in detail pushes the material ones further from view.

This creates a paradox. Companies invest in broader sustainability coverage to improve their scores. Investors want narrower, more financially relevant disclosure. The effort to do more can actively damage the outcome.

The Signal That Emerges from the Noise

Here's where the consensus benchmark becomes critical. No single ESG rating agency is reliable enough to serve as a company's strategic compass. Stanford and Yale researchers found that ESG quality itself lacks a single agreed-upon definition, and that companies in high-rated ESG portfolios actually had worse records for labor and environmental law compliance than companies outside those portfolios (Larcker et al., 2022). MSCI ESG scores across the Russell 1000 showed an 18% aggregate improvement between 2015 and 2021, suggesting rating inflation rather than genuine corporate improvement (Larcker et al., 2022). SustainAbility's Rate the Raters survey found that investors rate ESG providers at 3.31 out of 5 for trust, and companies at just 2.91 (SustainAbility/ERM, 2023). No one in the system considers any single provider authoritative.

But the consensus across providers tells a different story. Berg, Kölbel, and Rigobon's NBER research demonstrated that aggregating ESG ratings across providers produces a signal with more predictive validity than any individual rater's view (Berg et al., 2022). The wisdom-of-crowds effect applies to ESG. Where divergent agencies agree that a factor matters, that convergence reflects genuine market consensus. Where they disagree, the signal is noise, and optimising for noise is a waste of resources.

The practical implication is specific: the factors on which multiple rating agencies consistently agree, weighted toward the agencies your investors actually use, represent a far more reliable benchmark for sustainability strategy than any framework checklist or internal stakeholder survey. That consensus view identifies where the market has converged, even though individual raters haven't.

The Measurable Cost of Misalignment

The penalty for optimising against the wrong benchmark shows up in at least three ways.

The first is cost of capital. Research published in the Journal of Financial Economics found that companies with higher ESG rating uncertainty, measured by the standard deviation of scores across six major providers, face higher market risk premiums. Demand for those stocks declines even when the company's underlying sustainability performance is unchanged (Avramov et al., 2022). Companies sitting in the middle of rating disagreement without a clear consensus-aligned position bear those costs as a direct consequence of strategic ambiguity.

The second is investor confidence. PwC's 2023 survey found that 94% of investors believe corporate sustainability reporting contains unsupported claims (PwC, 2023). When a company's sustainability priorities don't align with what investors consider material, even accurate reporting reads as noise. 88% of institutional investors increased their use of sustainability information last year (EY, 2024). They're not looking at less sustainability data. They're filtering it more aggressively for relevance. Companies that can't demonstrate alignment with what the market considers material are being filtered out. Most can't, because they've never systematically mapped the consensus of what their sector's investors and rating agencies actually reward.

The third is wasted effort. Deloitte's 2024 survey found that 57% of senior leaders cite data quality as their top sustainability challenge, with 88% naming it a top-three challenge (Deloitte, 2024). Only 15% disclose Scope 3 emissions, despite this being a factor every major framework and rating agency demands. When companies spread their data governance effort across 100 KPIs, the factors that matter most to investors don't receive the quality of attention that would make them defensible. The volume of work expands while the strategic precision contracts.

McKinsey's 2020 survey captured the aggregate result: only 22% of companies said they'd realised modest or significant value from sustainability in the prior five years (McKinsey, 2020). BCG found that only 20% of companies saw a positive market reaction to 75% or more of their sustainability announcements, and nearly a third saw half or more of their announcements destroy value (BCG, 2022). The market rewards substance, focus, and alignment with what investors consider material. It penalises volume, diffusion, and misalignment with those same criteria.

What a Consensus-Aligned Strategy Looks Like

The companies that outperform on sustainability have built a filter for the landscape.

They start with a financial materiality baseline: the sustainability factors that are demonstrably significant to their sector's risk and return profile, grounded in what investors and the rating agencies they rely on consistently identify as financially significant rather than in stakeholder surveys. They then map what the rating agencies their investors use are actually measuring, where those agencies converge, and where effort on a given factor will be recognised across the broadest slice of market opinion. The intersection of sector materiality and market consensus is where sustainability strategy earns returns.

This is the opposite of a coverage strategy. Companies following this approach track fewer KPIs with more rigour. They produce defensible data on a focused set of factors rather than thin data across everything. They can explain to any investor, in financial terms, why each sustainability priority they've chosen connects to enterprise value, and why items they haven't prioritised were excluded deliberately rather than overlooked.

Board capability matters here. BCG, INSEAD, and Heidrick & Struggles found that only 29% of board directors feel knowledgeable enough to challenge or monitor sustainability execution, and 48% confirmed sustainability knowledge is "not at all" or just "slightly" part of their board competency matrix (BCG / INSEAD / Heidrick & Struggles, 2023). A board that can't evaluate whether sustainability priorities align with what the market rewards can't govern the strategy effectively. Two-thirds of directors say sustainability should be fully integrated into business strategy. Only 38% say it is.

What You're Benchmarking Against

Your sustainability function is making prioritisation decisions every quarter. Those decisions allocate budget, headcount, management attention, and reporting effort toward some factors and away from others.

The question is what those decisions are calibrated against. If the answer is a stakeholder survey, you're optimising for perceived importance. If it's a framework checklist, you're optimising for coverage. If it's a single rating agency's methodology, you're optimising for one opinion in a market where opinions diverge by nearly 50%.

The companies that capture measurable value from sustainability are calibrating against the consensus of what the market actually rewards. That consensus exists. It's visible in the convergence points across the agencies your investors use, mapped to the factors that are financially material to your sector. Whether you've built the infrastructure to see it and act on it is the question that separates sustainability activity from sustainability strategy.

References

• Berg, F., Kölbel, J.F. & Rigobon, R. (2022). "Aggregate Confusion: The Divergence of ESG Ratings." Review of Finance, 26(6), 1315-1344.
• Berg, F., Kölbel, J.F. & Rigobon, R. (2022). "ESG Confusion and Stock Returns." NBER Working Paper No. 30562.
• Khan, M., Serafeim, G. & Yoon, A. (2016). "Corporate Sustainability: First Evidence on Materiality." The Accounting Review, 91(6), 1697-1724.
• MSCI Institute (2024). "ESG Ratings in Global Equity Markets: A Long-Term Performance Review."
• Larcker, D.F., Pomorski, L., Tayan, B. & Watts, E.M. (2022). "ESG Ratings: A Compass without Direction." Stanford Graduate School of Business / Yale School of Management.
• McKinsey Global Institute (2025). "Beyond ESG: From Checklists to Capabilities."
• Garst, J., Maas, K. & Suijs, J. (2022). "Materiality Assessment Is an Art, Not a Science." California Management Review, 65(1).
• EY (2024). "Global Institutional Investor Survey."
• PwC (2023). "Global Investor Survey 2023."
• Avramov, D., Cheng, S., Lioui, A. & Tarelli, A. (2022). "Sustainable Investing with ESG Rating Uncertainty." Journal of Financial Economics, 145(2), 642-664.
• Deloitte (2024). "Sustainability Action Report."
• SustainAbility by ERM (2023). "Rate the Raters 2023: ESG Ratings at a Crossroads."
• McKinsey (2020). "The ESG Premium: New Perspectives on Value and Performance."
• BCG (2022). "Environmental Commitments Can Create Shareholder Value."
• BCG / INSEAD / Heidrick & Struggles (2023). "The Role of the Board in the Sustainability Era."
• KPMG (2022). "Big Shifts, Small Steps: Global Survey of Sustainability Reporting 2022."