Does Going Global Hurt Your ESG Score? Insights from Swiss Companies

Going international is an important consideration for corporate managers and investors. Proponents of international expansion highlight the additional opportunities that foreign markets can offer. These include accelerated growth, access to raw materials and natural resources, advanced technology, closer proximity to clients, tax benefits, and broader diversification.

While critics do not deny these advantages, they emphasize numerous downsides related to both financial and non-financial risks.

On the financial side, investing abroad entails exposure to currency exchange risk, supply chain disruptions, regulatory complexities, and varying business environments.

On the non-financial side, the main issues relate to cultural differences and differing environmental, social, and governance (ESG) standards. For example, companies from developed countries investing in developing countries are likely to operate in environments with elevated ESG risks and inconsistent regulatory frameworks.

Whether overseas investment by companies from developed countries improves or worsens their ESG impact rating remains an empirical question.

Inrate’s ESG Impact Rating reflects the outcome of three complementary pillars that together assess how companies impact the environment and society across their value chains: Products & Services, Corporate Social Responsibility (CSR), and Adverse Business Practices. This integrated approach goes beyond traditional ESG ratings by capturing both positive and negative real‑world impacts.

• Products & Services (P&S) Assessment: Evaluates the environmental and social impacts of a company’s products and services across their full life cycle using a proprietary impact matrix.
• CSR Assessment: Assesses how effectively a company manages its impacts through policies, targets, governance structures, and management systems based on first‑party disclosures.
• Adverse Business Practices Assessment: Examines controversies and negative outcomes using media and news sources to identify involvement in harmful business practices

The ESG Impact Rating process produces an absolute sustainability assessment on a 12-step scale from A+ to D- or on a numerical scale from 12 to 1. Impact Explorer – ESG Ratings: Search a company’s ESG rating .

Companies from developed countries investing in developing markets are likely to face greater exposure to controversies, lower ESG standards, and, more generally, weaker corporate social responsibility (CSR) reporting requirements. As a result, multinational companies may exhibit lower ESG performance.

We use the Swiss Performance Index (SPI) as the sample for our analysis. The Swiss Performance Index (SPI) is widely regarded as Switzerland’s broad equity market benchmark. It includes virtually all equity securities traded on the SIX Swiss Exchange that are issued by companies domiciled in Switzerland or the Principality of Liechtenstein. Foreign companies with a primary listing on the SIX Swiss Exchange may also be included upon request.

We distinguish between national and international entities. National companies are Swiss firms with operations limited to Switzerland, while multinational companies are Swiss firms with operations both domestically and abroad. SPI currently comprises 208 listed firms, including 45 national companies and 156 multinational companies. For 7 companies, we were unable to clearly determine whether they should be classified as national or multinational.

Exhibit 1 compares the average ESG impact scores of national and multinational companies within the SPI universe. Contrary to the common assumption that multinational firms systematically exhibit weaker ESG performance due to their exposure to jurisdictions with lower regulatory and reporting standards, the results suggest a more nuanced picture.

While multinational companies operate across a broader range of regulatory and social environments, their average ESG impact score does not appear to be materially lower than that of purely domestic firms. In fact, it is higher across all categories, with multinationals outperforming in particular on social and labor dimensions.

This finding may reflect stronger investor scrutiny, more advanced internal ESG policies, and higher disclosure requirements among multinational firms, which can partially offset their greater exposure to ESG-related risks.

Exhibit 2 breaks down company revenues according to their impact, ranging from very negative to very positive contributions. Consistent with the ESG impact score results, multinational companies exhibit higher shares of revenue associated with positive and very positive impact categories than their national counterparts.

For example, multinational firms generate, on average, 9% of their revenue from activities with a very positive impact, compared to only 2% for national companies. This suggests that the revenue impact distribution of multinational firms is more positively skewed than that of national firms.

Read more: Beyond the Alps: Where Do Swiss Companies Stand on Sustainability?

Exhibit 3 highlights a pronounced difference in market capitalization, measured in billions of CHF, between national and multinational companies. Multinational firms are, on average, significantly larger, reflecting their broader geographic footprint, more diversified revenue streams, and greater access to global capital markets.

Firm size is an important factor when interpreting ESG outcomes, as larger companies typically have more resources to invest in sustainability initiatives, compliance systems, and ESG reporting. Consequently, the differences observed in ESG performance may partly reflect scale effects rather than international exposure alone.

Exhibit 4 compares the controversy levels faced by national and multinational companies. Multinational firms tend to exhibit higher controversy levels, consistent with their greater operational complexity, higher public visibility, and exposure to diverse stakeholder expectations.

However, more frequent and impactful controversies do not necessarily imply weaker ESG management, as it may also reflect more extensive disclosure practices and greater media scrutiny. National companies, while facing fewer reported controversies, may benefit from operating in more familiar regulatory and cultural environments. Inrate’s ESG Controversies Score

Our analysis of Swiss Performance Index companies shows that multinational firms do not exhibit weaker ESG outcomes than their national peers. On the contrary, multinationals tend to achieve slightly higher ESG impact ratings, challenging the common assumption that international exposure leads to poorer ESG performance.

A key driver of this result lies in the composition of revenues. Multinational companies generate a larger share of their income from activities with positive and very positive environmental and social impacts, which directly support stronger ESG impact scores. In addition, their larger size provides greater resources to invest in sustainability initiatives, governance frameworks, and reporting systems, further contributing to higher ESG performance.

At the same time, international exposure appears to come with trade-offs. Multinational firms face a higher incidence of controversies, reflecting the complexity of operating across diverse regulatory, cultural, and stakeholder environments. Rather than indicating weaker ESG management, this likely points to a more challenging business environment and greater public scrutiny.

Overall, going internationally presents both opportunities and challenges. While multinational firms benefit from scale and more impactful business activities that support stronger ESG ratings, they must also navigate increased controversy risks associated with operating in more complex global environments.