94 Percent of Investors Use ESG Ratings Monthly as Regulatory Scrutiny Grows

CDP reports that 94 percent of investors use ESG ratings and data products at least once a month, as regulators across multiple jurisdictions move to introduce codes of conduct and regulatory frameworks for providers of these products. CDP's 2024 report tracks the uptake of IOSCO recommendations across jurisdictions and warns of regulatory fragmentation risks.

CDP's Data for Public Good report series, with the latest edition published in August 2024, identifies two categories of shortcomings in ESG ratings and data products. Ex-ante challenges relate to underlying ESG data quality problems that exist independently of ratings products but directly affect their construction. Ex-post challenges are inherent in the construction and issuance of ratings products themselves, including opaque methodologies and conflicts of interest. These shortcomings have led to concerns that ESG ratings may be used for greenwashing rather than informing genuine capital allocation toward sustainable activities.

Multiple jurisdictions have progressed regulatory initiatives targeting ESG ratings and data product providers in 2024, including through voluntary codes of conduct and mandatory frameworks. CDP's interoperability tool, released alongside the August 2024 report, allows users to identify equivalencies across different regulatory requirements in this space. The risk of regulatory fragmentation — where ESG ratings come to mean different things in different geographies — is flagged as a significant challenge for both providers and market participants operating across borders, including Indian financial institutions exposed to multiple regulatory regimes.

CDP's policy recommendations centre on ensuring that ESG ratings and data products are grounded in science, transparent in methodology, and directed toward supporting the allocation of capital to sustainable activities aligned with the Paris Agreement and the Global Biodiversity Framework. CDP calls on policymakers to avoid fragmentation while raising standards across jurisdictions, and on financial institutions to use data products that draw on primary environmental disclosure rather than estimated or modelled proxies. CDP's own environmental database, drawing on disclosures from over 24,000 companies globally, is positioned as a primary data source that can underpin higher-quality ratings.

Key figure — 94% of investors use ESG ratings and data products at least once a month