The paper focuses on environmental, social, and corporate governance (ESG) rating agencies and information providers. The ESG ratings industry has grown considerably,  and undergone consolidation through a combination of merger and acquisition (M&A) activity by existing agencies, and the entrance of financial information providers.

The paper focuses on the strategies of eight rating agencies (REFINITIV, ECP, FTSE Russell ESG Ratings, MSCI ESG Research, ISS-oekom, RobecoSAM, Sustainalytics and Vigeo EIRIS) and whether these agencies are aligned with the concept of sustainability.

The analysis focuses on 2008 and 2018, two relevant time periods. 2008 was at the beginning of the financial crisis, which exposed the limitations of traditional measurement models of corporate performance. In 2018, the sustainable and responsible investment (SRI) market had grown exponentially due to stakeholders’ demands of accurate information regarding company performance (sustainable investing assets reached $12 trillion in the US and 11 trillion euros in Europe).

The authors use a content analysis method to examine the relevant environmental, social and corporate governance criteria used by these ESG rating and information providers to evaluate corporate sustainability.

The analysis shows that in the period from 2008-2018, ESG rating agencies have integrated new criteria into their assessment models to assess corporate performance in a more robust and accurate way. The comparative study shows that whilst the criteria used by the ESG rating and information provider agencies in 2008 and 2018 are essentially the same in the two periods, the integration of these criteria has changed.

Firstly, looking at the environmental dimensions, there is greater interest in combating climate change and in mitigating greenhouse-gas emissions, reflecting how the agreements reached at the 21st Conference of the Parties (COP21) in Paris (December 2015) are having a strong impact on the assessment of corporate sustainability performance.

In regard to the social aspect, criteria related to supply-chain management and security and data protection have risen in the last ten years. This highlights the growing trends in sustainability assessment that focus on more complex and integrated configurations, instead of on companies as isolated structures.

Finally, regarding corporate governance criteria, there is an increase in considering the prevention of corruption and bribery issues, and in transparency issues. This shows a significant difference between 2008 and 2018, since these factors are now the second most analysed aspects in the assessment process (87.5%).

When considering how agencies integrate sustainability into their analysis, not all of them evaluate sustainability in a balanced way. For example, RobecoSAM weighs each pillar of sustainability unevenly, however, they do not disclose specific information on how they do this.

Additionally, there is no evidence that ESG rating agencies integrate life-cycle thinking as an explicit principle in their sustainability assessment, and how this unfolds across their relevant supply chain.

Based on these results, the authors emphasise the need for ESG rating agencies to improve their measurement of corporate sustainability performances, particularly their approach to life-cycle assessment. They suggest the inclusion of assessment methodologies like footprint analysis that allow appraisers to tackle the life-cycle thinking principle.

1. ESG rating and information provider agencies have emerged due to increased demand for social and environmental information of companies, and the growth of socially responsible investing.
2. In 2018, sustainable investing assets reached US$12 trillion in the US and €11 trillion in Europe as a result of greater demand for these investment options.
3. During the expansionary period of the ESG rating industry, there has been considerable M&A activity, both by existing agencies and entrants from financial information providers.
4. The paper identifies eight ESG rating and information provider agencies (REFINITIV, ECP, FTSE Russell ESG Ratings, MSCI ESG Research, ISS-oekom, RobecoSAM, Sustainalytics and Vigeo EIRIS) that are most representative of the European and American SRI market, when considering the number of companies analysed (between 4,000 and 20,000 companies), as well as their clientele, countries and markets covered.
5. A greater interest in environmental concerns is observed. In 2008, the most widely used ESG analysis criteria were environmental policy/management (100%), emissions (62.5%) and climate change (50%). While in 2018, the main criteria analysed were environmental policy/management (87.5%), water use and management (87.5%), and protection of biodiversity (87.5%).
6. Regarding social criteria, the aspects incorporated into the assessment process of all ESG rating agencies in 2018 were labour management, human rights and quality working conditions, health and safety. This is in contrast to 2008, with human capital development and training (100%), human rights (87.5%) and community relations (87.5%).
7. When considering corporate governance analysis, many of the key focal points remained the same across the time periods. However, there was an increased focus in the prevention of corruption and bribery issues, and in transparency issues between 2008 and 2018.
8. The paper considers to what extent the rating agencies incorporate sustainability by assessing them on five sustainability dimensions: not explicit; financial economic; environmental; social; and, corporate governance.
9. Rating agencies tend to be unbalanced in their consideration of the E, S and G dimensions of sustainability, and fail to integrate life-cycle thinking as an explicit principle in their sustainability assessment.
10. Current supply-chain performance-assessment systems are unable to address the full spectrum of challenges, and the authors suggest integrating sustainability principles along the whole supply chain.