Institutional investors are becoming ever more aware of the potential risks and opportunities associated with environmental, social and governance (ESG) factors. From natural resource scarcity to changing governance standards, from supply chain and labor management concerns to evolving regulatory landscapes, it has become increasingly important for socially responsible investment (SRI) professionals to understand the ESG profile behind the assets they are managing. Hence, the access to relevant, consistent, comparable, balanced and reliable ESG information has become a prerequisite for asset managers to take the right investment decisions.

The financial services market has responded to this need by producing specific ESG ratings, rankings and indices. These services serve asset managers of SRI portfolios with the analytical information they would need to assess the ESG performance, risks, and opportunities of assets-under-management (AUM).

The objective of this research paper is to examine the relevance of ESG ratings for SRI decisions from a market perspective and to identify the dynamics that affect the development of the ESG ratings industry in the future.

By: Michael Laermann, (This research paper was conducted for the seminar “Corporate Responsibility for Sustainable Development”, at the Open University, The Netherlands, under the academic guidance of Ass. Prof. Dr. Raoul Beunen)

See the full SSRN paper here