ESG rating agencies - What role does their remuneration model play in their decision to disclose the results of their research?
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- This thesis focuses on ESG ratings in light of the development of ESG investing. ESG ratings are ratings that concisely assess the environmental, social, and governance performance of companies. They can be useful to all kinds of stakeholders such as investors and assessed companies themselves. These ratings are calculated by specialized agencies that can choose to publish them or not. This thesis investigates the link between the remuneration model of these agencies (i.e. from which sources they derive their income) and their choice to disclose or not disclose their ESG ratings. To get as close as possible to the heart of the matter, a literature review discusses ESG, the ESG data industry, as well as ESG rating agencies and their remuneration models. Afterwards, in the form of case studies, 9 agencies are examined, focusing specifically on their remuneration models and their choice to disclose or not their ratings. First, the case analysis indicates that the remuneration model is not practical in providing an explanation for the choice of whether to disclose or not. This is because few agencies derive their revenues from a single source, i.e., only from investors, only from issuers, or only from other sources. Most combine these different sources, but all in different proportions. Second, the nature of the ratings, a factor other than but related to the remuneration model, indicated a more noticeable link with the choice to disclose. In this regard, solicited ESG ratings tend to be more accessible to the general public than declarative ratings. In the belief that the accessibility of ESG ratings to all would be beneficial to society, an evolution towards an ESG rating industry more oriented towards solicited ratings would therefore be desirable.