Sustainability in Practice: Ratings, Research and Proprietary Models

Abstract

While ESG data has come a long way, investors acknowledge multiple challenges related to materiality, reliability, and comparability. This policy brief focuses on the role of credit rating agencies (CRAs) and sustainability ratings providers (SRPs) as an essential part of the financial ecosystem. They pursue different objectives, and are currently at very different stages in terms of market development and regulatory frameworks. Looking at the experience with CRAs, policymakers and stakeholders should reflect in more depth about the optimal market structure for SRPs. There is still quite a significant amount of experimentation in this space. Hence, it might be hazardous to move too quickly on the regulatory side and risk impeding the innovation that is still taking place. Proceeding with caution might be the only ‘reasonable’ way forward in the new legislative cycle.