Once MSCI has calculated the brutal Exposure and Management scores for every individual issue, it must fuse them together into a single, definitive letter grade. This final calculation involves compiling the total score, forcing it through a violent industry curve, and mapping it to the final AAA to CCC rating.
The WAKIS: The Raw Score
The first step is calculating the Weighted Average Key Issue Score (WAKIS). This is the raw mathematical aggregate of everything the company has been tested on.
The WAKIS is built by multiplying every Environmental, Social, and Governance score by its assigned corporate weight.
How Weights are Assigned: MSCI does not weigh issues equally. The weight of an Environmental or Social Key Issue (usually between 5% and 30%) is dictated entirely by two variables:
- The Blast Radius: How massive is the industry’s negative externality?
- The Countdown: How fast is the disaster approaching?
A high-impact risk that is detonating in the next 18 months will mathematically dominate the WAKIS. A low-impact risk that might materialize in a decade will barely register on the final score.
The Ultimate Veto: The Governance Floor
The Governance Pillar is scored entirely differently, and it holds a terrifying veto power over the entire company rating.
Governance does not use the Exposure/Management equation. It uses a brutal deduction model. The company starts with a perfect 10.0. MSCI then violently deducts points for every single observable flaw in executive pay, board independence, accounting practices, or business ethics.
More critically, the Governance Pillar is legally floored at a massive 33% minimum weight in the final WAKIS calculation.
The Governance Guillotine: Because Governance controls an absolute minimum of 33% of the total score, a client with a corrupt board or toxic accounting practices faces a mathematical ceiling. Even if the client literally solves global warming and ends child labor (scoring perfect 10s on all E&S issues), terrible Governance will brutally cap their final letter rating. You cannot greenwash bad governance.
The Brutal Industry Adjustment
The WAKIS is just a raw number. MSCI's entire philosophy is relative competition. Therefore, MSCI takes the raw WAKIS and violently forces it onto a normalized 0-10 curve based entirely on how the rest of the industry performed.
MSCI looks at the absolute best competitor in the sub-industry (the 95th percentile) and the absolute worst competitor (the 5th percentile). They stretch that specific range across a 0-10 scale, and then map your client's raw score onto that stretched curve.
The Curve Dictates the Grade: Imagine your client scores a raw WAKIS of 6.2. If they operate in a lazy industry where the highest competitor only scored a 6.5, that 6.2 looks incredibly dominant. On the adjusted 0-10 curve, it translates to a massive 8.5 (an AA Rating).
Now imagine they operate in an ultra-competitive tech sector where the best competitor scored an 8.5. That exact same raw score of 6.2 suddenly looks pathetically weak. On the adjusted curve, it translates to a 4.0 (a BBB Rating).
Your client’s final score is entirely at the mercy of how aggressively their competitors are performing.
The Final Letter Grade
Once the WAKIS has been stretched and normalized through the industry curve, the resulting 0-10 score is mapped directly to the famous seven-band letter rating.
| Letter Rating | Status | Final Adjusted Score |
|---|---|---|
| AAA | Leader | 8.571 to 10.0 |
| AA | Leader | 7.143 to 8.571 |
| A | Average | 5.714 to 7.143 |
| BBB | Average | 4.286 to 5.714 |
| BB | Average | 2.857 to 4.286 |
| B | Laggard | 1.429 to 2.857 |
| CCC | Laggard | 0.0 to 1.429 |
MSCI aggressively groups these into three brutal categories: Leaders (the companies dominating the risks), Average (the companies just surviving), and Laggards (the companies about to be destroyed by unmanaged ESG risks).
The Committee Review Override
The rating is entirely generated by cold algorithms, but MSCI maintains a human override.
In highly specific, predefined scenarios, the final algorithmic score is halted and subjected to a human Committee Review before the letter rating is officially published. This is designed to catch massive, real-time events (like a sudden CEO arrest or a catastrophic oil spill) that the data scraping algorithms have not yet mathematically digested.
The Consultant's Timing Strategy: If your client achieves a massive corporate overhaul (e.g., electing a completely new board of directors), that new data will not instantly teleport into the MSCI algorithm. You must aggressively manage client expectations regarding the grueling MSCI data collection cycles, and understand exactly how to trigger out-of-cycle reviews to force MSCI to recognize the improvements.
Key Takeaways
- 1The WAKIS (Weighted Average Key Issue Score) aggregates all E&S and Governance scores using weights driven by externality severity and time horizon
- 2Key Issue weights range from 5% to 30% - high-impact risks detonating in the near term mathematically dominate the final score
- 3Governance holds a mandatory 33% minimum floor in the WAKIS, meaning terrible governance caps the final rating regardless of E&S excellence
- 4The industry adjustment curve normalizes raw scores against the 5th and 95th percentile peers, making final ratings entirely relative to competitor performance
- 5MSCI maintains a human Committee Review override to catch real-time events the algorithm has not yet digested - consultants can trigger out-of-cycle reviews after major client improvements