Environmental, social and governance (ESG) investing is in the middle of another banner year, with Bloomberg estimating some $4 Trillion in assets under management by the end of 2022. That’s right, trillion with a t.
The United States’ ESG market leads the way, with a staggering 40% growth rate in the past year (also according to Bloomberg). Inevitably, those fund flows are being chased by a multitude of new funds expected to launch in the second half of 2022 – all hoping to capture the attention of a rising activist consumer more inclined to vote with their wallets.
Impact initiatives are also making strong headway in private markets. According to Pitchbook, 1,283 impact funds have been closed in since 2006, raising $243.8bn in aggregate. In fact, private equity makes up the highest share of impact funds, at 39% of capital raised.
Data Providers Take Aim
Whether you’re deep into your existing fund or growth strategy, or just catching up with your ESG strategy now, you need to secure your competitive advantage.
The differentiating factor to get ahead in our business: data. Which means that finding data providers you can trust is critical to success in arguably one of the biggest new investment offering strategies in the past few decades.
A litany of ESG data providers are, inevitably, crowding the market. An increasing number of data providers have launched ESG company ratings, risk scores, and market trend analysis offerings.
To ensure you have sourced the appropriate vendor for your firm, some tried and true standards apply: look for organizations in better standing with a strong reputation, who are drawing detailed information you can leverage for both public market investors and private equity firms (depending on your needs) to better inform your investment decisions.
Your ESG Data Investment
Not all data sources are created equally. As in every emerging market, there’s a significant amount of variability in the quality of data providers and the scale and scope of their data sets.
As you can imagine, there are some standout sources who deeply grasp the ESG market, providing comprehensive research and carefully constructed rankings, while others don’t go very far beyond the marketing materials of the company they’re evaluating.
Each provider has its own methodology for determining ratings and will weigh factors uniquely, which is why some firms find it beneficial to subscribe to two or more ESG providers and average their rankings, assuming their budget permits it.
Data provider ranking systems can involve a fair bit of statistics, mathematical calculations, and ultimately trust, which is why many private equity firms choose two or more of the larger ESG providers.
The Five Best ESG Data Sources in the Market Today
Differentiating among the dozens of ESG data providers vying to support your firm can be a challenge. Luckily, a few select providers below own the majority of the market share.
Here is our team’s shortlist of the the top ESG rating agencies operating right now based on hundreds of hours of contract negotiations, client analysis and independent performance reviews:
Bloomberg is one of the biggest players in the financial information market and publishes ESG ratings for ~12,000 companies in 100 countries. Their data is some of the most comprehensive, covering over 2,000 different fields across several sustainability and social justice topics.
Well-known for their credit risk ratings, Moody’s also provides climate risk scores, sustainability ratings, and sustainable finance reviews.
MSCI has captured the lion’s share of the ESG research market. The MSCI global equity index is one of the oldest ESG indexes, having been published since 1969. The company now provides ratings for ~14,000 equity and fixed-income issuers.
4. S&P Global
Considerably smaller than the previous ESG data providers, S&P Global evaluates ~7,000 or so companies. However, their evaluations are based on a ~1,000 data point survey that’s administered by S&P.
Morningstar Sustainalytics is one of the largest ESG research and rating firms in the world, providing data on ~13,000 companies across 172 countries. They’ve also partnered with the United Nations Global Compact to issue an index of the top 100 ESG-rated companies in the world. Morningstar Sustainalytics’ ratings are widely used by investors to eliminate companies with negative environmental, social and governance impacts from their portfolio.
Choosing Your ESG Data Provider
Ultimately, selecting your ESG data provider is a function of your market maturity, fund size, budget, operational support, growth goals, and so much more. For any resource, you need to not only ensure the sets you’re receiving are reliable and comprehensive for your needs, but also delivered in a way your organization can easily parse and consume.
As you navigate the vendor landscape, look for peer benchmarking, and prioritize vendors who regularly update their information, and keep you apprised of any new trends and controversies that might affect your firm’s investment decisions. Hopefully this short list (based on nearly a decade of insider research) can help you narrow the field.
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