ERM - Rate the Raters 2023: ESG Ratings at a Crossroads

The SustainAbility Institute by ERM has released the latest iteration of Rate the Raters, assessing investor and corporate views on ESG raters and the wider ESG ratings landscape.

More than a decade since the release of the first Rate the Raters report, ESG ratings remain highly relevant. However, the industry is at a crossroads. How raters respond to the pressures they face will dictate what the field looks like in the decade to come — and, indeed, whether ESG ratings, as we currently think of them, continue to exist at all. 

Rate the Raters’ latest survey of how investors and companies rate ESG raters and their services reflects the current ESG context in all its messiness. While ESG raters have become key players in the sustainable investing ecosystem, discontent and confusion about ratings and how they work – among investors, companies, and other stakeholders – is growing. These trends can’t co-exist indefinitely. 

The 2023 Rate the Raters report is based on analysis of survey responses from a broad range of corporate sustainability professionals and investors; survey data are supplemented by in-depth interviews and secondary research. The findings reveal ongoing evolution in the ESG ratings space, with the landscape becoming more complex at the same time as ratings become more important to investors and corporations.

Surveyed investors and companies clearly prefer ESG raters with an active approach and more robust company engagement over passive ESG raters, giving highest marks for quality and usefulness to CDP and S&P Global.

Investor demand for ESG ratings is strong and growing, with 57% of companies citing it as their top motivation for engaging with ESG raters. Our survey also shows that many investment teams are now required by their firms to incorporate ESG ratings and data in their investment decisions. But despite high usage, investors and corporates are also frustrated by the shortcomings of ESG ratings. Most surveyed investors and companies have only modest confidence that ESG ratings accurately reflect sustainability performance, while a sizeable minority of corporates feel they do not.

Rate the Raters aims to provide useful insight about ESG rating providers to ensure that the industry meets its promise to hold corporations accountable and motivate them to improve sustainability performance.

More information on Rate the Raters and the SustainAbility Institute by ERM can be found at sustainability.com.