5 Reasons to Engage with ESG Raters
If you are responsible for your company’s ESG efforts, you might have encountered challenges in explaining the rationale for interacting with ESG rating agencies (such as MSCI, Sustainalytics, or Bloomberg) to management. While engaging and responding to these agencies can be time-consuming, there are many benefits that may not appear apparent. This article offers five key reasons for engaging with ESG rating agencies and data providers.
1. Attract ESG capital
Many of the world’s most influential investors integrate ESG criteria to varying degrees into investment decisions. ESG and impact investors will even allocate greater capital to companies demonstrating higher ESG ratings and robust performance. The ESG data used by investors, necessary for determining an investment universe, is almost always sourced from the underlying data of the rating agencies and data providers. Likewise, the growth of passive investing over the past few years through ESG-linked indices underscores the importance of ESG ratings and their underlying data in determining fund constituents. By responding to ESG rating agencies and improving their ESG ratings, companies can maximize their access to this growing capital pool.
2. Enhance your company’s reputation
Companies that have strong ESG (Environmental, Social, and Governance) performance and ratings, and are included in prestigious ESG indices like the Dow Jones Sustainability Index, can enhance their public image and demonstrate their competitive advantages in their industries. Many companies highlight their ESG ratings or scores in their ESG/corporate responsibility reports and on their websites.
3. Improve your company’s ratings and reporting
By engaging with ESG raters, companies can benchmark their performance against industry peers and identify areas for improvement. Reviewing the data collected by these agencies can help to ensure that the company is accurately represented to investors and the wider market. Many companies complain that the data collected on their company lacks accuracy and timeliness. Therefore, engagement can help improve both of these aspects.
4. Identify ESG risks & work towards long-term sustainability
Responding to ESG concerns highlighted by rating agencies and data providers assists companies in identifying risks linked to ESG factors. Engaging with ESG rating agencies allows companies to uncover potential vulnerabilities they may not be aware of, thereby providing valuable insights for risk management. Likewise, reviewing data can help to highlight gaps in your reporting on ESG risks, for example on supply chain audits, or oversight of IT security. Likewise, through engagement with ESG rating agencies, companies can align their strategies with sustainability goals, foster innovation, and build resilience to future challenges.
5. Stay ahead of regulatory developments & stakeholder expectations
The regulatory requirements for ESG reporting are changing, with some jurisdictions, especially in the EU, now requiring comprehensive disclosures of ESG information. ESG rating agencies are starting to align more closely with ESG reporting regulations such as the Sustainable Finance Disclosure Regulation (SFDR) and soon with the Corporate Sustainability Reporting Directive (CSRD). Keeping an eye on the data collected by ESG rating agencies can help companies stay informed about ESG developments, including changing investor expectations. Investor expectations, which are closely tied to ESG ratings, change over time, with topics such as AI management and biodiversity gaining increasing interest in recent years.
Where to start?
Companies looking to begin engagement with ESG raters should first determine which ESG ratings to focus on and reach out to. There are a myriad of ESG raters and data providers and focusing on the most impactful ratings for your company’s shareholder base and key stakeholders is important. Leaders Arena has an experienced ESG Ratings team dedicated to helping you identify reporting gaps, maximise your ESG scores, and respond to ESG-related controversies. We help companies prioritise the most relevant ratings, carry out an efficient and effective ESG data verification process, and help to identify areas for future improvements. Get in touch to find out more about how we can support you with ESG ratings: support@leadersarena.global
