Exclusive: After Sustainalytics, companies including MSCI and ESG Book have also been shedding c-suite and research staff, often without announcement. What are the implications?
Hugh - nice job and great to see you resurface with some solid journalism! I think regulation will play a huge role in redefining ESG >>> sustainability data away from nice to have and people with a passion to a professional class with highly specified knowledge. It will align more with existing practice in environmental protection, health and safety regulations. This means that "ESG" research will change significantly from high level platitudes to more technical issues, risk assessment and the realities of trade-offs companies have to make. Mandated data will remove much of the "competitive advantage" gained in the past years by ESG data providers from capturing (often manually) ESG data. CFAs and CPAs will have to move aside and let those with technical training in the wide range of sustainability risks take over and ensure compliant auditable data. CPAs can at best make sure reporting processes are functional, but cannot provide subject matter expertise.
This will take a few years, and ISSB will attempt to fill the void until national financial regulators set their own specified rules.
Hi Dinah, hope all well, and thanks. Yes, I broadly agree with this; indeed I think it's what needs to happen. The question for me is whether the regulatory/economic pressure is really there yet to justify the spend on analysis akin to financial research; of which, of course, it should be part of if externalities are properly priced/required. Cheers, Hugh
Hugh - the building blocks of that externality pricing mechanism and methodology are already there and have been used for decades in the US (since the Reagan administration) to assess the costs and benefits of new regulatory requirements, e.g. air pollution, water pollution, E&S mandated reporting requirements. What is different now is that companies are required under CSRD/CS3D to disclose that information and the underlying science to investors. This then requires an upgrade in knowledge at the auditor and investor stage of the sustainability information food chain.
Great piece huge, well done! My understanding is that the current shrinkage in the sector could also be partly due to optimistic overexpansion over the past five years. I think the pendulum is just swinging back the other way and will eventually reach equilibrium, which could be a healthy outcome overall. Prospective regulation of ESG data and rating providers is also taking its toll.
I'm interested to know why you say 'black box' James; aren't the ESG raters clear enough re methodology? And aren't the ratings just an 'opinion' on a company? Cheers, Hugh
Great article Hugh. You’ve summarized a lot of what we within the industry see rolling out in front of us. The ESG data market will, in my opinion undergo a recalibration for all of the reasons you mention but also because the landscape has changed for many of the players mentioned in your article. Gone are the heady days of enjoying a sense of moral and academic superiority, here are the days where institutional finance and corporate clients have invested in their own teams and are now dictating what is material to them. I foresee a deep trough until the climate and other environmental stressors start to play a significant and clearly material role in dictating financial returns/risks.
Hugh - nice job and great to see you resurface with some solid journalism! I think regulation will play a huge role in redefining ESG >>> sustainability data away from nice to have and people with a passion to a professional class with highly specified knowledge. It will align more with existing practice in environmental protection, health and safety regulations. This means that "ESG" research will change significantly from high level platitudes to more technical issues, risk assessment and the realities of trade-offs companies have to make. Mandated data will remove much of the "competitive advantage" gained in the past years by ESG data providers from capturing (often manually) ESG data. CFAs and CPAs will have to move aside and let those with technical training in the wide range of sustainability risks take over and ensure compliant auditable data. CPAs can at best make sure reporting processes are functional, but cannot provide subject matter expertise.
This will take a few years, and ISSB will attempt to fill the void until national financial regulators set their own specified rules.
Hi Dinah, hope all well, and thanks. Yes, I broadly agree with this; indeed I think it's what needs to happen. The question for me is whether the regulatory/economic pressure is really there yet to justify the spend on analysis akin to financial research; of which, of course, it should be part of if externalities are properly priced/required. Cheers, Hugh
Hugh - the building blocks of that externality pricing mechanism and methodology are already there and have been used for decades in the US (since the Reagan administration) to assess the costs and benefits of new regulatory requirements, e.g. air pollution, water pollution, E&S mandated reporting requirements. What is different now is that companies are required under CSRD/CS3D to disclose that information and the underlying science to investors. This then requires an upgrade in knowledge at the auditor and investor stage of the sustainability information food chain.
Great piece huge, well done! My understanding is that the current shrinkage in the sector could also be partly due to optimistic overexpansion over the past five years. I think the pendulum is just swinging back the other way and will eventually reach equilibrium, which could be a healthy outcome overall. Prospective regulation of ESG data and rating providers is also taking its toll.
Very nicely written! Well done on the research
Great insights, thanks Hugh!
Thanks Rich. Hugh
I think a lot of companies have had enough of the black box of ESG ratings.
I'm interested to know why you say 'black box' James; aren't the ESG raters clear enough re methodology? And aren't the ratings just an 'opinion' on a company? Cheers, Hugh
Great article Hugh. You’ve summarized a lot of what we within the industry see rolling out in front of us. The ESG data market will, in my opinion undergo a recalibration for all of the reasons you mention but also because the landscape has changed for many of the players mentioned in your article. Gone are the heady days of enjoying a sense of moral and academic superiority, here are the days where institutional finance and corporate clients have invested in their own teams and are now dictating what is material to them. I foresee a deep trough until the climate and other environmental stressors start to play a significant and clearly material role in dictating financial returns/risks.