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Ivan Ermokhin1, Antonina Levashenko1, Yulia Burhanova2
  • 1 RANEPA, 82 Vernadsky Avenue, Moscow, 119571, Russia
  • 2 RANEPA, 11 Prechistenskaya naberezhnaya, 119034, Moscow, Russian Federation

The problem of divergence of ESG ratings awarded by persons providing services for the assessment of sustainable development. The main trends in the field of legislative regulation of the ESG rating Institute in Russia and in the world

2023. Vol. 18. No. 3. P. 186–204 [issue contents]

Confidence in environment, social, and governance (ESG) ratings among investors remains at a fairly low level. An Edelman Insights study [2021] reported that almost three out of four institutional investors do not trust companies to achieve their stated commitments in the fields of sustainability, ESG, or diversity, equity, and inclusivity (DEI).  One of the reasons for this distrust is the divergence of ESG ratings[1]—that is, the difference in ratings given by different ESG agencies to the same companies.

The origins of this problem lie in the fact that there is still no developed framework to regulate the process of assessing the sustainable development of companies. However, more and more international actors are becoming involved in this issue in order to increase confidence in the assessments of ESG rating providers. For example, codes of conduct for data and ESG ratings providers[2] have already been issued by the United Kingdom (UK), the European Union (EU), India, and Japan. The Central Bank of Russia also issued an information letter on the regulation of the activities of ESG rating providers in the summer of 2023.

This article studies the problem ESG ratings’ divergence and determines ways to solve it through the development of regulatory control. It also studies the main trends in the legislative regulation of this institution in order to implement them into the Russian regulatory framework.

In this regard, an analysis of work by Russian and foreign researchers devoted to the study of differences in ESG ratings was carried out; additionally, the main approaches of international organizations and legislative bodies of Russia and other countries in the sphere of regulating ESG information providers and mandatory non-financial reporting of companies were studied. The main problems affecting the reduction of ESG data correlation are identified, solutions for them are proposed, and the key trends in improving the comparability of ESG ratings by international actors are noted. The comparative legal method was used in the study.

The analysis shows that international actors resolve the problem of divergence by increasing their interpretability, but not through strict regulation. They propose to develop basic recommendations regarding methodologies, evaluation criteria, and weighting factors, while at the same time consolidating the responsibility of ESG rating agencies to disclose their methodology, the terminology used, and their rating definitions. The task is to create harmonized standards for, and transparency of, the ESG assessment process

[1] ESG rating (sustainable development rating) is a broad spectrum of public information products and assessments in the field of sustainable development. According to the approach of the Central Bank of the Russian Federation, an ESG rating is understood as a publicly expressed independent external opinion on the profile of the rated entity (organization or issuer) - quantitative and qualitative characteristics of its activities in the field of sustainable development at the date of assignment of the ESG rating, as well as on the management and exposure of the rated entity to the risks of sustainable development on the horizon from one year to three years.

[2] ESG rating providers are persons who provide services for assigning ESG ratings. Within the framework of the IOSCO report, the term suppliers of ESG ratings and information products is used in relation to those suppliers that offer ESG ratings and/or other information ESG products ( https://www.iosco.org/library/pubdocs/pdf/IOSCOPD690.pdf ). At the same time, ESMA draws attention to the lack of a clear understanding of the criteria according to which firms can qualify as suppliers of ESG ratings. Taking this into account, it also becomes problematic to take into account the total number of subjects of the ESG rating institute currently operating in the market. So, according to Sustainability estimates, there are more than 600 companies engaged in providing ESG ratings around the world. Other studies have shown that the number of providers is between 125 and 150 providers, including 10 -15 large ones. This situation is caused mainly by the fact that many suppliers sell a wide range of ESG products at the same time, without concentrating on one of them, such as corporative ratings, country ratings, city ratings, management, carbon risk, etc., or even combining the activity of awarding ESG ratings, for example, with credit ones.

The article was prepared as part of the research work of the state task of the RANEPA

This article was submitted 25.05.2023

Citation: Ermokhin I., Burhanova Y., Levashenko A. (2023). The problem of divergence of ESG ratings awarded by persons providing services for the assessment of sustainable development. The main trends in the field of legislative regulation of the ESG rating Institute in Russia and in the world. International Organisations Research Journal , vol.18, no 3, pp. 186-204 (in English)
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