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IRSG Report: ESG Ratings

ESG and sustainability are becoming increasingly central to investment decisions around the world. COP26 provided a big boost to sustainable finance and the shift in capital toward sustainable activities.

ESG ratings are a vital component of this capital reallocation so both demand for and reliance on these products is only expected to grow. It is therefore crucial that market users and investors have confidence in ESG ratings when making investment decisions.

However, with the ESG ratings market still in its infancy and demand increasing at a rapid rate, it is unsurprising that significant challenges are emerging. These include transparency of methodology, ratings varying widely between different providers, clarity of purpose behind different products, availability of data disclosure, and potential conduct risks. As demand is set only to accelerate, it is paramount that these challenges are addressed to ensure the market is fit for purpose and can properly support market practitioners in assessing the risks and opportunities of potential ESG investments.

It is in response to this need that the IRSG, in partnership with Accenture, has undertaken this work. This report explores the challenges the market faces in its present state and offers recommendations of steps industry, regulators and policymakers can take to futureproof the integrity and efficiency of the ESG ratings market.

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  • It is … crucial that market users and investors have confidence in ESG ratings when making investment decisions.

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