In-House Research, Engagement Overtake ESG Ratings as Investors’ Top Sustainability Tools: Survey

Investors are increasingly turning to internal resources to gauge companies’ ESG performance, with in-house research and engagement with companies overtaking ESG ratings as a top source of information on corporate ESG performance, as perceived quality and trust in ESG ratings providers has declined over the past few years, according to a new survey released by sustainability consulting firm ERM.

While scrutiny of ESG ratings providers has increased, however, the survey found that over half of investors continue to view ESG ratings data as material to investment performance, and the majority expect that the emergence of mandatory sustainability disclosure regulations will increase their use of ESG ratings data in the next few years.

For the report, “Rate the Raters 2026,” ERM surveyed 53 investment industry professionals from firms representing an estimated $23.5 trillion in assets under management, across North America, EMEA, Asia Pacific, and Latin America. ERM’s prior investor ESG ratings survey was in 2023.

The report found a significant shift in investors’ use of ESG ratings since the prior survey, as well as increased scrutiny, investors reporting an average score of 3.05 out of five when asked to rank their trust in ESG ratings in accurately judging a company’s sustainability performance, down from 3.31 in 2023.

Among individual ratings providers, MSCI shot up to the top spot in perceived quality, rising from 7^th place in 2023, followed by CDP, EcoVadis, and S&P Global. MSCI was also the only provider to see an increase in its quality score. MSCI and EcoVadis also jumped to the top ranks in perceived usefulness of ESG ratings, rising to the # 1 and 2 positions, respectively, from #5 and 7 in 2023.

Despite the perceived drop in trust, however, the survey found that more than half (51%) of investors said that ESG ratings provide information or data that is material to investment performance, down slightly from 57% in 2023, and the proportion agreeing that ESG ratings are a credible source of information on corporate ESG performance increased to 44% from 37%.

The survey also indicated, however, that investor reliance on ESG ratings for investment decisions has dropped, with corporate ESG ratings ranked 7^th as a useful source of information when making investment decisions, down from #1 in 2023, while in-house research and direct engagement with companies now occupy the #1 and 2 spots, respectively, followed by corporate sustainability reports.

Notably, the survey also indicated that investors use ESG ratings primarily to support internal sustainability assessment work, with investors reporting that their top use for ESG ratings and underlying data is as a basis for in-house research on corporate ESG performance, followed by as a basis for engagement with companies on their ESG performance.

Investors continue to report frequent use of ESG ratings, according to the survey, with 58% reporting using ESG ratings and products at least once per week, including 36% reporting using the ratings multiple times per week. The frequency has come down somewhat since 2023, however, with 69% reporting using the ratings at least once per week at the time.

Despite the decline, a significant majority (62%) of investors said that they anticipate that the emergence of mandatory sustainability disclosures will increase their use of ESG ratings data in the next few years.

The survey also asked investors to rank their preferences for future changes to make ESG ratings more useful in the future, with a greater focus on relevant and material issues emerging as the highest priority, followed by a better linkage to company performance, and improved quality and disclosure of methodology.

Aiste Brackley, Director of the ERM Sustainability Institute, commented on the findings:

“Our research points to a growing sophistication in how investors evaluate and use ESG information, placing ratings providers under increasing scrutiny. More than half of investors surveyed said ESG ratings provide information that is material to investment performance. ESG data is becoming increasingly embedded in mainstream investment processes, including research, portfolio construction, risk management, and benchmarking.”

Click here to access the survey.