Hugh Wheelan: Moody’s €50m takeover of Vigeo Eiris raises big questions about the future of ESG research

There are now five, big, mainstream players in the ESG research field.

Moody’s purchase of a majority stake in Vigeo Eiris looks like a good deal for ESG research, but it poses some serious questions, which we’ll come to shortly.
Firstly, a close look at the tie-up. Sources with inside knowledge of the deal say Moody’s has bought between 51-70% of Vigeo Eiris – depending on the final share sale tally – and that most of the largest investor shareholders (notably those who had been represented on the board, i.e. shareholders with large holdings up to 7%) had sold out, or sold down a portion of their holding. These are understood to include Amundi, Caisse des Dépôts, Natixis, Generali Vie, Solactive and VYV Invest. The total value of the deal is estimated at €50m. The value of the shares sold so far is circa €28m. Moody’s will increase the company’s capital reserves to the tune of €6m. The remaining minority shareholders will be able to sell shares from 2020 onwards at a floor price of €17.45 per share. Neither Vigeo Eiris nor Moody’s would comment on the deal figures. The sale has come on the back of two capital raisings at Vigeo Eiris in the last 3-4 years of circa €10m each time. These reconfigured the shareholder register, enabling a sale but diluting some of the bigger equity holders. When Vigeo and EIRIS merged in October 2015, The EIRIS Foundation, the parent company of EIRIS, was incorporated into what was known as the ‘civil society college’ of the combined entity and held 20% of the capital of the merged group. The Foundation was diluted by the subsequent capital raisings but retains a stakein the new entity and a seat on the board. Prior to the EIRIS deal, Vigeo had a relatively complicated ownership structure, notably comprising many of the large CAC40 companies in France’s national share index.
Post the Vigeo Eiris merger (the EIRIS caps were made lower case), the shareholder register comprised three colleges: companies in the CAC40 (26%), asset and pension fund managers (55%), and civil society and trade unions (19%). That shareholder structure morphed as a result of the capital raising. By July 30th last year, investment companies (primarily French) held 91% of the stock, trade unions held just under 6% and corporates just over 3%.
The backstory is important. As one client source said to RI: “Many French institutions bought the research out of a kind of national duty to buy French. It remains to be seen how they’ll respond to a US owner.”
Another client source said the business model at Vigeo Eiris had been ‘fragile’ and annual revenues had been flat or down: “It’s been difficult for them to invest properly in the business because clients perceive the service to be expensive and there are question marks over the investment level of some of the research because it’s difficult for them to hire analysts with experience.”
Some minority shareholders are also grumbling about the way the deal was handled saying they felt they were kept in the dark. Nicole Notat, President of Vigeo Eiris, has highlighted the problem of the economic model of
ESG research as opposed to that of credit ratings agencies (CRA). The former is labour intensive and a difficult sell. In the latter the corporate pays handsomely for market profile. People close to the deal say this potential shift of economic model is very much in mind as Moody’s takes over Vigeo Eiris.
There is a confluence of market realities here: fund managers are under pressure on costs. Some are becoming vocal about the extra cost burden of ESG research. As ESG houses have moved closer to the ratings world via ‘audit’ on the use of proceeds for green bonds they have sniffed a potential new business reality, that of credit rating where the ‘rated’ pays.
But this poses further questions.
Will corporates want to pay for an ESG rating? Is the regulatory or market impetus strong enough to make this happen, as it does for credit ratings?
What does this mean for the issue of ESG data standardisation?
Certainly, the larger berths where ESG data houses now find themselves will enable sustainability research to fight its corner against the regular, misguided pushback of corporate lobbyists.
But the CRA business model is hardly immune from criticism; indeed, it was one of the elements that contributed to the financial crisis 10+ years ago.
As for the CRAs, they are all now fully signed up to ESG data, after a few years of heel dragging. S&P has added an ESG section into the credit reports of all its ‘top-tier’ issuers – the largest listed companies, with the highest levels of outstanding debt. Fitch Ratings has launched proprietary ESG Relevance Scores to identify sector specific-ESG credit risks and highlight their relevance and materiality to an entity’s credit rating decision. Moody’s has published a cross-sector rating methodology explaining its general principles for assessing ESG risks in agency credit analysis globally.
All have been appointing dedicated ESG analyst teams. All are PRI signatories and on its CRA working group. Through that optic, this deal makes a lot of sense. Moody’s is buying ready-baked ESG research capacitythat will fit alongside its financial/credit teams. There’s no suggestion at the moment of any job losses or wastage at Vigeo Eiris. It has a combined staff of 180+ with offices and operations in France, UK, Belgium, Italy, Morocco and the US. It also has a global network of ESG partner research firms in Brazil, Germany, Israel, Mexico, South Korea and Spain. Au contraire, expansion seems to be on the menu, given a new ability to leverage Moody’s global presence and sales force. One client says they think Moody’s could benefit from the ‘social’ research that was a strength at Vigeo Eiris, especially because US ESG research outfits tend to be very governance focused. In terms of practical changes, Moody’s will take three board seats, but there’s no indication of any attempt to parachute Moody’s people into senior management. Indeed, Vigeo Eiris only took on a new CEO at the beginning of February with the hire of Sabine Lochman, an experienced leader who joined after a five year stint at BPI Group, the management and HR company where she was latterly President of the supervisory board. Notat, who founded Vigeo in 2002, told RI that the buy-out is “proof” that the ESG research trend – in which Vigeo Eiris was among the pioneers – is now irreversible. The broader theme of sustainable finance, she said: “is now on the front pages of newspapers every day”. She’s right. Vigeo Eiris remains anchored in France; headquartered in Paris and led by Notat, a well-known figure, having been the former secretary general of the country’s CFDT trades union. Notat is 70, but says she will continue in her role. She is incredibly well connected and her political experience will serve the combined operation well in its new form, especially as the firm’s accent becomes just a little less Franco/British.
There are still boutique ESG research houses out there: France has a couple in the shape of Ethifinance (now allied itself with Spread Research, another boutique), and Beyond Ratings, which integrates ESG factors in sovereign and corporate ratings.
But there are now five big players in the global ESG research field, notably all backed by mainstream US financial services/data groups, albeit with significant operations still in Europe: Moody’s, MSCI, Sustainalytics (with Morningstar as a large shareholder), ISS and Bloomberg.

Correction: Sustainalytics has asked RI to point out that it is headquartered in Amsterdam, and has been since 2009. Fourteen of its 21 offices and roughly two-thirds of its employees are located in Europe. It is also an independent ESG research house. Morningstar is its single largest owner at about 40%, but not a controlling shareholder. RI is happy to clarify this and the article has been amended accordingly.