ESG Ratings Agencies: The Emerging Power

The bourgeoning field of ‘ESG Ratings’ is at a crossroad in its development. Facing regulation for the first time, the utility of the service is being critiqued and considered especially as European Regulations push for increased and better disclosure. In this chapter, the field is surveyed as it continues to morph into an industry that provides for a useful service to investors, debt issuers, and regulators. However, the chapter incorporates foundational questions that provide for a novel understanding of this ever-developing field, including the impact of subjectivity that ESG-related considerations bring rather than financial considerations, the concept of ‘trust’ and the need for it in this new field, as well as the fundamental and structural purpose of the industry. The pioneering push by the European Commission to regulate this industry, and the factors that have and continue to affect that regulation serve as the anchor for this chapter.