Publish separate E, S and G scores alongside ratings, regulators told

More than half of 2DII survey respondents back banning aggregated ESG ratings.

More than 85 percent of respondents to a survey on ESG ratings believe that providers should be required to provide separate E, S and G scores, while more than half would back abolishing aggregated ESG ratings.

Published on May 23, the study by 2 Degrees Investing Initiative (2DII) assessed attitudes to ESG ratings among ESG finance professionals, non-ESG finance professionals, academia and research, NGOs and the public sector.  

Asked whether it should be mandatory for information on individual E, S and G scores to be included whenever an overall ESG score is presented, more than 80 percent of respondents in each sector agreed.

Support for banning aggregated ESG ratings was more muted, particularly among public sector respondents, but topped 70 percent among non-ESG finance professionals.

Oscar Warwick Thompson, head of policy and communications at UK Sustainable Investment and Finance Association (UKSIF), told Responsible Investor that providing constituent E, S and G scores “could help minimise the possibility of inadvertent harm from a sole focus on one aspect of ESG, and give greater clarity to investors (and stakeholders more widely) of a company’s holistic performance across different sustainability issues”. 

He added that he was unsure how this would work in practice “but I’d be keen to mention this to our data provider members and see what they make of it”. 

‘Sustainability footprint’

Survey respondents were divided, however, on the question of whether ESG ratings should focus on sustainability risk or “sustainability footprint”, as well as on how closely current market practice matches expectations.

Academics and NGOs backed a greater emphasis on sustainability footprint, but agreed with other respondents that ratings are currently tilted more towards risk.

More than 80 percent of the 169 respondents to the survey also agreed that regulators should require providers to clearly define whether their ratings focus on sustainability footprint or risk objectives. 

Jakob Thomae, executive director of 2DII Germany, linked the lack of clarity over the purpose of ESG ratings to the criticism they have received recently “from Goldman Sachs to Elon Musk”.

“The problem is however that we can’t seem to make up our mind about what they are supposed to do – score risk or sustainability,” he said. “What is clear is that there is a need for reform and regulatory intervention.”

2DII’s survey also addressed the vexed question of whether correlation should be higher among ESG ratings. Here again there was a divergence of opinion, this time between the financial sector and other areas.

More than half of public sector respondents and around 30 percent of academics agreed that ESG ratings should be as correlated as credit ratings. Among non-ESG finance professionals, support for this was close to zero, while more than 40 percent viewed correlation as undesirable for ESG ratings. Even among ESG finance professionals, less than a third wanted to see higher correlation.

Thompson of UKSIF was less supportive of moves to drive ESG ratings convergence. “As government has recently said, we would like to see regulation promote much greater transparency in the market, for example focusing on ‘ensuring proper practice’ and ‘conflicts of interest’, rather than dictating and directing how providers set their ratings,” he said.

2DII’s survey was designed to provide guidance to the growing number of regulators examining the ESG ratings industry.  

In October, the UK government indicated in its Greening Finance roadmap that it was mulling whether providers of ESG data and ratings should be regulated by the Financial Conduct Authority (FCA). 

That was followed in February by the launch of a review of the EU ESG ratings sector by securities regulator ESMA, and in April the European Commission opened a consultation on measures aimed at addressing dysfunction in the bloc’s ESG ratings market.  

RI also previously reported that the global regulatory body IOSCO has pushed for ESG data and ratings to be placed under the remit of securities regulators to address longstanding concerns over a lack of transparency, fragmentation and potential conflicts of interest within the sector.   

In response to 2DII’s work, IOSCO secretary general Martin Moloney said: “IOSCO welcomes the publication of this survey. It adds to an important international debate. ESG ratings are a critical part of the emerging sustainable finance marketplace. They should never be relied on entirely and there should always be very clear transparency as to precisely in what respect a rating is issued and what kind of data has been relied on.” 

The survey by 2DII was conducted in the second week of May and attracted responses from 169 participants, with around half comprising finance professionals working on ESG.

We’d like to hear from you. What do you think needs to change when it comes to ESG ratings, and what regulation should be implemented? To tell us your thoughts, which can remain anonymous, please reach out to