Some 84% of corporate sustainability professionals plan to continue to engage with ESG ratings, deeming them an ‘important’ aspect of their sustainability strategy, a new report by ERM’s Sustainability Institute has found.
However, at the same time, more than three quarters (77%) emphasised the need for closer ratings methodology alignment with leading mandatory and voluntary sustainability standards, the Rate the Raters report noted.
Investor demand was cited as the key motivating factor for corporates engaging with ESG rating agencies, cited by 46% of respondents. This marks a decline on 2023, however, when 57% identified it as their prime motivator.
At the same time, customer demand is gaining in importance, with 23% of respondents citing it as the most important driver, compared to just 7% in 2023.
Adapting to changing conditions
“Over the past few years, ESG rating agencies have demonstrated their ability to adapt to changing political, regulatory, and market conditions,” commented Aiste Brackley, partner at ERM and director of ERM’s Sustainability Institute.
“However, as companies become more selective and strategic in their engagement, raters must respond with greater transparency, methodological rigour, and alignment to evolving regulatory standards. Investor demand for high-quality ratings data remains strong, and those raters that continue to evolve will be best positioned to support investors, companies, and other market participants in directing capital toward businesses that drive measurable sustainability and commercial impact.”
‘Selective approach’
As the study found, most respondents engage with three to five ESG ratings, with the percentage of those engaging with between six and ten ratings declining since 2023, and the number engaging with more than ten dropping by half. This indicates a more ‘selective approach’ by corporate sustainability teams, which in many instances are ‘stretched thin’, ERM noted.
When asked which raters they ranked highest, S&P Global ESG and CDP took first and second for ‘quality’, with EcoVadis rising to third (from fifth in 2023). EcoVadis was also ranked highest of all raters for ‘usefulness’.
Looking to the future, respondents are seeking clearer alignment with reporting standards, along with improvements in consistency, comparability and methodological transparency. At the same time, just under half (46%) expect ESG ratings to decline in relevance over time, though most plan to continue responding to them. Read more here.
