ESG Ratings Market Size, Share, Growth, and Industry Analysis, By Type (Issue-specific ESG scores, Category-specific ESG scores and General ESG scores), By Application (Supervision, Investment and Communication) and Regional Insights and Forecast to 2032

Updated On: 10 June 2024

ESG RATINGS MARKET REPORT OVERVIEW

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The global ESG ratings market size expanded rapidly in 2022 and will grow substantially by 2029, exhibiting a prodigious CAGR during the forecast period.

ESG-scoring as a market has been undergoing massive growth which mirrors increasing attention to sustainability and responsible investing. ESG ratings are among the tools of investors, corporations, and other involved parties that assess performance and conduct along such lines as the environment, social responsibility, and corporate governance. These data-driven scores represent a valuable resource for a firm's strategies as they attract investors and impact a company's reputation among its stakeholders.

ESG ratings is in the hands of major players that are companies who carry out ESG-specific research, finance data producers, and rating agencies. These agencies usually rely on diverse methodologies and criteria to examine corporate behavior in Environment, society and Governance (ESG). They often use quantitative data analysis and qualitative assessments of the stakeholder environment. Such is the case as the demand for ESG information continues to grow more substantial and, consequently, the market becomes competitive with innovative approaches offered by the new entrants emerging. This regulation has been reinforced with the industry initiatives as well has set standards and transparency for the ESG ratings thus improving their credibility and utility to the investors and entities.

COVID-19 IMPACT: Accelerated Digital Transformation to Boost Market Growth Significantly

The global COVID-19 pandemic has been unprecedented and staggering, with the ESG ratings market experiencing higher-than-anticipated demand across all regions compared to pre-pandemic levels. The sudden market growth reflected by the rise in CAGR is attributable to market’s growth and demand returning to pre-pandemic levels.

The Covid sent the remote work and digital operations to new heights, giving ESG ratings agencies a reason to award companies based on their digital preparedness and cybersecurity adequacy. Firms that have sound digital strategies were shown to be more highly favoured in ESG reviews. Pandemic showcased the impact of social factors which include employee health and safety, supply chain resilience and community assistance. In response to the crisis, the ESG ratings agencies revised their methodologies by giving more weight to these issues to capture the increasing relevance.

More and more investors turned to organizations with bouncy business models that could easily regain shape in unanticipated disruptions like the pandemic. ESG ratings have been focusing on metrics such as business continuity planning, crisis management and flexibility in the workforce department. The market is anticipated to boost the ESG ratings market growth following the pandemic.

LATEST TRENDS

"Standardization and Transparency to Drive Market Growth"

Standards development and ESG ratings methods are increasingly being sought after by governments as well as investors and the general public. Investors and other such institutions have been requesting more consistent and transparent ESG data to enable making their choices. Examples are the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-Related Financial Disclosure (TCFD), which work with elected officials and the financial sector to promote the use of environmental reporting frameworks ESG is one of the criteria used to grade if companies have equality, diversity and inclusivness metrics in place. Businesses are scored on their progress of developing diversity within the workforce, in management, and relationships with suppliers; additionally, the society measures a given company on its commitment and accomplishment of achieving equal pay and fostering an inclusive culture in a workplace. These latest developments are anticipated to boost the ESG ratings market share.

ESG RATINGS MARKET SEGMENTATION

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By Type                  

Based on type the global market can be categorized into Issue-specific ESG scores, Category-specific ESG scores and General ESG scores.

• Issue-Specific ESG Scores: ESG scores, which are oriented on the assessment of the company's success and practices in the concrete areas of the environment, society and governance, highlight issue-related performance. The scores are intended to evaluate the company’s performance on ESG concerns, such as carbon emissions, water use, labor practices, diversity, inclusion, executive compensation, and board diversity.

• Category-Specific ESG Scores: Indicator-based ESG scores provide a more in-depth evaluation of a company's ESG strategy or performance within a broader category or a theme that is covered by the ESG framework. These indicators review a company's performance in different components, like environmental management, social responsibility and corporate administration.

• General ESG Scores: A general ESG score shows an evaluation of a company's overall environmental, social, and governance performance on each area covered by multiple areas. This process separately applies specific ESG metric data and ESG analysis to each issues and categories, and finally outs a comprensive ESG score to evaluate the overall ESG performance.

By Application

Based on application the global market can be categorized into Supervision, Investment and Communication.

• Supervision: Regarding ESG (Environmental, Social, Governance) rating and certifications, supervision refers to the surveillance and management of enterprises' ESG performance through regulatory bodies, industry groups and internal governance structures.

• Investment: As ESG ratings and assessments become significantly part of investment decisions processes of the investors, it contributes to asset managers to incorporate the ESG considerations in their portfolios. Investors use ESG ratings to find the companies which are top performers in terms of ESG and puts them in the portfolio directly (direct ESG investing) or integrates them into sustainable and responsible investment strategies, such as ESG integration, thematic investing and impact investing.

• Communication: Communication in the context of ESG scores is about the exchange and distribution of the ESG information by the companies, investors, stakeholders, and the general public. The companies employ ESG ratings and appraisals which act as sources of information in communicating their sustainability efforts, performance, and progress to different stakeholders for example investors, customers, employees, and other stakeholders through annual reports, sustainability papers, website, and ESG data platforms.

DRIVING FACTORS

"Investor Demand & Stakeholder Pressure to Boost the Market"

The growing investor demands for ESG data and information is the significant force that supports the investment in ESG ratings market. Investors, on the other hand, are integrating ESG factors into their investment decision-making by considering risks, finding opportunities, and striking the balance between profitability and sustainability objectives. The pressure from diverse stakeholders like consumers, employees, communities and civil society groups always encourages companies to sector their ESG practices. Expected stakeholder conduct, which includes expected responsible business practices and ethical behavior, shapes companies' images and enhances or diminishes their reputation and ultimately bottom line. The necessity for ESG ratings arises in order to demonstrate credibility and accountability.

"Risk Management & Regulatory Environment to Expand the Market"

ESG factors are becoming increasingly significant as companies are starting to pay attention to them as material risks that often affect their financial performance and continued existence. ESG factors become essential for investors and financial institutions for their risk management purposes to examine and resolve the risks arising from climate change, supply chains, regulation and reputation damage. They use ESG ratings as part of their screening process which increases the demand for ESG ratings. Regulation is one of the key factors that conditions the development of ESG rating in world. By introducing regulations that insist on ESG reporting and disclosure, like the European Union's regulation (SFDR) and (TCFD) task force's guidelines, firms are encouraged to be transparent and accountable with respect to their ESG performance, thus raising the need for ESG ratings.These factors are anticipated to drive the ESG ratings market share.

RESTRAINING FACTOR

"Lack of Standardization and Regulation to Potentially Impede Market Growth"

The absence of global rules and regulation in this field of ESG reporting and ratings contribute to the opaqueness and disparity in the market. The lack of clear, comprehensive, and similar ESG frameworks and reporting requirements makes it hard for investors to compare ESG performance between companies and across industries. Regulatory fragmentation and inconsistency likewise lead to uneven level of compliance for companies operating in several countries. The factors are anticipated to hinder the growth of the ESG ratings market growth.

ESG RATINGS MARKET REGIONAL INSIGHTS

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"Europe is Dominating the Market with Corporate Governance Standards and Investor Demand"

The market is primarily segmented into Europe, Latin America, Asia Pacific, North America, and Middle East & Africa.

Europe has adopted high corporate process regulations of which the motto is transparent, responsible, and inclusive approach. ESG analysts examine company behavior based on standards such as having board diversity, executive compensation and shareholders rights. European companies' adherence to these governance standards among not only others but the top rankings in the ESG Ratings Market also accounts for the ESG Ratings. By European institutional investors we refer to such actors as institutional investors, asset managers, and pension funds that are seen as the strong movers in the adoption into investment strategies of ESG integration. Market demand for ESG ratings, data as well as the ESG factors are very high, and such things are interested in the process of ESG factors’ integration into investment decision-making activities. Investors from Europe are putting effort into fulfilling the aims of sustainability and taking into consideration the social responsibilities; therefore, the whole ESG ratings market in that part of the world is deeply affected positively.

KEY INDUSTRY PLAYERS

"Key Players Focus on Partnerships to Gain a Competitive Advantage "

The ESG ratings market is significantly influenced by key industry players that play a pivotal role in driving market dynamics and shaping consumer preferences. These key players possess extensive retail networks and online platforms, providing consumers with easy access to a wide variety of options. Their strong global presence and brand recognition have contributed to increased consumer trust and loyalty, driving product adoption. Moreover, these industry giants continually invest in research and development, materials, and smart features in ESG ratings, catering to evolving consumer needs and preferences. The collective efforts of these major players significantly impact the competitive landscape and future trajectory of the market.

List of Market Players Profiled

• Morgan Stanley [U.S.]
• Morningstar, Inc. [U.S.]
• S&P Global [U.S.]
• FTSE Russell [U.K.]
• Bloomberg [U.S.]

INDUSTRIAL DEVELOPMENT

May 2022: One of the latest industrial trends within ESG Ratings Market includes involving Artificial Intelligence (AI) and Machine Learning (ML) technologies to improve ESG data analysis as well as ratings. Truvalue Labs, an industry leader in this area, is ahead of the rest with AI-enabled ESG data analytics cleverly developed to show real-time ESG insights to investors and firms.

REPORT COVERAGE

The study encompasses a comprehensive SWOT analysis and provides insights into future developments within the market. It examines various factors that contribute to the growth of the market, exploring a wide range of market categories and potential applications that may impact its trajectory in the coming years. The analysis takes into account both current trends and historical turning points, providing a holistic understanding of the market's components and identifying potential areas for growth.

The research report delves into market segmentation, utilizing both qualitative and quantitative research methods to provide a thorough analysis. It also evaluates the impact of financial and strategic perspectives on the market. Furthermore, the report presents national and regional assessments, considering the dominant forces of supply and demand that influence market growth. The competitive landscape is meticulously detailed, including market shares of significant competitors. The report incorporates novel research methodologies and player strategies tailored for the anticipated timeframe. Overall, it offers valuable and comprehensive insights into the market dynamics in a formal and easily understandable manner.