Investors – who don’t trust ESG ratings- are paying a fortune for them

Here’s a note from Nawar Alsaadi about this raters report:

ERM’s Rate the Raters report has many interesting tidbits around the way investors and corporations perceive ESG rating companies. One data point that stood out to me is that only 37% of surveyed investors consider ESG ratings a credible source of information (Page 18). Yet, investors are spending $175,000 and $360,000 a year on ESG ratings data (Page 40).

Moreover, companies, at the urging of investors (Page 29), are spending even more to manage these ratings. Public companies are spending $220,000 and $480,000 a year on average on ESG ratings, while private companies are spending between $210,000 and $425,000 each year.

Let me summarize: Investors, who don’t trust ESG ratings, are paying a fortune to buy them. Moreover, these same investors are urging portfolio companies to spend an even bigger fortune to manage these same ESG ratings they don’t trust.

This whole ESG data market is ripe for deep disruption as the broken ESG ratings business model gives way to far more sophisticated ESG integration strategies; something the ERM report eludes too as well.