ESGRatingsataCrossroadsRatetheRaters2023ContentsForewordpage4ExecutiveSummarypage51.TheESGRatingsLandscapepage10Who(andWhat)AreESGRatingsForin2023?10Investors:TheTopESGRatingsAudienceandCustomer12Corporations:ESGRatings’MainTarget—andKeyPartner122.InvestorandCorporateSurveyspage143.TheInvestorSurveypage15InvestorViewsonQualityandUsefulness:KeyCharts15WideVariationinHowFamiliarInvestorsAreWithSpecificESGRaters19InvestorAssessmentsofESGRaterQualityandUsefulnessAreChanging20InvestorsIncreasinglyUseESGRatingsandDataBecauseTheyAreExpectedToDoSo22InvestorsUseESGRatingProductsandDataServicesMore,butRelyonESGRatingsLess224.TheCorporateSurveypage25CorporateFamiliarityWithESGRatersVariesWidely28InvestorsMotivateCorporateESGRatingsParticipation29CorporationsSeekCommonalityBetweenESGRaters30CorporatePerceptionsHaveChanged315.TheEvolutionofInvestorandCorporatePerceptionsofESGRatingspage34InvestorsHaveMoreTrust34ChangingPerceptionsoveraDecade36Page2of56March20236.PainPointsandEvolutionaryPathspage39TimeandEffort39ValueforMoney40QualityandTransparency40PrivateMarketsExpansion41RegulatoryPressure42GlobalExpansion427.RecommendationsandConclusionpage44Appendicespage46AppendixI:AbouttheReport46AppendixII:CorporateandInvestorSurveyQuestions49Endnotespage55About&Acknowledgementspage56Page3of56March2023TomReichertCEO,ERMForewordAstheworld’slargestpure-playsustainabilityconsultancy,supportingcompaniesandinvestorsgloballyinthetransitiontoasustainableeconomy,atERMweknowfirsthandhowcrucialESGratingsaretoensuringthehighestperformingorganizationsgettherecognitionandfinancingtheyneed.That’swhy,aspartofadecade-longprogramofseminalresearch,weaskinvestorsandcorporatestoassessESGraters—becausethebetterESGratingsreflectperformance,themoreeffectivelytheycanplaytheirvitalrole.Thisyear’sRatetheRatersreportispublishedatatumultuoustimefortheESGmovement.ESGfundsaregrowingrapidly,andtheESGperformanceofcompaniesisbeingintenselyscrutinized.CompaniesalsofaceincreasingESGdisclosurerequirements,withregulatorsinEurope,theU.S.,andotherregionsfinalizingfar-reachingnewrules.Atthesametime,ESGisbeingpaintedasgreenwashingbysomeofitsdetractors,andESGratersfacecriticismoveralackoftransparencyandcomparabilityinESGdataandratingmethodologies.Withinthatcontext,ourresearchhighlightsaparadox.ThankstothegrowingemphasisonESGperformance,ratingsaremorewidelyusedthanever.Atthesametime,investorsandcompaniesshowonlymoderateconfidenceintheaccuracyandutilityofESGratings.Thesetrendscannotcomfortablyco-exist,suggestingthatsignificantchangeswillbeneededinordertomaintainthefuturecredibilityoftheratingsecosystem.Wewouldliketothankthosebusinessesandinvestorswhohavetakenthetimetocontributetothisinvaluableresearch.Itisineveryone’sintereststhatESGratingsarerobustandtrusted.Wethereforelookforwardtosharingtheinsightscontainedinthisreportandstimulatingnewdiscussionswithstakeholdersacrosstheeconomyabouthowtoensureasustainableinvestmentenvironment.Page4of56March2023TheSustainAbilityInstitutebyERMRatetheRaters2023BacktoContentsExecutiveSummaryTheknivesareout.ThepressureoncompaniestointegrateESGstandardsisshiftingintohighgear,withregulatorsinEurope,theU.S.,andotherregionsintheprocessofintroducingarangeofESGdisclosurerules.ThisdemonstrateshowESGstandardsarepenetratingeveryaspectofcorporatelife,frominvestorsgrillingcompaniesonESGperformanceandtheexp...