ESG data providers: useful or corporate strong-arming?

Here’s an excerpt from this article by Kristina Wyatt:

This is not a new issue, but it will continue to grow in the absence of standardized disclosure requirements. I wrote about this back in 2019 in “Emerging Trends in Securities Laws” (noting companies were dazed and confused by the information requests). The SEC’s Investor Advisory Committee expressed concern in its 2020 recommendations on ESG disclosures (“The plethora of ESG data providers, all with different standards and criteria, has led to a significant burden on US Issuers”).

Most recently, IOSCO’s Sustainable Finance Taskforce published a report on ESG ratings and data providers expressing concern over how the ratings are derived and over potential conflicts of interest where ratings firms provide consulting services to those they rate.

This system is costly to companies and investors who purchase the data. But perhaps more concerning is that smaller investors who can’t afford to buy the data don’t have equal access to this information. The idea of our disclosure system is that all investors should have access to important information at the same time.

And investors shouldn’t have to pay for the information they need to make their investment decisions. Mind you, if ratings provide valuable analysis beyond company data, that is one thing but an earlier ERM study found that investors tend to purchase ESG ratings for the underlying data not for the analysis. This information should be available to all investors equally.