ERM’s latest assessment of the ESG rating landscape finds that corporate sustainability professionals continue to value and engage with ratings agencies but are taking a more selective approach based on stakeholder needs.
Rate the Raters, developed by ERM’s Sustainability Institute, finds that most (84 percent) companies plan to continue engagement with ESG ratings and see them as an important part of their sustainability strategy. However, more than three-quarters (77 percent) also emphasize the need for closer ratings methodology alignment with leading mandatory and voluntary sustainability standards.
Investor demand drives engagement
Investor demand remains the most important motivation for corporates engaging with ESG rating agencies. However, while 46 percent cite it as their top reason for engagement, this represents a decline from 2023 when 57 percent identified investor demand as the prime motivation. Meanwhile customer demand is rising sharply, with 23 percent of companies citing it as the most important driver (compared to 7 percent in 2023).
Number of ratings companies engage with drops
Most companies now actively engage with three to five ESG ratings. Engagement with six to 10 ratings has declined since 2023 and those companies responding to more than 10 has dropped by more than half. This trend reflects a more selective approach among corporate sustainability teams who are stretched thin by growing reporting and compliance responsibilities and need to prioritize.
Active raters top the rankings
The survey indicates that corporates continue to favor active raters for the quality and usefulness of their ESG ratings. S&P Global ESG and CDP rank first and second for quality, while EcoVadis jumped up the rankings to take third place for quality (up from fifth place in 2023) and first place for usefulness (up from seventh place in 2023). The EcoVadis advancement reflects the growing popularity of supply chain sustainability insights.
Outlook for ESG ratings
When asked what they would like to see happen in the next five years to ensure ESG ratings better serve companies, investors and other stakeholders, corporates place rater alignment with mandatory reporting standards at the top of their wish list, followed by greater consistency, comparability and disclosure across methodologies. While the majority of survey participants expect to continue to respond to ESG ratings, almost half (46 percent) believe that the relevance of ESG ratings will decline over time.
Aiste Brackley, Partner at ERM and Director of ERM’s Sustainability Institute said: “Over the past few years, ESG rating agencies have demonstrated their ability to adapt to changing political, regulatory, and market conditions.
“However, as companies become more selective and strategic in their engagement, raters must respond with greater transparency, methodological rigor, 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.”
